[CNI] CN: Q3 2026 earnings preview on the fuel surcharge lag and grain volumes

CN (Canadian National Railway) runs a freight rail network that crosses Canada and reaches south to the U.S. Gulf Coast, and it plans to release results for the third quarter 2026, the three months ended September 30, 2026, before markets open on 2026-10-30[1]. In the latest disclosed period, the second quarter of 2026, revenue rose 11% to C$4.753 billion, revenue ton miles (RTMs) grew 5% and adjusted diluted EPS rose 11% to C$2.08, but the adjusted operating ratio (operating expenses as a share of revenue) rose to 62.2%, with higher fuel prices adding 210 basis points[2][3][4]. In July the company raised its full-year RTM assumption from flattish to low single-digit growth and lifted its adjusted diluted EPS growth guidance to the mid-to-high single digits[5]; on the earnings call the CFO said that if oil prices and the on-highway diesel spread to WTI stayed at July levels, fuel could be a third-quarter tailwind of close to C$0.15 of EPS and about 100 basis points of operating ratio[6]. As of October 16, 2026, the consensus of 17 analysts compiled by Drillr put third-quarter EPS at C$2.087 (range C$2.018–2.143), about 14% above the C$1.83 earned a year earlier, and the revenue consensus of 15 analysts stood at C$4.637 billion[7][8]; 19 analysts put full-year 2026 EPS at C$8.149[9]. The data source does not label the currency, but the quarterly EPS figure is consistent with the company's Canadian-dollar reporting.

Three things matter most in this CN Q3 2026 earnings preview. The first is whether the fuel surcharge lag turns into a tailwind: in the second quarter surcharge revenue rose C$242 million and fuel expense rose C$246 million, almost cancelling out, but because surcharges are set on diesel prices from two months earlier, a third-quarter fall from the second-quarter average of US$5.67 per gallon would turn the lag into a profit tailwind, and about C$0.15 of the roughly C$0.26 by which consensus exceeds last year matches management's estimate of the fuel benefit[10][11][12]. The second is whether grain and energy can keep carrying volume: second-quarter grain and fertilizers RTMs rose 11% and petroleum and chemicals RTMs rose 11%, while intermodal fell 1%, so third-quarter volume will test whether the full-year assumption of low single-digit RTM growth holds[13][14][15]. The third is whether labor productivity lets non-fuel costs grow more slowly than volume: average headcount fell 5% and gross ton miles (GTMs) per employee rose 9% in the second quarter, yet operating expenses excluding fuel and advisory costs still rose about 3.4%, close to 3% GTM growth, and any margin gain beyond fuel depends on widening that gap[16][17].

Company Background and Business Structure

CN is a Canada-centred freight railroad that reaches three coasts. Founded in 1919 and headquartered in Montreal, it operates a network of nearly 20,000 miles (18,900 route miles at the end of 2025) that links Canada's Atlantic and Pacific coasts and runs south through the U.S. Midwest to the Gulf of Mexico, moving more than 300 million tons of natural resources, manufactured goods and consumer products a year[18][19]. Customers buy transportation by shipment or under contract, including Western Canadian grain, potash, chemicals, refined products and natural gas liquids, overseas containers moving through ports such as Vancouver, Prince Rupert, Halifax and Montreal, and North American domestic intermodal, automotive, forest products, metals and minerals, and coal; CN originates more than 85% of the freight on its network, and more than 65% is both originated and terminated by CN[18].

CN's revenue is spread across seven commodity groups and four geographic flows. The company manages its Canadian and U.S. rail operations as one operating segment, and in 2025 total revenue was C$17.304 billion, of which freight revenue was C$16.681 billion: intermodal C$3.892 billion (about 22% of total revenue and the largest group), grain and fertilizers C$3.658 billion (about 21%), petroleum and chemicals C$3.478 billion (about 20%), metals and minerals C$1.962 billion, forest products C$1.839 billion, coal C$960 million and automotive C$892 million, with other revenue from vessels, warehousing and similar services of C$623 million[20]. By geography, 37% of revenue came from overseas traffic, 29% from transborder traffic, 18% from Canadian domestic traffic and 16% from U.S. domestic traffic[18]. In the second quarter of 2026, total revenue was C$4.753 billion, including intermodal of C$1.087 billion, grain and fertilizers of C$980 million and petroleum and chemicals of C$941 million[15][13][14].

Exchange rates, diesel prices and grain regulation are three external constraints on that revenue structure. CN reports in Canadian dollars, but a substantial share of revenue is priced in U.S. dollars; its main inputs are train crews and maintenance workers, diesel fuel (404 million U.S. gallons consumed in 2025), rolling stock and track infrastructure, and it passes diesel price changes to customers through a fuel surcharge set from the average monthly on-highway diesel price in the second calendar month before the month in which it applies[12][21]. Revenue from regulated Western Canadian grain is subject to the Canadian Transportation Agency's maximum revenue entitlement formula: the railway sets its own rates, but total revenue is limited by a formula based on tonnage, length of haul and a price index, while grain exported to the U.S. is not covered[22].

Financial History and Current Position

CN's revenue grew modestly over the past three years, and its margin improved clearly in 2025. According to the 2025 annual report, total revenue was C$16.828 billion in 2023, C$17.046 billion in 2024 and C$17.304 billion in 2025, up 2% in 2025 mainly on higher U.S. and Canadian grain exports and higher intermodal volume[23][24]. Operating income in 2025 was C$6.587 billion, up 5%, and the operating ratio was 61.9%, 1.5 percentage points better than 63.4% in 2024, with an adjusted operating ratio of 61.7%; net income was C$4.720 billion, diluted EPS C$7.57 and adjusted EPS C$7.63, up 7%[23][25]. Fuel and carbon surcharge revenue fell C$327 million in 2025, mainly because the Canadian federal carbon tax, whose cost had been charged back to customers, was eliminated on April 1, 2025 and because surcharge rates were lower, while fuel expense fell C$274 million to C$1.786 billion[26][21].

In 2025 CN moved slightly more freight with fewer people and returned more cash to shareholders. RTMs were 238.159 billion, up 1%, average headcount was 24,507 (25,304 in 2024) and the average fuel price was US$3.91 per U.S. gallon[23]. On cash, operating cash flow was C$7.049 billion and investing outflows C$3.713 billion, leaving free cash flow of C$3.336 billion, up 8%; gross property additions were C$3.658 billion, share repurchases C$2.047 billion and dividends C$3.55 per share, adjusted debt to adjusted EBITDA was 2.51 times, and year-end cash and cash equivalents were C$350 million[23][27].

Profit came under pressure in the first quarter of 2026, although volume and cash flow kept growing. First-quarter revenue was C$4.379 billion, down 1%, the adjusted operating ratio worsened 80 basis points to 64.2% and adjusted EPS fell 3% to C$1.80, as winter operating costs, accident expenses and a higher effective tax rate weighed on profit[28][19]. RTMs rose 3% to a first-quarter record of 61.834 billion, free cash flow rose 44% to C$900 million and the company bought back about 6 million shares for C$869 million; at the time CN still assumed flattish full-year RTMs and adjusted EPS growth slightly above volume growth[28][29].

Revenue and profit grew again in the second quarter of 2026, but fuel made the margin reading worse. Second-quarter revenue was C$4.753 billion, up 11%, operating income C$1.781 billion, up 9%, adjusted operating income C$1.798 billion, up 10%, and adjusted EPS C$2.08, up 11% (C$2.09 at constant currency)[2]. The average fuel price rose from US$3.55 per gallon a year earlier to US$5.67, fuel surcharge revenue rose C$242 million and fuel expense rose C$246 million to C$659 million, leaving the operating ratio at 62.5% and the adjusted ratio at 62.2%, up 80 and 50 basis points respectively[3][10][11]. First-half free cash flow rose 19% to C$1.842 billion, gross property additions were C$1.134 billion (C$1.324 billion a year earlier) and buybacks C$1.323 billion; as of June 30, trailing twelve-month adjusted EBITDA was C$8.832 billion and adjusted debt to adjusted EBITDA was 2.61 times, below the company's 2026 leverage target of 2.7 times, with period-end cash of C$280 million[3][27].

Operating Model

CN's revenue is set by volume in each commodity group times the revenue earned per unit, which in turn depends on rates, fuel surcharges, exchange rates and length of haul. Freight revenue equals each group's RTMs multiplied by revenue per RTM, and revenue per RTM reflects contract and tariff rates, fuel surcharges, the Canadian-dollar exchange rate, length of haul and commodity mix; management said same-store pricing continues to run ahead of rail cost inflation, although mix partly offset it in the second quarter[30][31]. In 2025 freight revenue was C$16.681 billion as RTMs rose 1% and revenue per RTM rose 1% to 7.00 cents, with rate increases and a weaker Canadian dollar offset by lower surcharge rates and the end of the carbon tax; in the second quarter of 2026 freight revenue rose 11% to C$4.559 billion, which breaks down into 5% RTM growth and 6% higher revenue per RTM, the latter mainly from fuel surcharges and rates and partly offset by a longer length of haul[24][23][10][3]. Regulated Western grain is subject to the maximum revenue entitlement, so in a big crop year higher volume cannot be fully amplified through higher prices[22].

Operating income depends on how volume spreads semi-fixed costs and on the roughly two-month gap between fuel costs and surcharges. Operating expenses in 2025 were C$10.717 billion, including labor and fringe benefits of C$3.510 billion (20.3% of revenue), purchased services and material of C$2.306 billion (13.3%), fuel of C$1.786 billion (10.3%), depreciation and amortization of C$1.938 billion (11.2%), equipment rents of C$432 million and other expenses of C$745 million[21][23]. Most network and labor costs are fixed or semi-fixed, so volume growth without a larger fleet lowers unit costs, and management said grain cycle times shortened 15% in the second quarter, allowing record volumes without adding cars[32][33]. Fuel is the largest variable cost and surcharges follow diesel prices with a lag of about two months, so the operating ratio is pushed up in quarters when oil prices spike and pushed down when they fall; below operating income, interest expense (C$241 million in the second quarter), net pension income (C$133 million) and an effective tax rate of 25% to 26% determine EPS, and the actual second-quarter rate was 25.7%[34][35][36].

Free cash flow depends on the timing of operating cash flow and capital spending, and it is distributed first as dividends and then as buybacks. CN plans to invest about C$2.8 billion in its 2026 capital program, net of customer reimbursements, focused on track, bridges, signals, rolling stock and two capacity projects in British Columbia; gross property additions were only C$1.134 billion in the first half, so spending is heavier in the second half[37][5][3]. Free cash flow first funds the quarterly dividend (C$0.915 per share in 2026, up 3% from 2025) and then buybacks (a program starting in February 2026 with a cap of 24 million shares), with any shortfall covered by commercial paper (C$414 million at the end of June) and bond issues[38][3][27]. First-half free cash flow rose 19% on higher earnings, the pace of capital spending and working-capital management, partly offset by higher tax installments, so the cash-conversion improvement the company has promised needs to be checked quarter by quarter as second-half capital spending concentrates[4][5].

Industry and Competitive Position

CN faces one direct rail rival in Canada and several modes of competition in the United States. CN and Canadian Pacific Kansas City (CPKC) are the only two Class I railroads in Canada, and they serve most of the same industrial areas, resource regions and population centres[39]. In the U.S., CN competes with other Class I railroads as well as long-haul trucking, the St. Lawrence Seaway and Great Lakes, Mississippi River barges and pipelines, and customers can also choose among origins, destinations and ports; service quality and reliability, market access and price are the competitive factors[39].

CN's advantages lie in access to three coasts and its high share of originated traffic, but comparable peer figures to support them are lacking. Prince Rupert, Vancouver, Halifax and Gulf Coast ports are all on its network, and CN originates more than 85% of its freight[18]; management said the capacity built in the West over the past three investment cycles held up as volume surged, and that additional capacity is available in the East and the South for growth[33]. Current disclosures do not quantify CN's unit-cost or service gap against CPKC and the U.S. Class I railroads, so these advantages can only be compared qualitatively.

The U.S. industry structure is shifting because of the proposed UP–NS merger. The U.S. Surface Transportation Board (STB) accepted the amended Union Pacific (UP) and Norfolk Southern (NS) merger application on May 28, 2026, and CN recorded C$49 million of related advisory costs across the fourth quarter of 2025 and the first half of 2026[40][25]. On July 22, 2026, CN and UP signed two binding memoranda of understanding: a commercial agreement grants CN operating rights over UP's line between Memphis and Eagle Pass, Texas, for Canada–Mexico traffic, does not depend on the merger but needs STB approval, and gives UP expanded rights over CN's EJ&E corridor around Chicago[41]; a settlement agreement, contingent on approval and completion of the merger, gives CN competitive access to Kansas City and UP's Neff Yard, and CN agreed not to oppose the merger[42][43]. In its second-quarter management discussion, the company still warned that if the merger is ultimately approved it could have a material adverse impact on its competitive position[40].

Core Debates

In the second quarter, the increase in fuel surcharge revenue almost exactly offset the increase in fuel cost, yet it still pushed the operating ratio up by 210 basis points. With surcharges lagging fuel prices by two months, will the third quarter deliver the roughly C$0.15 of EPS and about 100 basis points of operating-ratio tailwind management described?

Fuel is the first gate for reading the third quarter, because it is CN's largest variable cost and is billed with a two-month lag. Second-quarter fuel expense was C$659 million, or 13.9% of revenue, and because surcharges are set on on-highway diesel prices from two months earlier, sharp rises or falls in oil prices push quarterly margins away from underlying operations[11][2][12][34]. The C$2.087 consensus for third-quarter EPS is about 14% above the C$1.83 of a year earlier, and more than half of that increase corresponds to management's estimate of the fuel tailwind, so judging the quarter starts with separating fuel from everything else[7][8][6].

Second-quarter evidence shows that fuel was nearly neutral for profit dollars but clearly negative for the margin. The average fuel price was US$5.67 per gallon (US$3.55 a year earlier; US$4.19 in the first quarter; US$4.86 for the first half; US$3.91 for full-year 2025), fuel expense rose C$246 million and surcharge revenue rose C$242 million, and management said fuel had no impact on EPS but raised the operating ratio by 210 basis points[3][19][23][11][10][6]. The adjusted operating ratio was 62.2%, an improvement of about 160 basis points excluding fuel, and adjusted EPS was C$2.08; for comparison, the third quarter of 2025 had operating income of C$1.606 billion on revenue of C$4.165 billion, an operating ratio of 61.4% and diluted EPS of C$1.83, with no adjustment items in that quarter[2][8][25].

Fuel affects profit through both revenue and expense lines, at different points in time. On-highway diesel prices from two months earlier set the surcharge rate, which feeds revenue per RTM and freight revenue, while the current locomotive diesel price times consumption sets fuel expense, and consumption depends on GTMs and fuel efficiency, which improved 3% to 0.836 U.S. gallons per 1,000 GTMs in the second quarter[44]. The change in surcharge revenue minus the change in fuel expense flows into operating income and adjusted EPS, and because surcharges also enlarge the revenue denominator, the operating ratio is pushed up even when profit dollars are unchanged[10][4]. The CFO said that if oil prices and the on-highway diesel spread to WTI stayed at July levels, the third-quarter fuel tailwind would be close to C$0.15 of EPS and about 100 basis points of operating ratio, and the fourth-quarter benefit about C$0.10 and 30 basis points, while stressing that fuel prices are highly volatile and the picture could reverse quickly[6][34].

What remains unresolved is how much of the second quarter's improvement excluding fuel carries into the third quarter. An alternative explanation holds that part of that improvement came from the peak in grain volume and one-off factors other than incentive compensation, so even if the fuel tailwind arrives, the operating-ratio improvement could be smaller than 100 basis points; the gap between the surcharge increase and the fuel-expense increase, and the size of the improvement against last year's 61.4% operating ratio, can tell the two cases apart[8]. The third-quarter report should show whether the average fuel price fell below the second quarter's US$5.67 per gallon, whether adjusted EPS exceeded C$1.98 (last year's C$1.83 plus the fuel tailwind), and how management updates its fourth-quarter fuel view. If the adjusted operating ratio is not below 61.4%, if the surcharge increase minus the fuel-expense increase is below C$60 million, or if adjusted EPS is below C$1.98, the current understanding of the fuel tailwind is falsified.

CN grew revenue ton miles 5% in the second quarter on record Western Canadian grain and stronger refined products and natural gas liquids, while overseas container volumes shrank. Can grain and energy keep carrying volume in the third quarter so that the full-year assumption of low single-digit RTM growth holds?

Third-quarter volume decides whether the full-year assumption raised in July holds[5]. Grain and fertilizers, petroleum and chemicals, and intermodal together make up about 63% of revenue, and in July the company raised its full-year RTM assumption from flattish to low single-digit growth because volume was stronger than expected, while lifting EPS guidance to the mid-to-high single digits[20][45]. Volume is how a railroad spreads its fixed costs, and the fourth quarter faces a high base from last year's record grain, which makes the third quarter the key test of the volume assumption[46].

Second-quarter growth was concentrated in grain and energy, while overseas containers shrank. Grain and fertilizers RTMs were 18.369 billion, up 11%, on revenue of C$980 million, up 18%; petroleum and chemicals RTMs were 11.874 billion, up 11%, on revenue of C$941 million, up 16%; intermodal RTMs were 13.730 billion, down 1%, with carloads down 5%, while revenue rose 8% to C$1.087 billion mainly on surcharges and rates[13][14][15]. Total RTMs were 62.250 billion in the second quarter, up 5%, 61.834 billion in the first quarter, up 3%, 124.084 billion for the first half, up 4%, and 238.159 billion for full-year 2025, up 1%[3][28][23].

Volume affects profit through commodity revenue and cost absorption, but grain revenue is capped by regulation. Harvests and export demand, refinery and NGL exports, port imports and the company's choices about overseas container volume determine RTMs by group, which multiplied by revenue per RTM produce freight revenue; volume run over the existing track, fleet and crews spreads unit costs and improves the operating ratio, while regulated Western grain revenue is limited by the maximum revenue entitlement[22]. Management said grain would remain the main driver of RTM growth in the third quarter, that the energy business continued to benefit from refined products, new crude business and additional fractionation capacity, and that overseas intermodal would be weaker in the second half[47][32]; a company news release on October 6 reported a record 7.94 million tonnes of Western Canadian grain moved in the third quarter[1].

What remains unresolved is how much of the second-quarter growth is trend and how much is an easy comparison. An alternative explanation holds that part of the growth came from low prior-year bases and one-off factors such as customer maintenance outages a year earlier and shipments pulled ahead of tariffs, that volume after a big crop year would fall clearly in the fourth quarter, and that full-year low single-digit growth is more a carry-over from the first half than a trend; whether commodity groups other than grain grow in the third quarter, and whether the intermodal decline stays contained, can tell the two cases apart. The third-quarter report should show whether total RTM growth is at least about 4%, how fast grain and fertilizers RTMs and revenue grow and whether revenue per RTM is diluted by the revenue cap, whether petroleum and chemicals keep high single-digit growth as easy comparisons fade, how intermodal declines and unit revenue change, and what management says about the tough fourth-quarter grain comparison and 2027 volume. If third-quarter total RTM growth is below 2%, grain and fertilizers RTM growth is below 5%, or intermodal RTMs fall by more than 5%, the understanding that volume supports the full-year assumption is falsified.

CN ran the second quarter with 5% fewer employees and 9% more gross ton miles per employee, yet operating expenses excluding fuel still rose 3.4%, in line with volume. Can non-fuel costs grow more slowly than volume in the third quarter so that the operating ratio keeps improving beyond the fuel effect?

Non-fuel costs decide whether the margin still has a source of improvement once the fuel tailwind passes. Labor and fringe benefits plus purchased services and material make up about a third of revenue and are CN's most controllable costs; the company raised 2026 EPS guidance to the mid-to-high single digits partly on the operating leverage that volume provides[21][5][48]. If productivity gains are absorbed by wages, incentive pay and purchased services, the margin loses its source of improvement once the fuel tailwind fades.

Headcount fell clearly in the second quarter, but non-fuel expenses did not grow more slowly than volume. Average headcount was 23,719, down 5% (23,825 at period end; a 2025 average of 24,507), GTMs per employee rose 9% to 5.105 million, and first-quarter GTMs per employee had risen 8% in the best first quarter in five years[3][44][28][23]. Labor and fringe benefits were C$889 million, up 3%, including about C$40 million of higher incentive compensation; purchased services and material were C$641 million, up 11%, on higher trucking and vessel costs and including C$17 million of advisory costs[17][4][48]. Operating expenses excluding fuel and adjustment items were about C$2.296 billion (operating expenses of C$2.972 billion minus fuel of C$659 million and advisory costs of C$17 million, against C$2.634 billion minus C$413 million, or C$2.221 billion, a year earlier), up 3.4%, while GTMs rose 3% to 121.082 billion[16][11][44].

Productivity reaches the operating ratio through two cost lines, labor and purchased services. Train length, crew and locomotive utilization and Fast Track yard processes determine GTMs per employee and average headcount, and therefore labor and fringe benefits; volume and transport mode (trucks and vessels) determine purchased services and material; and non-fuel expense growth minus GTM growth determines unit cost and the operating ratio excluding fuel[44][17]. Management said Fast Track had delivered close to C$100 million of benefits so far this year and that crew productivity had improved about 13%[49].

What remains unresolved is whether lower headcount reflects lasting efficiency or a one-off effect. An alternative explanation holds that the decline mainly reflects the one-time effect of the late-2025 workforce reduction (with C$34 million of severance recorded that year[25]), and that incentive pay, wage increases and volume-driven outsourced transport costs will stop non-fuel unit costs from falling; the growth of non-fuel expenses relative to GTMs in the third quarter, and whether headcount keeps falling, can tell the two cases apart. The third-quarter report should show the gap between growth in operating expenses excluding fuel and adjustment items and GTM growth, whether average headcount keeps falling year over year, how labor and fringe benefits and incentive pay change, how trucking, vessel and advisory costs within purchased services and material move, and how management updates Fast Track benefits. If non-fuel operating expense growth exceeds GTM growth by more than 2 percentage points, labor and fringe benefits rise more than 6%, or average headcount rises year over year, the understanding that productivity supports the margin is falsified.

Risks and Falsifiers

The UP–NS merger could change CN's competitive position in the U.S., and most of the remedies CN secured are not yet in effect. If the STB approves the merger, it could have a material adverse impact on CN's competitive position; CN's settlement agreement with UP (Kansas City access and relief for customers going from two railroads to one or from three to two) depends on approval and completion of the merger, the Mexico operating rights in the commercial agreement also need STB approval, and both the timing and size of any benefit are uncertain[40][41][42]. The exposed financial lines are U.S. domestic revenue (16%) and transborder revenue (29%), and CN had already recorded C$34 million of advisory costs as adjustment items in the first half of 2026[18][2]. If the STB approves the CN–UP commercial agreement, it takes effect, and the third-quarter or later reports show new volume moving via Memphis–Eagle Pass, this risk assessment is falsified[43].

Uncertainty over the trade framework threatens transborder traffic and two commodity groups already hurt by tariffs. On July 1, 2026, the U.S. notified its partners that it would not support renewal of the USMCA in its current form, and the outcome of the review could affect Canada–U.S.–Mexico trade; forest products are already weighed down by U.S. anti-dumping and countervailing duties and Section 232 tariffs, and steel and aluminum also face high tariffs[50]. The exposure is transborder revenue of about 29% of 2025 total revenue, together with forest products (C$1.839 billion) and metals and minerals (C$1.962 billion)[18][20]. If forest products and metals and minerals RTMs are flat or higher year over year during the USMCA review, the current understanding of the trade drag is falsified[45].

Canadian labor negotiations could raise labor costs or, in the worst case, interrupt volume across the network. The TCRC collective agreement covering about 6,000 conductors, engineers and yard workers expires on December 31, 2026, and a 2024 work stoppage by that union diverted freight to other modes and ports; a new agreement could raise labor costs or lead to a stoppage[51]. The exposure is labor and fringe benefits (C$3.510 billion in 2025, or 20.3% of revenue) and network-wide volume, and 73% of CN's 17,176 employees in Canada were unionized at the end of 2025[21][52]. If the TCRC reaches and ratifies a new agreement before expiry without a stoppage, this risk is falsified.

The fuel lag could reverse from a tailwind into a headwind. Surcharges are set on diesel prices from two months earlier, so if diesel rises again in the third quarter the lag turns from tailwind to headwind and the roughly C$0.15 EPS benefit management estimated would not materialize[12][34][6]. The exposure is fuel expense (C$659 million in the second quarter of 2026, or 13.9% of revenue) and fuel surcharge revenue, and through them the operating ratio and adjusted EPS[11][3]. If the third-quarter average fuel price is below the second quarter's US$5.67 per gallon and the surcharge increase exceeds the fuel-expense increase by at least C$90 million, this risk is falsified.

Volume could slow markedly after the third quarter. Slower exports after a big crop year and fading easy comparisons in refined products, combined with a deliberate pullback in overseas containers and tariff effects on forest products and metals, could slow RTM growth significantly after the third quarter, and the fourth quarter faces last year's record base[47][46]. The exposure is the C$4.559 billion of second-quarter freight revenue, including grain and fertilizers of C$980 million, petroleum and chemicals of C$941 million and intermodal of C$1.087 billion, and lower volume would weaken fixed-cost absorption[13][14][15]. If third-quarter total RTM growth is at least 4% and grain and fertilizers RTM growth is at least 10%, this risk is falsified.

Cost inflation could eat away the gains from productivity. General wage increases, incentive pay that rises with results, outsourced trucking and vessel costs, and winter and accident costs could stop non-fuel unit costs from falling, and in the first quarter winter operations and accident costs had already worsened the adjusted operating ratio by 80 basis points[17][28]. The exposure is labor and fringe benefits (C$889 million in the second quarter of 2026) and purchased services and material (C$641 million), and through them the operating ratio[16][4]. If third-quarter operating expenses excluding fuel and adjustment items grow no faster than GTMs and labor and fringe benefits rise no more than 4%, this risk is falsified.

What to Watch Next

The third-quarter report can pin the three core debates and two cross-cutting risks to specific numbers:

• Fuel surcharge lag: watch the average fuel price against the second quarter's US$5.67 per gallon and the surcharge increase minus the fuel-expense increase (C$242 million versus C$246 million in the second quarter). A gap below C$60 million falsifies the tailwind; a lower fuel price with a gap of at least C$90 million confirms it.
• Fuel and margin: compare the adjusted operating ratio and adjusted EPS with 61.4% and C$1.83 in the third quarter of 2025. An operating ratio not below 61.4% or EPS below C$1.98 falsifies the current view.
• Grain and energy volume: total RTMs grew 5% in the second quarter and 4% in the first half. Growth below 2% falsifies the volume view; growth of at least 4% with grain and fertilizers up at least 10% confirms it.
• Commodity mix: grain and fertilizers RTMs rose 11% and intermodal fell 1% in the second quarter. Grain and fertilizers below 5%, or an intermodal decline larger than 5%, falsifies the view.
• Non-fuel costs: non-fuel operating expenses rose 3.4% against 3% GTM growth. A gap above 2 percentage points falsifies the productivity view; growth no faster than GTMs with labor up no more than 4% confirms it.
• Headcount and labor: average headcount was 23,719 (down 5%) and labor and fringe benefits C$889 million (up 3%). A year-over-year headcount increase or labor growth above 6% falsifies the view.
• Cross-cutting risks: the STB accepted the merger application in May 2026 and the TCRC agreement expires on December 31, 2026. New Memphis–Eagle Pass volume and a renewal without a stoppage would reduce these risks.

Conclusion

CN's results are driven by three relationships: volume from grain and energy, the two-month lag between fuel surcharges and diesel prices, and the pressure productivity puts on non-fuel costs[10][12][3]. In 2025 the company earned revenue of C$17.304 billion, adjusted EPS of C$7.63 and free cash flow of C$3.336 billion; in the second quarter of 2026 revenue grew 11%, adjusted EPS was C$2.08 and leverage was 2.61 times, but fuel pushed the operating ratio up by 210 basis points[23][2][27]. The central unresolved relationship is whether those 210 basis points turn into a tailwind of about 100 basis points in the third quarter as surcharges catch up, and whether volume and non-fuel costs keep delivering improvement beyond fuel[4].

Between the second-quarter report and October 19, there was a coverage gap in independent third-party interpretation of the third quarter's operating questions. Public material consisted mainly of results recaps, the October 6 grain-record and results-date announcements, industry coverage of the UP agreements, and brokers' changing views on the share price along with stock articles that derive a share price from financial models, none of which offered a checkable independent judgment on the fuel lag, the volume mix or non-fuel costs. The only reference points are management's own statements and the figures compiled by Drillr: the 17-analyst average of C$2.087 for third-quarter EPS is about 14% above a year earlier, with about C$0.15 of that matching management's fuel estimate, and the 19-analyst full-year average of C$8.149 is about 6.8% above 2025 adjusted EPS of C$7.63, within the company's mid-to-high single-digit guidance[7][9][5]; these compiled figures are outside expectations and cannot substitute for an independent assessment of the operating questions.

The combination that would materially strengthen the current understanding is a third-quarter average fuel price below US$5.67 per gallon, a surcharge increase exceeding the fuel-expense increase by at least C$90 million and an adjusted operating ratio below last year's 61.4%, together with total RTM growth of at least 4% and non-fuel operating expense growth no faster than GTMs. Conversely, a fuel gap below C$60 million, adjusted EPS below C$1.98, RTM growth below 2% or labor and fringe benefits growth above 6% would suggest the second-quarter improvement owed more to one-off factors, leaving full-year guidance of mid-to-high single-digit EPS growth more dependent on the fourth quarter. Whether the TCRC agreement is renewed without a stoppage before the end of 2026, and how the STB rules on the CN–UP commercial agreement, will shape whether these quarterly relationships carry into 2027.

Sources

[1] CN news release 2026-10-06 (via Drillr news) · third-quarter 2026 financial and operating results before markets open on October 30, 2026; Drillr earnings calendar updated 2026-10-18 · 2026-10-18 · CN news release / Drillr earnings calendar

[2] CNI 6-K filed 2026-07-24 · 2Q26 results highlights · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2pressreleasestatssu.htm

[3] CNI 6-K filed 2026-07-24 · 2Q26 selected railroad statistics · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2pressreleasestatssu.htm

[4] CNI Q2 2026 earnings call 2026-07-24 · CFO opening: operating ratio, labor and fuel expense · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[5] CNI 6-K filed 2026-07-24 · revised 2026 financial guidance · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2pressreleasestatssu.htm

[6] CNI Q2 2026 earnings call 2026-07-24 · CFO Q&A: third- and fourth-quarter fuel impact · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[7] Drillr analyst_financial_estimates (updated 2026-10-16) · CNI quarter ending 2026-09-30 · 2026-10-16 · Drillr analyst_financial_estimates · https://gateway.drillr.ai/mcp/private

[8] CNI 6-K filed 2026-07-24 · summary of quarterly financial data · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[9] Drillr analyst_financial_estimates (updated 2026-10-16) · CNI FY2026 · 2026-10-16 · Drillr analyst_financial_estimates · https://gateway.drillr.ai/mcp/private

[10] CNI 6-K filed 2026-07-24 · 2Q26 revenue drivers and fuel surcharge revenues · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[11] CNI 6-K filed 2026-07-24 · 2Q26 fuel expense · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[12] CNI 40-F filed 2026-02-04 · fuel surcharge program and commodity price risk · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[13] CNI 6-K filed 2026-07-24 · 2Q26 grain and fertilizers · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[14] CNI 6-K filed 2026-07-24 · 2Q26 petroleum and chemicals · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[15] CNI 6-K filed 2026-07-24 · 2Q26 intermodal · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[16] CNI 6-K filed 2026-07-24 · 2Q26 operating expenses by line · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[17] CNI 6-K filed 2026-07-24 · 2Q26 labor and purchased services · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[18] CNI 40-F filed 2026-02-04 · business overview, network and revenue mix · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[19] CNI 6-K filed 2026-04-29 · 1Q26 operating statistics · 2026-04-29 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000026/a2026q1pressreleasestatssu.htm

[20] CNI 40-F filed 2026-02-04 · 2025 revenues by commodity group · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[21] CNI 40-F filed 2026-02-04 · 2025 operating expenses: labor, purchased services and fuel · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[22] CNI 40-F filed 2026-02-04 · grain and fertilizers 2025 and regulated grain revenue cap · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[23] CNI 40-F filed 2026-02-04 · 2025 key financial and operating statistics · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[24] CNI 40-F filed 2026-02-04 · 2025 results of operations · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[25] CNI 40-F filed 2026-02-04 · 2025 adjusted net income items · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[26] CNI 40-F filed 2026-02-04 · 2025 fuel and carbon surcharge revenues · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[27] CNI 6-K filed 2026-07-24 · 2Q26 liquidity and commercial paper · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[28] CNI 6-K filed 2026-04-29 · 1Q26 results highlights · 2026-04-29 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000026/a2026q1pressreleasestatssu.htm

[29] CNI 6-K filed 2026-04-29 · 1Q26 reaffirmed 2026 guidance · 2026-04-29 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000026/a2026q1pressreleasestatssu.htm

[30] CNI Q2 2026 earnings call 2026-07-24 · CCO opening: same-store pricing and mix · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[31] CNI Q2 2026 earnings call 2026-07-24 · CCO Q&A: pricing ahead of rail cost inflation · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[32] CNI Q2 2026 earnings call 2026-07-24 · CCO: second-quarter commodity detail · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[33] CNI Q2 2026 earnings call 2026-07-24 · COO Q&A: network capacity and capital projects · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[34] CNI Q2 2026 earnings call 2026-07-24 · CFO Q&A: fuel surcharge two-month lag · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[35] CNI 6-K filed 2026-07-24 · 2Q26 interest and income tax · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[36] CNI Q2 2026 earnings call 2026-07-24 · CFO opening: WTI, FX and tax-rate assumptions · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[37] CNI 40-F filed 2026-02-04 · 2026 business outlook and assumptions · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[38] CNI 40-F filed 2026-02-04 · NCIB and 2026 dividend · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[39] CNI 40-F filed 2026-02-04 · competition · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[40] CNI 6-K filed 2026-07-24 · UP-NS merger review and CN MOU · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[41] CNI 6-K filed 2026-07-23 · UP and CN commercial agreement on Canada-Mexico rights · 2026-07-23 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000110465926085989/tm2621143d1_6k.htm

[42] CNI 6-K filed 2026-07-23 · UP-NS merger settlement agreement · 2026-07-23 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000110465926085991/tm2621143d2_6k.htm

[43] CNI Q2 2026 earnings call 2026-07-24 · CEO opening: Union Pacific agreements · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[44] CNI 6-K filed 2026-07-24 · 2Q26 operating performance highlights · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2pressreleasestatssu.htm

[45] CNI 6-K filed 2026-07-24 · 2026 key assumptions · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2pressreleasestatssu.htm

[46] CNI Q2 2026 earnings call 2026-07-24 · CEO Q&A: volumes and tough fourth-quarter comparison · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[47] CNI Q2 2026 earnings call 2026-07-24 · CCO: second-half commodity outlook · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[48] CNI Q2 2026 earnings call 2026-07-24 · CFO opening: raised outlook and assumptions · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[49] CNI Q2 2026 earnings call 2026-07-24 · COO: productivity and Fast Track savings · 2026-07-24 · earnings-call · https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/

[50] CNI 6-K filed 2026-07-24 · trade restrictions and USMCA review · 2026-07-24 · 6-K · https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm

[51] CNI 40-F filed 2026-02-04 · labor negotiations and TCRC agreement · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm

[52] CNI 40-F filed 2026-02-04 · workforce and unionization · 2026-02-04 · 40-F · https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm