Canadian National Railway Co. Q3 FY2023 earnings call

• Appointed Derek Taylor as Executive Vice President and Chief Field Operating Officer and Pat Whitehead as Executive Vice President and Chief Network Operating Officer to strengthen operational competencies. - Q3 had disruptions like West Coast port strike, forest fires, and flooding, but the network performed resiliently with origin train departure at 89%. - Safety metrics: Six more reportable injuries and two more reportable FRA accidents than Q3 2022, but year-to-date injury frequency ratio and accident ratio were better than 2022. - Growth initiatives: New long-term agreement with AltaGas, progress on Rupert Gateway, Falcon Service development, Eastern Fuel Strategy, and EV supply chain projects in Eastern Canada.

Bulk Business: Strong all year; grain had a strong weekly ramp-up in September with crops coming in earlier than last year, and potash handled record volumes. Merchandise Business: Chemicals and plastics inflected in August, automotive benefited from strong pent-up demand. Intermodal Business: Domestic intermodal volumes held up due to initiatives like EMP and Falcon Service, but international intermodal was affected by port strikes and destocking. Revenue-wise, third quarter revenues were nearly CAD 4 billion, down 12% year-over-year, with RTMs down 5% but excluding overseas up 1%.

• Reaffirmed full-year 2023 guidance of flat to slightly negative EPS growth versus 2022. - Reaffirmed the long-term goal of 10%-15% CAGR in EPS. - Expected volumes to gradually recover, with bulk leading the charge, and confidence in the resiliency of the North American economy driving growth. - Increased the share repurchase program budget to approximately $4.5 billion.

• External disruptions: Port strikes, forest fires, flooding impacted operations and financials. - Labor agreements: Potential impact on cargo diversions and operations at Eastern ports like Port of Montreal and St. Lawrence Seaway. - Economic uncertainties: Impact on volume growth tied to overall economic strength, especially affecting international intermodal recovery.

Q: What's the extent of structural vs temporary nature of the weakness in Prince Rupert container traffic and confidence in volume returning?

A: Tracy Robinson stated it's temporary, citing structural advantages of Rupert in service and economics, working with customers for gradual recovery, and ongoing investments at Rupert.

Q: Any customer uptick on interswitching due to BILL C-47?

A: Tracy Robinson said they're focused on driving high performance, objected to interswitching as it slows service, and no significant impact seen yet.

Q: Implied 4Q guide and moving pieces for OR improvement?

A: Ghislain Houle noted sequential volume improvement, and Tracy Robinson mentioned strength in volumes and pricing ahead of inflation.

Q: What's needed for new interchange partnerships to work better?

A: Tracy Robinson and Doug MacDonald said it's about service, focusing on quickest transit times to compete with truck, and conducting dialogues as if a single carrier.

Q: Parting question on Falcon service success and customer preferences?

A: Tracy Robinson and Doug MacDonald discussed the consistent delivery of Falcon service, targeting truck-like transits, and initial success with STG Logistics.

Q: CAD 0.20 headwinds in Q3 from fuel and disruptions and long-term 10%-15% EPS guide?

A: Ed Harris and Tracy Robinson explained the headwinds and reaffirmed the commitment to the 10%-15% EPS CAGR goal.

Q: Volume visibility for international intermodal return and domestic intermodal RFPs?

A: Ed Harris said international intermodal volume recovery expected to be gradual over a year, and domestic intermodal sees RFPs with trials and building trust.

Q: 4Q volume growth and cost per headcount?

A: Tracy Robinson and Ghislain Houle discussed sequential volume growth and a 2% sequential increase in average comp per employee in Q3 due to U.S. wage increases.

Q: Casualty costs trend and upside downside on 10%-15% EPS guide?

A: Doug MacDonald explained casualty costs are mostly due to true-ups in horsepower and not a trend, and the guide depends on volume growth tied to economic strength.

Q: Eastern ports labor agreements and next milestones?

A: Doug MacDonald discussed preparations for Port of Montreal labor agreement with plans to use Port of Halifax, and next milestone is new RFP for port operator.

Q: Headcount and resource needs for growth?

A: Tracy Robinson said they're resourced for current volume, planning for future growth with incremental train starts and leveraging existing crew base.

Q: Grain harvest outlook and automotive EV supply chain?

A: Tracy Robinson and Ed Harris discussed grain harvest balance and progress in EV supply chain with multiple projects on CN's network for raw lithium movement.

Q: Sequential yields and core pricing trends?

A: Tracy Robinson and Ed Harris noted pricing is above inflation, but revenue line has noise from various factors, and underlying pricing is strong.

Q: EV supply chain volume capture and OEM production adjustments?

A: Ed Harris said EV supply chain projects are progressing with multiple plants on CN's network, and OEM production adjustments are okay with time for plant construction.