Canadian National Railway Co. Q1 FY2024 earnings call

• Q1 was a solid quarter, setting up for future growth. - Acknowledged Doug MacDonald's retirement and welcomed Remi's transition. - Discussed TCRC negotiations context, emphasizing the need for an agreement to ensure crew availability and employee predictability. - Safety focus: injury and accident rates increased in Q1 but saw improvement in April; addressed slips, trips, and falls with walking simulators and hazard reporting app. - Network remained fluid despite winter weather, added eight trains per week out of Vancouver and Prince Rupert in April; investing in network capacity in key corridors. - Field execution: local service commitment performance improved to 92% for the quarter; operational momentum building with manifest trains having growth potential. - CN specific growth projects advancing as expected, including initiatives in Northeast BC and intermodal partnerships.

First quarter revenues were down 1% versus last year due to lower applicable fuel surcharge. Petroleum and chemicals led the way in Q1 at 6% RTM growth, with record volumes in refined products and natural gas liquids. Crude volumes were down year-over-year but expected to move higher sequentially for the rest of 2024. Metals and minerals RTMs increased 4% in Q1 due to stronger frac sand volumes. Forest products RTMs decreased 5% in the quarter, but center beam orders for lumber have increased sequentially. Grain and fertilizer RTMs were flat overall as strong potash growth in Q1 fully offset softer grain volumes. Automotive RTMs were up 6% on stronger Vancouver imports. International intermodal was up 5% for the quarter, continuing the steady upward trend, while domestic volume was down 3% on ample truck capacity.

• Expect 10% EPS growth in 2024 versus 2023. - WTI assumption range revised to $80 to $90 per barrel from previous $70 to $80 per barrel. - Confident in delivering growth driven by both macro environment improvement and CN specific growth initiatives, which are diversified from a commodity and geographic standpoint. - Foreign exchange for the year expected to be around $0.75.

• Winter weather poses increased safety exposures and operational challenges. - Uncertainties in TCRC labor negotiations could impact crew availability and operations. - Macro environment remains volatile with continued monetary policy and geopolitical risks. - Weak sectors such as intermodal international and forest products continue to face challenges.

Q: Provide additional color on international intermodal segment sustaining growth into the back half of the year?

A: Doug MacDonald said West Coast growth strong post-strike, but East Coast impacted by Suez Canal routing; customers confident in continuation.

Q: On pricing, what is inflation and is pricing firming up?

A: Doug MacDonald said still pricing above rail inflation, with domestic intermodal facing truck capacity pressure but expecting capacity decline.

Q: On CN specific growth initiatives and impact on outlook?

A: Doug MacDonald said projects running as per plan, with some delays adjusted for economic sense, and other projects moving forward.

Q: Confidence in full year number and macro backdrop?

A: Tracy Robinson and Ghislain Houle said macro environment improving, CN specific growth initiatives diversified, giving confidence in volume delivery.

Q: Headcount expectation given volume ramp-up?

A: Patrick Whitehead said headcount will increase but not 1:1 due to training lead time.

Q: Thoughts on Milton project court decision?

A: Doug MacDonald said appeal filed, expecting decision on stay in months, dedicated to moving project forward.

Q: Mid-single digit RTM growth realism and strength sources?

A: Doug MacDonald said April RTMs up 7%, confident in maintaining guidance with economic and project factors.

Q: Cost ex-fuel up 5% in quarter?

A: Ghislain Houle said harsher winter in January led to more fuel consumption, and fuel surcharge down year-over-year.

Q: Comfort level with original guidance?

A: Ghislain Houle said Q1 delivered as per plan, confident in 10% EPS growth with volume, price, and operations factors.

Q: View on Viterra-Bunge potential merger?

A: Doug MacDonald said no significant conflict seen, Viterra is top customer, Bunge has little business with CN.

Q: OR seasonality and labor negotiation impact?

A: Ghislain Houle said Q1 has highest OR historically, Tracy Robinson said in labor negotiations for hourly agreement with TCRC for predictability and benefits.

Q: Crude by rail and coal view?

A: Doug MacDonald said new crude terminal in Baton Rouge helps, Canadian coal to pick up, U.S. coal market tough.

Q: Undone items and Remi's role?

A: Doug MacDonald said undone items to be turned over to Remi, who will work on creating growth products for customers.

Q: Productivity and purchase services down?

A: Ghislain Houle said down 4% due to less snow clearing, outsourced services, and maintenance, not expecting lower run rate going forward.

Q: Canadian grain pricing and pipeline growth?

A: Doug MacDonald said Canadian grain pricing strong, expecting good year, and pipeline growth in refined products and LPGs advancing.

Q: Locomotive plans and CARB regulations?

A: Patrick Whitehead said continuing locomotive modernization, working with OEMs on future technologies; Tracy Robinson said watching industry collaboration on CARB regulations.