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 CAD 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 reported a 4% increase in revenue ton miles (RTMs) and a 3% increase in carloads in Q4, contributing to a 2% revenue growth despite challenging market conditions [24][26] - Intermodal revenues increased by 13% internationally and 6% domestically, with strong performance noted at Vancouver and Prince Rupert [25][26] - Grain shipments set an all-time annual record in 2025, with monthly records achieved in October, November, and December [26] Market Data and Key Metrics Changes - The company faced continued softness in key markets such as forest products and metals, impacted by weak fundamentals and tariffs [25][27] - Petroleum and Chemicals saw growth across all segments, particularly a 9% increase in natural gas liquids volumes driven by strong domestic demand [26] - The overall revenue was negatively impacted by over CAD 350 million due to tariffs, trade uncertainty, and volatility [27] Company Strategy and Development Direction - The company emphasized disciplined execution and productivity improvement as key strategies moving forward, with a focus on areas within their control [8][11] - The management highlighted the importance of maintaining strong cash flow and returning excess capital to shareholders while navigating a challenging macro environment [8][12] - Future guidance will be more directional, tied closely to volume trends, with expectations of flat volumes compared to 2025 [12][39] Management's Comments on Operating Environment and Future Outlook - Management acknowledged high uncertainty and limited visibility in the economic environment, with muted growth expectations and ongoing tariff pressures [11][12] - The company plans to leverage its strong operating leverage and cash generation capabilities to drive earnings and margins as volumes improve [13][41] - The management expressed confidence in the company's ability to navigate through challenges and capitalize on opportunities in the North American markets [15][16] Other Important Information - The board approved a 3% increase in dividends, marking the 30th consecutive year of dividend growth, reflecting confidence in cash generation [38] - 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 CAD 100 million in incremental revenue for Q4, with an additional CAD 100 million in the pipeline for January [44][45] Question: Clarification on depreciation and earnings growth - Depreciation variance was due to a favorable study and corrections from over-depreciation in past acquisitions [49] - Management indicated that current headwinds are unique and not indicative of a decoupling of earnings from volume [50][52] 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 highlighted [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 [62][63] Question: Volume outlook and performance at Prince Rupert - Strong performance is expected in agriculture and energy sectors, with ongoing investments in infrastructure at Prince Rupert [66][70]