Canadian National Railway Q4 2024 Earnings Report

Canadian National Railway EPS Results

• Actual EPS: $1.30
• Consensus EPS: $1.39
• Beat/Miss: Missed by -$0.09
• One Year Ago EPS: N/A

Canadian National Railway Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $4.38 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Canadian National Railway Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 4:30PM ET

Canadian National Railway (NYSE:CNI) Company, together with its subsidiaries, engages in the rail, intermodal, trucking, and marine transportation and logistics business in Canada and the United States. The company provides rail services, which include equipment, custom brokerage services, transloading and distribution, business development and real estate, and private car storage services; and intermodal services, such as temperature controlled cargo, port partnerships, and logistics parks. It offers trucking services, such as door-to-door services, import and export dray, interline services, and specialized services, comprising flatbed trucks, on-deck mobile transport trays, expedited cargo, and permit/overweight services; and supply chain services. It serves automotive, coal, fertilizers, temperature controlled cargo, forest products, dimensional, grain, metal and minerals, petroleum and chemicals, consumer goods, and third party logistics applications. The company operates a rail network of approximately 20,000 route-miles of track and shipping spanning. Canadian National Railway Company was incorporated in 1919 and is headquartered in Montreal, Canada.

Canadian National Railway Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good afternoon. My name is Christa, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. And all participants are now in a listen only mode. After the speakers' remarks, there will be a question and answer session.

[Operator]

At this time, I would like to turn the call over to Stacey Alderson, CN's Assistant Vice President of Investor Relations. Ladies and gentlemen, Ms. Alderson.

[Stacy Alderson, AVP - Investor Relations at Canadian National Railway Company]

Thank you, Christa. Welcome, everyone. Thank you for joining us for CN's 4th quarter financial and operating results conference call. As of note, we have forward looking statements and non GAAP definitions for your review on Page 2 of our presentation. These forward looking statements include estimates, goals and predictions about the future based on our current information and educated assumptions.

[Stacy Alderson, AVP - Investor Relations at Canadian National Railway Company]

These come with risks and uncertainties. And with that, there is always the possibility that the outcomes may differ from expectations. That being said, forward looking statements aren't guarantees and factors like economic conditions, competition, fuel prices and regulatory changes could affect actual results. Now joining us on the call today are Tracy Robinson, our President and CEO Derek Taylor, our Chief Field Operations Officer Pat Whitehead, our Chief Network Operations Officer Remy Lalonde, our Chief Commercial Officer and Ghislain Hull, our Chief Financial Officer. It is now my pleasure to turn the call over to Centimeters's President and Chief Executive Officer, Tracy Robinson.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Ashish Stacy and Bienvenu Jesus. Thanks, everyone, for joining our call. Today, I'll spend a few minutes on 2024 and then turn to our plans for 2025. Now 2024 was clearly not what we expected and certainly not what we planned. We are happy to have it behind us.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

We experienced a number of one off challenges that had some outsized impacts on our results, including an unprecedented referral to the Canadian Industrial Relations Board by the Canadian government of what was otherwise a normal labor dispute, caused 3 months of uncertainty and the diversion of container volumes for a longer period of time. And that was followed by rail shutdown and then strikes at the ports of Prince Rupert, Vancouver and Montreal. Long story short, we were resource for more volumes than we handled, and we didn't deliver growth to the bottom line. We're not happy with that. Now there were a number of things that I am pleased with.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

The team's agility in managing through the year with solid execution was very strong. Our operation recovered from each shock quickly and effectively. Car velocity for the year was solid at almost 2 10 miles per day despite the challenges. And through dwell, an indicator of yard fluidity, is on par with 2023 at 7 hours. Now this wouldn't have been the case a few years ago, and I'm proud of the discipline of this team and their adherence to our operating model.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

We also delivered on our CN specific initiatives and grew volumes by more than 1%. We moved record amounts of Canadian grain. We had solid same store pricing above real cost inflation. Our customer service remained top tier, and we had the 2nd best accident and injury performances in the company's history. So we have a strong foundation.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

From a financial perspective, we delivered Q4 adjusted EPS of $1.82 and an operating ratio of 62.6%. For the full year, our adjusted EPS was $7.10 and the OR landed at 62.9%. I'm going to ask the team to give some more color on the quarter's performance in a few minutes. Now turning to 2025, it's a new year. The labor issues are behind us, and I feel really good about our setup for this year.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

I'll start with the good news from the SCB, who approved our Iowa Northern transaction. And I want to extend a warm welcome to our new colleagues. This transaction extends our network reach into the Iowa Grain Belt and it provides extended single line access for customers to new markets. Now a side benefit of the deal is that we're bringing on a team with a strong entrepreneurial spirit, and that's something that we want to lean into as an organization. We'll start the integration in a few weeks, and I expect to realize operational and commercial synergies in the coming months.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now in the operation, we're well into winter and the network has been fluid despite the cold. As we've rounded into January, we've had shorter bouts of severe cold, which has allowed us to pick up velocity. Months to date, car velocity is nearly 200 miles per day, right in that sweet spot for winter operations. This railroad continues to run well. Now a tight operation is table stakes for both customer service and margin expansion.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And over the past number of quarters, we've taken actions to realign resources, both people and assets, and this will flow through in our results moving forward. And we'll continue to refine the operating plan and resourcing as necessary. We're also continuing to focus on our productivity initiatives, including in engineering and mechanical. It will help us mitigate the impact of inflation and support operating leverage. On the labor front, we're in a stable position this year.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

We reached a tentative agreement with the IBEW this week. This is a union representing our signals and communications employees, positive progress for both parties. We're also pleased that we reached a 4 year agreement with Uniphore in December. Uniphore represents our employees that work in mechanical, clerical and the intermodal functions. With respect to the Teamsters Union, which represents our conductors and locomotive engineers, the arbitration process is proceeding as expected and on track to be wrapped up by the end of the Q2.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now these unions represent the bulk of our Canadian unionized workforce. We're also progressing well with negotiations in the U. S. And ports on the West Coast and in Montreal are proceeding with their own arbitration process. So we're in good shape on labor stability across the supply chain in 2025.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now finally, when we think of the broader economy, the most significant driver could be what happens with tariffs initiated by the new U. S. Administration. We all want growth in the North American economy and we want consumers to be strong. And we're hopeful that the conditions that will support this will be in place.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now clearly, we can't predict how this will unfold, but we can control how we respond and how we partner with customers to adjust. And we've considered a full range of options and have a plan for various scenarios. The key for us will be to be nimble and adjust quickly as the situation unfolds. Turning to our 2025 outlook. We've provided an earnings guidance, which accounts for multiple scenarios related to volume, to energy prices and to currency.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Significantly, our underlying assumption as it relates to tariffs and the potential retaliatory measures is that while there may be some impact, it won't be so significant or prolonged as to cause a recession in Canada or significant inflationary impacts in the U. S. With this in mind, we expect to deliver 10% to 15% EPS growth for 2025, and we're reaffirming our 2024 to 2026 outlook for compound annual high single digit EPS growth. While the business environment has evolved from our Investor Day time frame, the investment thesis we presented has not. We remain in growth mode and we are executing our strategy this year, including year over year margin improvement.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

So we're aiming for growth in volume as well as earnings and margin. And to give you a sense of the margin improvement quantum, altogether, the 2024 one offs, including fuel, impacted operating ratio by roughly 200 basis points. Remi will give you more details on the volume outlook, which all in assumes low to mid single digit RTM growth. More than 50% of it is expected to come from CN specific initiatives. About onethree is related to the recovery of volumes lost from last year's labor disruption, and the remaining assumes a bit of a lift in the economy.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

We do expect the shape of the volume growth through the year to be more back end weighted as we lap last year's disruption. We're guiding for a CapEx program of $3,400,000,000 for 2025 to ensure a safe and efficient operation as well as to support growth. As Pat will discuss, we're doing the work to improve the efficiency with which we manage our engineering program, and we're very focused on locomotive availability and reliability. The year is off to a positive start as we expected. We have the momentum we need to demonstrate the strength of this network and franchise.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And Derek, you're up first on the condition of the operation.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Thanks, Tracy, and good afternoon, everyone. Turning to Slide 7. From an operating perspective, the 4th quarter was really a story of 2 halves. During the first half of the quarter, we had ideal operating conditions in terms of weather. The team handled strong demand very efficiently.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

We kept pace with customer orders and did not have any backlogs. Unfortunately, we began November with 2 weeks of port labor disruptions, both on the West Coast affecting Vancouver and Prince Rupert as well as in Eastern Canada at Montreal. This was impactful to our intermodal network due to the staging of trains and balancing of equipment, but the rest of the railway continued to run well. Now during the second half of the quarter, just as we started to see volumes ramp up after the poor labor stoppage, we started a long stretch of really cold weather across much of the western region, our busiest. As we have said in the past, we are the rare to the north when compared to our fellow Class 1s and no strangers to cold weather at CN.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Therefore, we activated our winter operating plan, which is our blueprint for how we manage extreme cold. That said, I would just remind you that winter came late in the prior year as we had 0 days operating under under tier restrictions in November December of 2023. That was compared to 28 days of tier restrictions to close out those same 2 months in 2024. When coupled with some mainline disruptions that occurred in the Western region, you can certainly see the impact on our key statistics when we look at the month. Car velocity dropped from around 220 to 191 miles per day for the month of December.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Through dwell increased from a very strong October at 6.5 hours to 7.8 hours going into the holidays. 32 hour cars also spiked to around 8,500 during the December time period. When the weather finally broke after operating under 14 consecutive days of tier restrictions to essentially end the year, the railroad recovered nicely. We cut our 32 hour count by more than half down to 4,000 cars in early January, quickly restoring yard fluidity. Through the end of January, Carvelocity was approaching 200 miles per day with many around 210, which is not bad for winter railroading.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Dua also averaged just over 7 hours. And we did all this while doing over 15% more daily GTMs than we did last year. Closing with customer service, we continue to serve our customers extremely well and achieved a slight increase in our local service commitment measure. The West Coast ports had some supply chain challenges at the end of December with vessel bunching and the port holiday shutdown along with our tier restrictions limiting train length due to the cold weather. Now the ports are in good shape.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Rupert is fluid and we've got inbound vessels on the way. Vancouver inventories and dwell times have also improved to more normalized levels. I'll end by thanking the entire operating team for their dedication and efforts through 2024.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

It was a hell of

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

a dynamic year with lots of things thrown at this railway, which proved the resiliency of this network and this team. Pat, over to you.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

Thanks, Derek. I want to begin with safety. Our injury and accident ratios for the year were the 2nd best in our history, which is a significant achievement. That said, we know there's still work to be done. We are not satisfied with how both quarterly measures ended below last year's levels and we are committed to making improvements in the months ahead.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

Further to Tracy's comments, I want to emphasize that our plan is sacred. We strategically deploy resources to power the network allowing us to quickly get back on track and serve our customers with predictability. This is evident in our Origin Train performance, which came in at 90% for the full year, 1% better than 2023 even in the face of disruptions. Next, let's turn to crewing. We've remained disciplined in managing headcount, adjusting to the economic and political uncertainties that shape our workforce needs.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

These adjustments are already underway ensuring we align with demand in the volatile environment. Where volumes are growing mainly in the West, we continue to hire with furloughed trainees on standby to quickly respond to demand. This approach has enabled us to improve crew cost per GTM by 4% compared to Q3 despite a 3% increase in GTMs. Additionally, our T and E productivity measured by GTM per employee grew by 7% compared to the previous quarter. Having covered our most recent performance, I now want to highlight how we're deploying capital to achieve sustained predictable service and cost performance going forward through both our maintenance and capacity expansion initiatives.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

Starting with locomotives, we've made significant progress in our DC to AC modification program. To date, we have converted 160 older DC units to modern AC propulsion units. Just to put it into perspective, 2 modernized units deliver the pulling power of 3 of our older DC units across most of our network. This enhances fleet reliability, fuel efficiency and improves availability with fewer failures. Looking ahead, we're also exploring emerging locomotive technologies.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

Earlier this month, we launched a small pilot in partnership with Knoxville Locomotive Works for a medium horsepower hybrid unit. This will be tested over the next 6 months in yard and branch line service allowing us to prepare for future innovations in a cost effective low risk manner. We've also partnered with OEMs more broadly on alternative propulsion methods and we are staying close with our peers with the objective to maintain interoperability down the road. Turning to engineering. 2024 saw improvements in how we plan and execute our work.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

We streamlined the material deliveries and standardized our production gains, reducing our reliance on 3rd party contractors. These efforts led to a 10% improvement in tie gain productivity compared to the first half of the year and a 6% improvement year over year. On inventory management, we've made substantial strides by reducing both engineering and mechanical inventory quantities by $35,000,000 We've improved asset utilization and reduced our carrying costs. Lastly, on the capacity front, we've advanced our multi year capital plan bringing on key projects in the Chicago and Vancouver corridors. In December, we successfully delivered a new section of DoubleTrac on the former EJ and E property in Chicago, which will improve fluidity and increase capacity by roughly 20% in the area.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

Similarly, the Jelezlie Siding, which came online in May, provides about 30% more capacity in the BC South between Kamloops and Vancouver. Later this year, we're looking forward to completing 2 additional sections of double track on the Edson sub west of Edmonton, increasing capacity by 25% through this critical link supporting our growth to the West Coast. With that, I'll pass it on to Remi and he will tell

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

you how he plans to fill up that capacity.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

All right. Thank you, Pat. We're working on it, buddy. We marked this quarter with strong volume in grain and refined petroleum and we kept the momentum with our expanding franchise refrac sand and NGLs in Northeast British Columbia.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

But as my colleagues indicated, we faced disruptions from extended port labor disruptions and significant operating restrictions with the early onset of Canadian winter. Combined with lower potash shipments against an opportunistic record comp and softer demand for forest products, overall volume and revenue fell by 3%. This also reflects the considerable headwind from fuel and a slight tailwind from FX. Let me hit a few of the Q4 segment highlights before turning to our outlook. Despite the slightly smaller crop, we capped a record year for grain shipments with a strong Q4 on both sides of the border reflecting robust Canadian canola and wheat exports from our draw territory, higher U.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

S. Corn and soybean export and domestic volumes and crush volumes from a new facility in Iowa. While drain RTMs were 15% higher in Q4, the impact was more than offset by giving back some potash from the 2023 opportunistic gains from the Portland terminal outage. We saw continued growth in refined fuels and NGLs in the P and C business, thanks to projects like the Greater Toronto Area Fuel Terminal and propane exports through Prince Rupert. But that impact was offset by crude shipments, loss to new pipeline capacity and 2 chemical plant closures.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Sand volumes finished flat, which was better than expected and caps an excellent year of growth surpassing $500,000,000 in revenue. Some of the commodities we serve faced a bit more of a headwind including soft market conditions for lumber and export iron ore and the impact to autos from 2CN served plant closures for retooling earlier in the year and a tough comp against dealer restocking. So I'd say that the quarter would have played out largely as we expected, but for the impact of the unexpected Western port strike, which among other things hindered our ability to regain intermodal share following the Teamsters work stoppage this summer and the late quarter operational restrictions with the early onset of Canadian winter, which means that we ran out of track to catch up. Let me pivot to 2025. While we expect modest North American industrial production growth in 2025, there's considerable uncertainty around the impact of potential tariffs.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

We will stay very close to customers to support them as best we can through this challenging period. We're forecasting RTM growth in the low to mid single digits range to provide for volume variability and for more than half of it to come from our specific growth initiatives. We expect that the single biggest contributor will be international intermodal as we normalize for 2024 disruptions and fight to regain U. S. Mix through Western Gateways.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

We aim to capture the full year benefit of key 24 customer wins and grow our customer base by selling end to end supply chain efficiency. We're also very excited about new frac sand terminals in Northeast BC to support the robust exploration and production forecasts for the year. U. S. Grain on renewable and crush and the ramp up of Western Canadian met coal to name only those.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

And with the Iowa Northern acquisition, we have incremental opportunities in grain and ethanol. Let me briefly speak to our view by business unit. We expect momentum to build international intermodal after the Q1 and Chinese Lunar New Year, which we otherwise expect to be slightly up from last year. Similarly for domestic, we expect the Q1 to be flat to slightly down, but to show benefit in H2 from joint line services, tightening truck capacity and improving market conditions. For now, we expect lower automotive volumes in Q1 and the year due to lower production forecasts and mid market uncertainty.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

We're optimistic around all grades of petroleum and chemicals for the year and for Q1 supported by share gains in projects like propane exports through Prince Rupert and the Greater Toronto Area Fuel Terminal. In fact, the GTA terminal is performing very well and we're excited to see excellent progress on its Phase 2, which should receive its first shipments by September. Although we see strong demand for frac sand, we're more cautious on metals with uncertain North American demand and unfavorable iron ore export markets. In all, we're assuming just a slight uptick in metals and minerals in both Q1 and the year. Difficult to see any significant improvement in forest products this year, particularly as lumber continues to struggle with a sluggish market plus the threat of additional tariffs.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

But we expect to see better panel and OSB demand and an increase in pulp and paper volume after Q1. We're expecting growth in Canadian met coal with the now operational Quintet line, but the sector will be somewhat tempered by a weaker U. S. Exports and utility demand for an overall slight uptick. For Canadian grain, we see a stronger Q1, but softer Q2 and Q3 on a tougher comp even with a slightly larger crop.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

We will face a Q1 headwind in potash due to a customer's terminal outage against the strong comp, but we should grow thereafter. The U. S. Program on the other hand should benefit from stronger domestic and export corn demand and new crush projects, particularly in the first half of the year. Let me close by underscoring that we delivered more than 1% RTM growth in 2024, despite a very uneven macro environment and numerous external disruptions.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

And with these disruptions now in the rearview mirror, the resiliency that Pat and Derek talked about together with our commitment to efficient and reliable service clearly resonated with our customers. We delivered record on time performance to yards and they rewarded us with our best yet loyalty scores measured through our comprehensive net promoter survey, all while earning same store price ahead of rail inflation. That's what it's all about. And with that, I'll pass it over to Ghislain.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Turning to Slide 14, like Derek said, the quarter began with ideal operating conditions, which allowed the team to execute on solid demand. Obviously, volumes and costs were negatively impacted by the West Coast and Montreal ports labor related outages. As we began working through the backlog following these outages in late November, winter weather came early in Western Canada and lasted for most of the rest of the quarter. Prolonged tier restrictions hampered our ability to clear the backlog at the West Coast terminals. Some of that on the ground inventory as well as grain orders carry into the beginning of January.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

For the quarter, we reported adjusted EPS down 10% versus last year. The operating ratio increased by 330 basis points to 62.6 percent and revenues were down 3% year over year. Let me provide you more details on some of the operating expense categories in the quarter, which I'll speak to on an exchange adjusted basis. Labor was 7% higher than last year, mostly on account of general wage increases and higher payroll taxes. We also saw the impact of less capital credits as well as higher short term unproductive costs year over year due to the earlier onset of winter versus 2023.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Fuel expense decreased 17% versus the same period last year due to a 15% decrease in price per gallon and a 4% lower gross ton miles. The net impact of fuel prices was about $0.10 unfavorable to EPS and 80 basis points to the OR in the quarter. Purchased services and material increased 6% driven by higher material, repairs and maintenance and winter related costs like snow clearing. Other expenses rose 17% mainly as a result of the annual true up of our legal claims provision. Turning to our full year results on Slide 15, we delivered an adjusted EPS of 2% lower than last year on a 1% revenue increase.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Our operating ratio was 62.9%, up 210 basis points versus last year. On an exchange adjusted basis, labor rose 8% for the full year on account of general wage increases, higher average headcount and higher pension expense. Purchased services and material increased by 2% versus last year, mostly due to higher material and repair costs as well as higher incident related expenses. Full year fuel expense was down 3% mainly on lower fuel prices. I want to remind you that the all in impact of fuel prices for 2024 was unfavorable around 100 basis points of the OR and about $0.35 of EPS.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

We generated close to $3,100,000,000 of free cash flow for the full year, which is about $800,000,000 lower than last year, mainly due to higher capital expenditures and lower net cash from operating activities. Under our current share repurchase program, which runs from February 1, 2024 through January 31, 2025, we have purchased over 13,000,000 shares for just

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

over

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

$2,300,000,000 as at the end of December. Moving to Slide 16, let me provide some visibility to 2025. We believe the economy for the year will slightly be better than last year assuming approximately 1% growth in North American industrial production. Having said this, we're monitoring the tariff situation closely. Fortunately, there is labor stability for us and our core partners, which will support international intermodal growth, particularly through Western Canadian gateways.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

With this in mind and along with our CN specific growth initiatives, we expect volumes in terms of RTMs to be in the range of low to mid single digit. We maintain much of our managed to strength package and we have room on our current intermodal trains. This gives us opportunities to improve operating leverage as volumes pick up to 2025. We have assumed foreign exchange for the year of around $0.70 and WTI of $0.70 to $0.80 per barrel. In this environment, we expect to deliver 10% to 15% EPS growth in 2025 versus 2024.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

We are reaffirming our 2024 to 2026 guidance of high single digit EPS CAGR. We have intentionally built a level of resiliency for extreme weather and traffic volume volatility into our guidance. Specifically on tariffs and our guidance, we've accounted for a range of scenarios. However, we assume tariffs would not cause a recession. Our effective tax rate is expected to continue to be in the range of 24% to 25%.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Our CapEx for 2025 will be around $3,400,000,000 net of customer contributions. In terms of shareholder distributions, we are pleased to announce that our Board of Directors approved a 5% dividend increase for 2025. This represents the 29th consecutive year of dividend increase since the 1995 IPO. The Board also approved a new share buyback program of up to 20,000,000 shares through a normal course issuer bid from February 4, 2025 to February 3, 2026. We will continue to execute our share buybacks to manage to our 2.5 times adjusted debt to adjusted EBITDA leverage target.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

In conclusion, let me reiterate a few points. We're well into winter, but the network is very fluid. With labor issues behind us, we expect volume growth to pick up from last year. We have aligned our resources and have capacity to accommodate growth at low incremental costs. We are committed to creating long term value for our shareholders.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Let me pass it back to Tracy.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks, Ghislain. Christa, we'll go to questions.

[Operator]

Thank you. We will now begin the question and answer session. The first question comes from Cherilyn Radbourne with TD Cowen. Please go ahead.

[Cherilyn Radbourne, Managing Director - Equity Research at TD Securities]

Thanks very much and good afternoon. With respect to the volume outlook for 2025, thank you for the break down provided in the prepared remarks. I was hoping we could drill down a bit more on the 1 third that relates to regaining volumes lost due to labor disruption in 2024, which as Remi, you indicated would naturally skew towards U. S.-bound international intermodal traffic. To what extent have you seen market share recovery on the Canadian West Coast year to date?

[Cherilyn Radbourne, Managing Director - Equity Research at TD Securities]

And what visibility do you have to further recovery as we move through the March, April maritime contracting period?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Thanks for the question, Cherilyn. Part of the challenge that we faced heading into the year was that the path of recovery following the work stoppage in the summer was hindered by the 2 week port strike in the West in November. And we said at the time that the goal was to regain U. S. Mix.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

And so that set us back a little bit and we kind of missed the peak a little bit. So what we see ahead of us is that we're off to a good start in January. We are talking to customers to encourage them to come back and to grow. But we think we're going to see most of it after the Q1 after we get through Chinese Lunar New Year and then we can build from there. I will point out on the normalization that if you look at what we did in the first half of last year, we were doing really, really well.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

And so that's what we mean by normalizing out for the year. You compare sort of how we did in the second half of the year versus the first. Think when you fill that hole, that's the path that we see going forward to build on.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks, Cherilyn. Next question, please.

[Operator]

Your next question comes from the line of Chris Wetherbee with Wells Fargo. Please go ahead.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

Yes. Hey, thanks. Good afternoon. So Tracy, I think in your prepared remarks, you mentioned there was about 200 basis points or so of kind of discrete headwinds, I think, to 2024. So I guess maybe as we look at 2025 and you think about the guidance that you laid out, can you talk a little bit about what you think you can do from an OR perspective?

[Chris Wetherbee, Senior Analyst at Wells Fargo]

And I guess maybe if there's any help that you can kind of help us with in terms of shaping that first half, second half or maybe even Q1. Just want to get a sense of kind of what sort of comes back quickly to the network from an OR perspective and maybe what you can get from an incremental margin perspective on the growth?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay, Chris. Thanks. Stacy is going at me across the table. I'm going to try and do this in a way that we're not providing guidance on OR as we go forward. So if you look backward, as I said, you look back to last year, we've quantified the impact of the one offs.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now that's including fuel, the impact of fuel last year on the operating ratio on our margins. So as we look forward this year, we've got a clear path on labor. The railroad has and continues to run very well. We're looking to drive margin improvement. We've got the right conditions in place.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

The railroad is returning back to the natural operating cadence that we would have had without labor disruptions and that's going to restore our level of margin. We have resized the resource base and are focused on driving the growth at a low incremental margin. We have, as you heard Pat say, some productivity efforts in place that will offset some of the inflationary impacts in different parts of the company. And then Remi talked about targeting pricing above our inflation. The accumulation of those is going to drive year over year margin improvement.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And since the 200 basis points is out there, you can see us recapture that. How far we can get with the rest of it is really going to depend on volume. We get more leverage at high volume levels, we get less leverage at lower volume levels. And so that's the way I kind of laid out for you. I hope that helps.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

It does. Thank you.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay. Thanks, Chris. Next question?

[Operator]

Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Please go ahead. Sadi, your line is open.

[Fadi Chamoun, Equity Research Analyst at BMO Capital Markets]

Yes, thank you. Good afternoon, everyone. So I wanted to ask about the embedded pricing in the guidance and to what degree it incorporates kind of the higher level of disruption that we've seen in the last several years in terms of fires and other acts of God and kind of disruption because of weather. I think your network is kind of prone more than maybe others to these kind things. And I wonder to what degree you really look at that and ultimately contemplate a pricing scenario that offsets

[Fadi Chamoun, Equity Research Analyst at BMO Capital Markets]

that ultimately challenges.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay, Fadi.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Let me take a first run at that, then I'm going to ask Remi for some comments. So we have made some provisions in our plan for the kinds of things that you've seen happen over the last few years, whether it be fire, whether it be other kind of natural occurrences. The fundamentals as we look forward would suggest that with these kinds of things are going to happen. So we've embedded it in our plan. When we think about our pricing in general, Remy's mandate is to price to market and that needs to be ahead of the rail cost inflation.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And so when we as we think about the natural disasters that have happened, we find that it is impacting our customers from the perspective of their ability to continue to operate. It's really not relative to the pricing that Remy puts in the marketplace, if I'm understanding your question. But Remy, do you have anything to add to that?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

I think just to echo Tracy, we did well in 2024 to price ahead of rail inflation. And that's the mission going forward for this year. Maybe, Shlant, do you want to comment on inflation?

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Yes. I mean, when you look at inflation, Fady, when you look at labor, which is our biggest cost, is about 3%. And I would say that, therefore, when here at CN, our rail inflation is in the 3% -ish is what we have.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And that would incorporate, of course, any of the costs associated with fires or the other things. I hope that answered your question. We'll go to the next one please. Yes.

[Operator]

Your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Hey, thanks. Good afternoon, guys. So I want to try to understand sort of maybe the building blocks of the earnings guidance. So if we just take some of like the discrete things like FX and maybe lapping some of the headwinds from last year, maybe pension, like how much is like sort of for lack of a better word sort of like in the bag from like an earnings growth standpoint? Like is there any way to quantify that?

[Scott Group, MD & Senior Analyst at Wolfe Research]

And then I would assume after last year or last couple of years maybe you've sort of added in some cushion, but like is there any way to think about like how much cushion or assumption of like, hey, some of the bad things from last year repeating again? I don't know. I want to try to get confidence in this earnings guidance after the last couple of years.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

So the guidance reflects, as we've outlined a range in volume, Scott, as well as the variability that we think we could see in fuel and FX outcomes. So we built that in. We've just we've built in some provision for the kinds of operating conditions we can find ourselves in over different seasons as well. So as far as cushion, I think it really what's really going to drive it up or down is at the end of the day is going to be volumes, right? All kinds of things that can impact the volumes, but what we've given you is a view into how we made up our lowtomidsingledigit volume growth expectation.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

50% of it is CN specific, 50% I guess, Remy or a little bit more is our CN specific initiatives. We have about a third of it as we said that's the makeup of the the labor disruptions last year. And then we are assuming at this point in time a very modest lift in the economy. Now if the fundamentals are there such that we get a stronger economy, stronger consumer sentiment, you could see that be a little bit stronger. But as we built the guidance, those were factors that we built into it.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Okay. Thank you.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Next question.

[Operator]

Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Please go ahead.

[Walter Spracklin, Equity Research Managment & Co-Head of Global Industrials Research at RBC Capital Markets]

Yeah. Thanks very much, operator. Good afternoon, everyone. So, Zhizai, this one's for you. I'm just curious, you've with the buyback, you've been a bit variable with it in terms of ramping it up and holding it back.

[Walter Spracklin, Equity Research Managment & Co-Head of Global Industrials Research at RBC Capital Markets]

Curious now you indicated that you're going to use the buyback to manage the 2.5 times leverage. Is there any avenue are you budgeting a certain amount therefore that we can plug in, in terms of dollars targeted for your buyback this year? And is there any avenue where you would consider because I know a number of your peers are now moving more in the 2.75 range or even higher. Is there any avenue where you would consider using a little bit more of your leverage given the resiliency that the railroads have exhibited here to go with a higher leverage and a higher buyback while still maintaining your current ratings? Any consideration there?

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Yes. Thanks, Walter. Listen, the use of the balance sheet is something that we debate. We debate internally. We debate with our Board.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

I think at this point, we have decided to be prudent. So that's why we're going to continue to manage our balance sheet to the 2.5 times leverage. We think that this is the right place to be. We purposely did not provide a budget. So I think we you can do the math yourself and get to a number.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

And we like buybacks, as you know, Walter, because this is something that we can step it up, we can slow it down, and we will continue to debate the use of the balance sheet. But at this point, I think we're very comfortable with continuing to manage it to 2.5 times.

[Walter Spracklin, Equity Research Managment & Co-Head of Global Industrials Research at RBC Capital Markets]

Okay. Thank you, Richard.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Thanks.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks, Walter. Next question.

[Operator]

Your next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

[Ken Hoexter, Managing Director at Bank of America]

Hey, great. Maybe if I could follow-up on Scott's question a little earlier. You talked about the driver. Maybe can you talk about the drivers to the top and bottom end of the outlook? Was just laying through in there some tariff comments.

[Ken Hoexter, Managing Director at Bank of America]

Is that tariff related some of the ups and downs? Is it Tracy, you mentioned volumes. Just trying to decipher what are the drivers there? And then thoughts on Q1 comp. Maybe just given all the comments on weather that we heard today is that does that make Q1 maybe a bit more aggressive than normal seasonality?

[Ken Hoexter, Managing Director at Bank of America]

Do you expect normal seasonality given what is traditionally a tough quarter? Maybe just how we should think about maybe some of the near term stuff? And then just what's the advantage of throwing in the economic growth in there at this point, just given what we went through last year? What was Tracy, maybe just your thoughts on why you felt you wanted to add that in as opposed to maybe being more conservative?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks, Ken. So let me just start with the last one, the economic growth. We are assuming a very modest economic growth. Most of the growth that we are projecting comes from the recovery from last year's labor. It comes from CN specific initiatives.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And so there is an upside if there is economic growth, but we're not assuming that at this point in our guidance. And then what's going to drive the guidance to the top end of the line is generally going to be volumes. And the tariffs are relevant, as Jim said, primarily in that it will drive volumes. And so that's the way that we're thinking about it. Jim, did you have any comments on that?

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Yes. And as I said, Ken, in our remarks, I think that we our guidance assumes a different range of scenarios, including various scenarios on tariffs, but as we said, does not assume that Canada would go on a recession. I think to help you out a little bit on as we're assuming an FX of CAD 0.70 which is the spot rate as we have it. I think Scott had a question on pension. Pension, if you look at this year was in 2024 was a headwind of about $30,000,000 pension this year in 2025 will be a tailwind of about $50,000,000 mostly all below the line.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

And then as Tracy said, a lot of it will be related to volumes.

[Ken Hoexter, Managing Director at Bank of America]

Great. Appreciate that. Thank you.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Next question.

[Operator]

Your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

Yes, good afternoon guys.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

A question on the labor picture for you today. I think you described some of the actions you've been taking, but just trying to get a sense for where you're at from the context of earlier quarters referencing some imbalances that you had in the system and sense of too many people in the East, not enough in the West. It sounds like you're still hiring. How far along are you in that process? Are you scaling back in all verticals right now?

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

Or just maybe just a broader sense for that labor picture today and how much more work you need to have to do?

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Yes. No. Good afternoon, Steve. What I would say is right now, we have 800 people furloughed across the network. That's mostly T and E folks, but there is some mechanical folks in there that Pat's teams that worked hard on some of the efficiency point of view.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

We're watching that hiring very carefully. We took very decisive action last fall when we saw the volumes not coming where they needed to be when we got that intelligence with it. And then I'll maybe let Pat talk about the East to West movement of people.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

Yes. Thanks, Derek. So I would say that we continue to have the furloughed employees to draw from. But as I talk about the West, particularly, we will continue to hire as needed to meet the growth in the West. We do have a smaller group of furloughed employees in the West to draw from if we see ourselves in a deficit for people.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

And we do have the ability to move folks around within our Western region. So we have we'll continue to hire towards the needs and recall as we see needed, but we feel like we're in position well to take on the growth in the West.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay. Thank you.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

I'll take the call. Thanks.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks. Next question.

[Operator]

Your next question comes from the line of David Vernon with Bernstein. Please go ahead.

[David Vernon, MD & Senior Analyst at Bernstein]

Hey, good afternoon guys. So Remi, I wanted to maybe dig into a couple of the CN specific growth initiatives to try to see if we can bracket some numbers on 2 specific sets of projects. As you're thinking about the nat gas liquids opportunity off the West Coast, there's been a lot of investment there. Can you help us refresh our thinking on what kind of incremental volume that should look like? And same question on the Janssen potash development.

[David Vernon, MD & Senior Analyst at Bernstein]

I don't think there's anything in the guide for 2025, 2026, but I think it does start up in the 3 year window. So if you could kind of help us bracket what kind

[David Vernon, MD & Senior Analyst at Bernstein]

of incremental volume we're talking about there, that'd be helpful.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yes. Thanks for the question. For natgas, a big chunk of the growth that will come. Obviously, it's incremental. The demand for sand is very strong.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

We saw a late pickup in the Q4 that helped us to do a little bit better than we expected. Q1 also looks strong. The drillers are building terminals. So they're excited about the E and P programs that they have for the year. The big lift for exports through Rupert is going to come when the AltaGas Vopak project comes to market.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

And so they FID that last year. So that's not a 2025 item. It will be later into 2026. So what we expect for growth in nat gas for this year is going to be incremental and the big lift will come a little bit later. As far as the Jensen potash mine, construction continues.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

I was actually in Saskatoon a couple of weeks ago. Construction continues, but we're still waiting for details and announcements on that. That doesn't start until I believe it's Q3 of 2026 if memory serves. So more on that, but that also will depend on a market share announcement, which hasn't been quite made yet.

[David Vernon, MD & Senior Analyst at Bernstein]

Can I get you to put a number on the big step up in with AltaGas?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

I don't have it in front of me, but I'd have to double check-in.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Why don't we follow-up? Stacy can follow it up with you after the fact. Is that okay? Yes.

[David Vernon, MD & Senior Analyst at Bernstein]

Thanks very much.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks. Next question?

[Operator]

Your next question comes from the line of Tom Wadewitz with UBS. Please go ahead.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC]

Yes, good afternoon. Wanted to ask a labor question. I know I think you had one on kind of like where the labor is located and where moving it around a bit. But should we think about headcount being kind of flat as you absorb some of this volume if you're maybe at the lower end of the volume spectrum and also contemplating that you mentioned you've got quite a bit of capacity, some capacity available in the existing train network. And then also, I guess, just thinking about comp and benefits per worker.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC]

So kind of how do we think about the 2 primary pieces of comp and benefits expense overall?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Derek, why don't you take the first half and you take the second.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Yes. Good afternoon, Tom. And like we said, with 800 people float across the network, obviously it's more tilted to the east and the south. So in those two cases, we're all really watching the hiring. We don't need to do that.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

We don't see line of sight to have to do that because we can recall those current people. As Pat said in the West, we're ready to handle that growth. We can recall some of those folks that are there, but we are looking at some targeted hiring in those places that growth may come. So I feel we're well positioned on the train package to your point. We can grow at a low incremental cost in the manifest package and even with the intermodal package if some of that comes back.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

And I'll turn it to Jiz on the comp question.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Yes. Tom, on the comp side, I mean, I'm happy to report that we did have a tentative agreement with our signals and communication people. And again, the pattern in Canada is 3%. So that's what we continue to assume.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay. Thanks, Tom. Next question?

[Operator]

Your next question comes from the line of Karnar Gupta with Scotiabank. Please go ahead.

[Konark Gupta, Equity Research Analyst at Scotiabank]

Thanks for taking my question. Just when you come back to the customers, Remi, you mentioned you're trying to kind of bring them back. How difficult is it to bring them back to the network now especially with all the tariff noise and even potentially change of government in Canada? I mean, how are Shifos thinking about this year?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yes. The challenge, Konark, thanks for the question. The challenge is that if you look back over the course of 2024, there's been a number of disruptions, labor disruptions in particular. And so the issue is making sure that we make Canadian gateways attractive. And so that's an ongoing process.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

As I say, we're working with the shipping lines, talking to the BCOs as well, so that we can establish and sell the reliability of the gateways. But the advantage that we have is we sell service and we're excited to be able to sell that. You look at a place like Rupert, we like to say it's the fastest way from Shanghai to Chicago. And for customers who are looking to grow and need a reliable product, we think that sells very well. So I think it goes hand in hand.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

It's a process about being with customers and rebuilding that credibility following a pretty bumpy 2024 from a labor perspective.

[Konark Gupta, Equity Research Analyst at Scotiabank]

Thank you.

[Operator]

Your next question comes from the line of Brandon Oglenski with Barclays. Please go ahead.

[Brandon Oglenski, Director & Senior Equity Analyst at Barclays]

Hey, good afternoon, everyone. Thanks for taking my question. Maybe I'll direct this at Derek or Pat or maybe both. I mean, you guys had so much start and stop on the labor side last year and some disruption, I think, even with some of your partners in Canada. How do you think about the operating plan and maybe even like engineer planning in 2025 relative to maybe what was a more challenging environment in 2024?

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

So thanks for the question. I'll speak to that. I would say that it's the strength of our discipline to our scheduled operating model. The way that we can unfortunately, we got too much practice at it last year, but the ability to lay down the network in an organized manner so that startup is very fast. We know exactly how to plan the resources against it.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

And we started very quickly. As you can see in our performance when we had those disruptions, we rebound very quickly. The network velocity returns, the car miles, the car velocity returns quickly and it's a credit to all hard work we've done around the plan. I would say with fewer disruptions expected, the work that we've done a lot around our engineering team is standardizing the composition of work gangs and really becoming disciplined around our work blocks. So we expect those gangs to make they are already making better use of the time that they get.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

They are starting on time and we expect to bring the unit cost down for the work that they do. So with fewer disruptions expected, we do anticipate seeing our productivity continue to improve, particularly with the engineering department.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay, Brandon. Thanks for that. Next question?

[Operator]

Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

[Ravi Shanker, Managing Director at Morgan Stanley]

Great. Thanks. Good evening, everyone. So obviously, a lot of noise with tariffs and who knows how things are going to go. But it seems like we are settling in for kind of prolonged disruption in kind of global supply chains and kind of moving to a multipolar world.

[Ravi Shanker, Managing Director at Morgan Stanley]

So how are you thinking about long term investment plans for Prince Rupert and Halifax and some of the international intermodal infrastructure here are going to are you hearing from customers that are changing their long term plans? Are they putting stuff on hold? Or how do we think that builds up?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Well, one of the things that we know for sure is we look at the environment around us is that there will be a high premium placed on being nimble. And so as we put our plan together this year, we thought through a number of different of those scenarios and others and how we would respond to it. And we're pretty confident in our plan. But Randy, do you have other comments?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yes. What I'd say is that in both the cases that you pointed out in Halifax and Rupert, there's plenty of room to grow. So investing further in the gateways for the railways is we're already investing pretty significantly actually in Rupert. So we're adding bridge capacity to improve the flow and there's a lot of additional investments that our customers are making in Rupert. So there is room to grow both Rupert and Halifax.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Halifax had a bit of a tough year because of the Red Sea. But from our perspective, those assets fit very well into the network and they help support service reliability to customers and that's what's really important.

[Operator]

Your next question comes from the line of Benoit Poirier with Desjard Capital Markets. Please go ahead.

[Benoit Poirier, Vice President at Desjardins Securities]

Merci beaucoup. Hi, everyone, and thanks for taking the question. Just to come back on FX, obviously, thanks for the assumptions. You're targeting 0.70 for 20.25. So I understand that it could represent a tailwind of about $0.15 on EPS.

[Benoit Poirier, Vice President at Desjardins Securities]

But I was curious from a debt standpoint in terms of leverage, given the further FX depreciation, just wondering in terms of leverage, how we should be thinking in Q1, whether given the U. S. Debt? And also given the attractive Canadian dollar, just curious if you have received more inbound calls from shipping line that are interested to engage in discussion, especially that labor issues are behind. Just wondering if it could attract some traffic north of the border for the FX.

[Benoit Poirier, Vice President at Desjardins Securities]

Thanks.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Okay. Maybe Benoit, I'll start and then I'll turn it over to you, Remy, on the second piece. So on the FX, you're right. I mean, it has an impact on the debt because a lot of our debt is in U. S.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Dollar denominated and therefore, it has an impact on the leverage. But the sensitivity is very small. If I recollect, I think every cent I think has an impact of 0.02 on the debt. So it's and we're going to take that into consideration as we manage our balance sheet to continue to remain at 2.5 times. Now sometimes we can move up a little bit.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

As you know, we finished the year, we are at 2.6 but we will manage our balance sheet and we will take that into consideration. But it has a very small sensitivity to the leverage. Maybe, Remi, on the second piece?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yes. I think what I'd say about Le Pena Creveci is, obviously the geopolitical environment is a little bit volatile throughout and currencies are obviously reflecting the strength of the U. S. Dollar. I don't necessarily tie inbounds to FX as far as shipping line interest go.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

I tie it to service reliability.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

And the other sort of

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

thing that's changing is that there are pre shaping alliances in the OSM world. And so that is opening up some opportunities for us as well.

[Benoit Poirier, Vice President at Desjardins Securities]

Thank you very much for the time.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Next question please.

[Operator]

Your next question comes from the line of Jon Chappell with Evercore ISI. Please go ahead.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Thank you. Good afternoon. Derek and Pat, I think we've covered the labor resources ad nauseam at this point, but there's other line items like purchase services, equipment rents, casualty and other, etcetera. You've had this big pull down in volume. You had this anticipation of the second half recovery, a lot of uncertainty.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

How do you thread the needle on matching the resources to kind of your exit rate 2024? And then also your ambitions for the second half of twenty twenty five, while making sure you still have the right capacity and starting to get some incremental margin from that in the back half of the year?

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

I'll take that. It's Pat. So I would say this that we made the decisions that we had to make as it relates to resources in the last few quarters. We had ramped up to take on the volume that we expected and that didn't materialize. We had our labor disruptions and clearly other factors.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

I would say this that as we look at the assets from cars, locomotives and people, as Derek pointed out, we have the 7 20 plus furloughs. In transportation, we have almost 100 in mechanical furloughed. We have well over 120 locomotives in storage and our car fleet is very productive. We are year over year as productive from a car miles per car day standpoint with the car fleet. So we have laid up cars as needed so as to not congest the network.

[Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer at Canadian National Railway Company]

So we feel really good about where we are from a resourcing standpoint to continue to pick up the volume that's out there that we see thus far in the quarter, in the year is solid.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

John, let me just come in over top of that. The guys are doing a great job, but we're managing our expenses very tightly as we come into this year. But we do have a plan as well of how we would flex up as the volume grows if and when that happens. And so they've been working very hard at that and I think we're in a good position, but very tight as we start the year, loosen up if the volume arrives as the year unfolds.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Great. Thanks, Tracy.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Next question.

[Operator]

Your next question comes from the line of Daniel Imbro with Stephens. Please go ahead.

[Daniel Imbro, Managing Director at Stephens Inc]

Yes, thanks. Good evening, everybody. Thanks for taking our questions. I know we talked through the volume outlook a lot, but maybe one more on the revenue side. Just on the mix, so international intermodal, I think you mentioned to be the fastest growing volume piece.

[Daniel Imbro, Managing Director at Stephens Inc]

I would think that's going to be a negative for revenue per RTM this year. But when you look through the volume outlook on Slide 12, can you just talk through the other puts and takes on mix and then maybe mix within mix as you see the business developing this year, the visibility you have into market share wins? Just what are the headwinds and tailwinds we should be thinking about as we move through the year?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Specifically on intermodal or across the business?

[Daniel Imbro, Managing Director at Stephens Inc]

Across the business.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yes. Okay. Well, I would say that where we're doing well is going to be in the petroleum and chemicals business for the projects that we talked about. So the fuel terminal in Toronto is one of them. The sand supporting the NGLs.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

So that's good. On grain, coming off a very strong year that's very competitive. But what we talked about what we see ahead of us here for the year. I think that on our revenue per ATM, I mean it's yes, I mean there are some sectors that are doing sort of better than others where I see good tailwind is we're doing well on grain, as I said, petroleum and chemicals as well, where there's probably a bit more headwinds as the sectors where there is lower demand. So like forest products is probably a little bit more under pressure and metals and minerals, I would say.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks, Ramin. Dan, let me just add something to that. You mentioned the growth that we're expecting in international intermodal. We've built a portfolio, our book of business that fits our network and that we know that we can run efficiently and can drive value to bottom line. So we like that international business.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

It's not our highest margin business as you said, but it leverages our network and our asset base in the right way and it's really important part of our business and our growth strategy. And in Remy's plan, it is it will be the biggest growth factor. And so the revenue per RTM will be driven mostly by that business. And so you'll see a downward push on revenue per RTM in international, but it is the right it will drive growth to our bottom line and it's the right fit for our network. Thanks for that question.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Next question?

[Operator]

Your next question comes from the line of Ariel Rosa with Citigroup. Please go ahead.

[Ben Mohr, AVP - Equity Research -Transportation at Citi]

Hi, good afternoon. Thanks for taking our questions. Is Ben Moore on for Ari. Going back to Ken's question on seasonality, your 1Q OR normal seasonality over the last 10 years has averaged a deterioration or an increase in OR of 400 basis points on average from 4Q to 1Q. Should we expect that or maybe at a lower range, more akin to 200 bps to 300 bps of a step up, given the tougher 4Q OR of 62.6 percent?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

So thanks for the question. I think given the unusual nature of the year last year where we had a pretty good first quarter We're positioned from a volume perspective for a strong second quarter and then we started to have the labor issues after that. This quarter is going to depend a little bit on how the winter plays out, but you'll I would expect you would see a more normalized Q1 and Q2 versus what you if you look backwards and then a significant improvement year over year in Q3 and Q4. But Jiz, you see the map on a month to month basis. Is that what you're thinking?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Yes, I

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

think you've got it pretty well. Everything staying equal, I think from a seasonality standpoint, Q1 has always had a DOR that's slightly higher. Q4 typically, it depends on when the winter hits. And then the best OR quarters are typically Q2 and Q3. So obviously 2024 was not normal with all of the noise that we encountered, but this noise we feel is behind us, so 2025 should come back more to normal.

[Operator]

Our final question comes from the line of Stephanie Moore with Jefferies. Please go ahead.

[Joseph Hafling, VP - Equity Research at Jefferies Financial Group]

This is Joe Haffling on for Stephanie Moore. A lot has been asked. I guess I maybe wanted to ask on the Falcon Premium service. Maybe looking past last year or so, could you talk about customer acceptance for that product? Is adoption kind of where you would have expected it is?

[Joseph Hafling, VP - Equity Research at Jefferies Financial Group]

Or is customer demand for that slower than what you would have thought? Maybe just some thoughts on Falcon Premium and what you're seeing on that?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yes. I guess I'd start by saying that the product works really well. Derek and team and our partners are delivering the service offering that we sold. The challenge that we have is it's a very competitive market, especially northbound out of Mexico. The truck lanes to the major destinations are fairly well established and that's what we're fighting against.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

So we continue to work on it with our partners at UP and Ferro Mex to continue to grow it. And so I expect that we'll keep growing that incrementally over the course of the year. But there's opportunity and upside there. It's just a really it's a tough market.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay. Thanks, Remi, and thanks, Christa. Thanks to everyone on the call for joining us. I think as Derek said, 2024 was a hell of a year, but we're turning into 2025 now at full speed to execute our growth plans and to drive that growth to the bottom line. So we will see you all very soon.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thank you.

[Operator]

The conference call has now ended. Thank you for your participation and you may now disconnect.

Participants

Executives

• Stacy Alderson, AVP - Investor Relations
• Tracy Robinson, CEO & President
• Derek Taylor, Executive VP & Chief Field Operating Officer
• Patrick Whitehead, Executive Vice-President and Chief Network Operating Officer
• Remi Lalonde, Executive VP & Chief Commercial Officer
• Ghislain Houle, Executive VP & CFO

Analysts

• Cherilyn Radbourne, Managing Director - Equity Research at TD Securities
• Chris Wetherbee, Senior Analyst at Wells Fargo
• Fadi Chamoun, Equity Research Analyst at BMO Capital Markets
• Scott Group, MD & Senior Analyst at Wolfe Research
• Walter Spracklin, Equity Research Managment & Co-Head of Global Industrials Research at RBC Capital Markets
• Ken Hoexter, Managing Director at Bank of America
• Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial
• David Vernon, MD & Senior Analyst at Bernstein
• Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC
• Konark Gupta, Equity Research Analyst at Scotiabank
• Brandon Oglenski, Director & Senior Equity Analyst at Barclays
• Ravi Shanker, Managing Director at Morgan Stanley
• Benoit Poirier, Vice President at Desjardins Securities
• Jonathan Chappell, Senior Managing Director at Evercore ISI
• Daniel Imbro, Managing Director at Stephens Inc
• Ben Mohr, AVP - Equity Research -Transportation at Citi
• Joseph Hafling, VP - Equity Research at Jefferies Financial Group