CN (CNI) Q3 2026 Earnings: Labor Costs Outpace Rail Volume Growth

Canadian National Railway (CN, NYSE: CNI) reported third-quarter 2026 results on October 30, 2026, through its 6-K quarterly filing and earnings call, covering the quarter ended September 30. CN's Q3 2026 adjusted diluted EPS rose 18%, but non-fuel costs grew faster than volume [1][3]. Three questions framed the quarter: whether the fuel surcharge lag would improve both profit and the operating ratio, whether grain and energy volumes could hold up full-year growth, and whether a smaller workforce would keep non-fuel cost growth below volume growth. The fuel profit tailwind arrived but diluted the operating ratio, volume was in line with the full-year assumption, and labor and fringe benefits rose 6.9%. Taken together, profit growth came from volume, pricing and fuel; crew productivity is still improving, but the cost benefit from headcount reductions is shrinking.

CN runs a rail network of nearly 20,000 miles linking Canada's east and west coasts with the U.S. Midwest and the Gulf of Mexico [4]. It hauls grain, fertilizer, petrochemicals, containers and other freight, charges by volume and rate, and passes diesel price changes to customers through a fuel surcharge [4].

Labor and non-fuel costs grew faster than volume

Crew productivity kept improving in the third quarter, but costs did not spread over the extra volume. Average headcount was 23,784, down 2.6% year over year; gross ton miles (GTMs, a measure of train workload) rose 3.9%, and GTMs per employee rose 6.6% [1]. Labor and fringe benefits were C$871 million, up 6.9%, or about 6% at constant currency [2]. In the second quarter, headcount fell 5% year over year and labor rose only 3% [6].

The smaller headcount decline is one reason labor costs accelerated. The prior-year base had already fallen, and headcount did not decline further sequentially this quarter [1]. Management attributed the labor increase to general wage increases and about C$35 million of incentive compensation, which is accrued with performance; lower capital credits added about C$15 million of expense [3].

Non-fuel costs as a whole also outpaced volume. Adjusted operating expenses were C$2,909 million; excluding C$662 million of fuel, they were about C$2,247 million, up 5.0% from about C$2,141 million and roughly 1.1 percentage points faster than GTM growth [1][2]. In the second quarter, that gap was about 0.4 percentage points [6]. Excluding the incentive compensation and capital-credit items, both approximate management figures, non-fuel costs rose about 2.6%, below volume growth, so structural unit costs are still falling [3].

This revises the earlier view of cost leverage. Adjusted operating ratio excluding fuel fell from 61.4% to 60.4%, and the improvement came mainly from volume and pricing [3]. Management said its Fast Track process program has realized about C$120 million of benefits, but it did not break that figure down by cost line [3]. With the headcount benefit fading, labor leverage depends more on output per employee; the labor agreements for running-trade employees and track workers expire on December 31, and the new wage terms are unknown [2].

Fuel surcharge lag lifted profit but not the operating ratio

CN bills its fuel surcharge on diesel prices from about two months earlier, and the profit tailwind this quarter broadly matched the July estimate. In July the CFO estimated that fuel could add close to C$0.15 of EPS and about 100 basis points of operating-ratio tailwind in the third quarter [5]. The average fuel price in the third quarter was US$6.09 per gallon, up 59% year over year; fuel surcharge revenues rose C$343 million and fuel expense rose C$244 million [1][2]. The CFO said fuel added C$0.14 to EPS but diluted the operating ratio by 50 basis points, a figure he later gave as 60 basis points [3].

The operating ratio did not benefit because the surcharge lifts both revenue and expense. The adjusted operating ratio was 61.0%, an improvement of only 40 basis points; excluding fuel, adjusted EPS was about C$2.02, still about 10% above the prior-year C$1.83 [1][3]. The CFO expects that, if fuel stays at current spot prices, fuel will add about C$0.10 of EPS in the fourth quarter and create a 100 to 150 basis point operating-ratio headwind [3].

Volume growth matched the full-year assumption

Revenue ton miles rose 4% in both the third quarter and the first nine months, consistent with CN's maintained assumption of low single-digit growth for the year [1]. Grain and fertilizer volume rose 12% and revenue rose 19%; petroleum and chemicals volume rose 5%, partly reflecting a low prior-year base from customer turnarounds; intermodal volume fell 3% [1][2]. Management expects grain growth to moderate in the fourth quarter against last year's record [3].

Conclusion

The quarter confirms that CN's volume and profit dollars are still growing, but the sources of profit conversion differ from the earlier view. About 40% of the adjusted EPS increase came from the fuel lag, and most of the rest came from volume and pricing [1][3]. Free cash flow for the first nine months was C$2,918 million, up 25%, mainly because capital spending fell while operating cash flow was roughly flat [1]. A C$118 million information-technology impairment affected only reported profit [1]. The next tests are whether non-fuel cost growth falls back below volume growth in the fourth quarter, whether the fuel tailwind materializes, and the wage terms of the new labor agreements.

Sources

[1] CNI 6-K filed 2026-10-30 · Q3 2026 earnings news release (EX-99.1), 2026-10-30, Canadian National Railway, Form 6-K quarterly news release, https://www.sec.gov/Archives/edgar/data/16868/000001686826000041/a2026q3pressreleasestatssu.htm [2] CNI 6-K filed 2026-10-30 · Q3 2026 Management's Discussion and Analysis, 2026-10-30, Canadian National Railway, Form 6-K management's discussion and analysis, https://www.sec.gov/Archives/edgar/data/16868/000001686826000041/a2026q3mda.htm [3] CNI Q3 2026 earnings call 2026-10-30 · transcript (Drillr earning_call_summary.content), 2026-10-30, Canadian National Railway earnings call transcript, drillr:earning_call_summary/CNI/2026-10-30 [4] CNI 40-F filed 2026-02-04 · business overview, network and revenue mix, 2026-02-04, Canadian National Railway, Form 40-F annual report, https://www.sec.gov/Archives/edgar/data/16868/000001686826000011/a2025annualstatsmda.htm [5] CNI Q2 2026 earnings call 2026-07-24 · CFO Q&A: third- and fourth-quarter fuel impact, 2026-07-24, Canadian National Railway earnings call transcript, https://www.fool.com/earnings/call-transcripts/2026/07/24/cni-cni-q2-2026-earnings-call-transcript/ [6] CNI 6-K filed 2026-07-24 · 2Q26 operating expenses by line, 2026-07-24, Canadian National Railway, Form 6-K management's discussion and analysis, https://www.sec.gov/Archives/edgar/data/16868/000001686826000036/a2026q2mda.htm