Canadian National Railway pany(CNI) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, the company achieved a 14% growth in EPS and a 7% growth for the full year, aligning with mid to high single-digit guidance [9] - The operating ratio improved to 60.1% in Q4, a 250 basis point improvement year-over-year, and 61.7% for the full year, improving 120 basis points compared to 2024 [9][33] - Cash flow generated was $3.3 billion, up 8% driven by cash from operations, with capital spending remaining disciplined [9][37] Business Line Data and Key Metrics Changes - The company saw a 5% year-over-year increase in workload, supported by record-setting grain tonnage from Western Canada [18] - Intermodal revenues increased by 13% internationally and 6% domestically, with strong performance at Vancouver and Prince Rupert [25] - Petroleum and Chemicals segment experienced growth across all areas, particularly a 9% increase in natural gas liquids volumes [26] Market Data and Key Metrics Changes - The company faced continued softness in key markets like forest products and metals, impacted by weak fundamentals and tariffs [25][30] - Tariffs and trade uncertainty negatively impacted full year 2025 revenues by over $350 million [27] - The outlook for 2026 suggests volumes will be flattish compared to 2025, with expectations of continued pressure in forest products and metals [12][30] Company Strategy and Development Direction - The company is focused on disciplined execution, prioritizing levers it can control, and maintaining strong cash flow while returning excess capital to shareholders [11][13] - The management emphasized the importance of operational efficiency and cost control, with a commitment to improving margins as volumes return [14][22] - The company is positioned to leverage its access to North American markets and natural resources, aiming to support customers as trade flows evolve [16][58] Management's Comments on Operating Environment and Future Outlook - The management acknowledged high uncertainty in the economic environment, with muted growth expectations and challenges related to tariffs [12][30] - The company plans to continue focusing on productivity and cost control, with a base case expectation of flat volumes for 2026 [12][39] - Management expressed confidence in the underlying earnings power of the business, despite current headwinds, and highlighted the potential for growth in natural resources and trade diversification [52][77] Other Important Information - The board approved a 3% increase in dividends, marking the 30th consecutive year of dividend growth [37] - A new share buyback program was authorized, allowing the repurchase of up to 24 million common shares [38] Q&A Session Summary Question: Update on incremental revenue target - The company closed with $100 million in incremental revenue for Q4, with a pipeline of another $100 million developing in January [45] Question: Clarification on depreciation and earnings growth - Depreciation variance was due to a favorable study and corrections from past acquisitions; the company is experiencing unique headwinds affecting earnings growth [49][50] Question: Outlook on mix and differentiated growth opportunities - The mix impact for 2026 is expected to be similar to 2025, with opportunities in northern markets and natural resources, particularly in agriculture and energy [56][58] Question: Guidance on volume and earnings shape for 2026 - The first half of 2026 is expected to be softer, with improvement anticipated in the second half, influenced by share buybacks [62] Question: Clarification on free cash flow conversion - The company expects improved free cash flow conversion in 2026, despite a sizable cash tax payment impacting the effective tax rate [80]