Canadian National Railway Signals Resilient Earnings Momentum

Canadian National Railway Company ((TSE:CNR)) has held its Q1 earnings call. Read on for the main highlights of the call.

Canadian National Railway’s latest earnings call struck a cautiously optimistic tone as management balanced robust operational gains and free cash flow with clear-eyed acknowledgement of safety setbacks and macro headwinds. Executives highlighted record grain volumes, improving train speeds and best-ever fuel efficiency, even as fuel, FX and weak commodity markets pinched adjusted EPS and margins.

Volume Growth and Record Grain Shipments

RTMs rose 3% year over year and carloads increased 2%, underpinned by exceptional grain performance that set a new first-quarter record and has April on track for another high. Management noted seven of the last eight months marked all-time grain records, supported by a 15% improvement in grain car cycle times versus last year.

Improved Network Fluidity and Operating Metrics

Network fluidity continued to improve with car velocity and train speed both up 6%, while terminal dwell fell 4%, indicating more efficient asset turns. Trains were 2% longer and heavier and gross ton miles moved climbed 3%, reinforcing that the network is handling more freight with better performance.

Productivity and Asset Utilization Gains

Crew productivity advanced sharply as T&E productivity rose 12% and T&E labor cost per GTM declined 7%, highlighting effective crew management. Locomotive productivity increased 8%, availability reached 91% and fuel productivity improved 3%, delivering the company’s best-ever first quarter fuel efficiency.

Strong Free Cash Flow and Capital Returns

Free cash flow surged to about $900 million in the quarter, roughly $275 million or 44% higher than a year ago, driven by stronger operations and disciplined spending. CN returned much of this cash to shareholders, repurchasing 6 million shares for $870 million and allowing leverage to move toward 2.7 times.

Commercial Execution and Pipeline Conversion

Management underscored stronger commercial intensity, converting roughly $100 million of incremental revenue from an active sales pipeline during the quarter. Wins spanned plastics, asphalt, fertilizers, aggregates, scrap steel and steel billets, while international intermodal and expanded NGL and export traffic added further momentum.

Segment Wins in NGLs, Potash and Intermodal

NGL traffic was a standout with RTMs up 16% year over year, reflecting renewed energy-related demand and expanded export flows. Potash volumes came in ahead of expectations, helped by easier comparisons, and intermodal posted a solid quarter on the back of Prince Rupert strength and domestic service improvements.

Fast-Track Initiative Delivering Early Savings

A cross-functional fast-track terminal review program is roughly one-third complete and has already delivered about $40 million of run-rate savings. The initiative targets better terminal productivity and reduced dwell times, supporting both service reliability and cost efficiency as it scales across the network.

Disciplined Financial Performance Despite Macros

CN reported diluted EPS of $1.87, up 1% year over year, while adjusted EPS came in at $1.80, down 3%, or $1.83 on an exchange-adjusted basis. Management reiterated directional guidance of flattish volumes with earnings growing slightly ahead of volume and stressed tighter cost controls to offset macro and commodity pressures.

Safety Deterioration and Higher Incident Costs

Safety was the major blemish on the quarter as accident frequency worsened year over year, a point executives flagged as their primary disappointment. Incident-related costs increased by more than $30 million and helped drive roughly $50 million of additional other expenses, underscoring the earnings risk of safety setbacks.

Revenue and Adjusted EPS Pressure

Reported revenue edged down 1% from last year, though it was up 2% on an FX-adjusted basis and 3% when adjusting for FX, fuel surcharge and Canadian carbon tax. Adjusted diluted EPS of $1.80 was 3% lower than a year ago, or 1% down on an exchange-adjusted basis, reflecting cost inflation and headwinds in certain commodities.

Fuel and FX Headwinds

Fuel and foreign exchange together shaved roughly $0.07 from Q1 earnings, with fuel alone responsible for about $0.04 and an 80 basis point hit to the operating ratio. Management cautioned that if current prices persist fuel could be more than a 200 basis point OR drag in Q2, though the back half of the year could swing to a tailwind of about $0.15 to EPS.

Higher Purchased Services and Weather-Related Costs

Purchased services and materials expenses rose around 9%, largely due to harsh winter storms that elevated snow removal costs and other weather-related spending. Additional advisory fees and higher trucking and transload costs further pressured this line, signaling some non-recurring but meaningful cost friction in the quarter.

Challenged Commodity Segments

Not all freight categories participated in the upturn as metals and minerals lagged, with weaker gas drilling curbing frac sand demand early in the year. Forest products remained soft amid muted housing activity and tariffs, coal volumes slipped on unfavorable export conditions and steel and aluminum faced ongoing tariff-related challenges.

Limited Visibility and Tougher Near-Term Comparables

Executives emphasized that visibility for the rest of 2026 remains limited, particularly in economically sensitive and tariff-exposed segments. They also warned of tougher year-over-year comparisons in areas like international intermodal in Q2 and reiterated a cautious stance, tying expectations to volume trends rather than hard targets.

One-Time and Non-Operational Adjustments

Quarterly results included a $66 million pretax gain from the sale of a subdivision, partially offset by $17 million of adviser fees linked to industry consolidation. Prior-year remeasurement items and a higher effective tax rate also weighed on adjusted EPS by about $0.06, complicating clean year-over-year comparisons.

Forward-Looking Guidance and Capital Priorities

Looking ahead, CN reaffirmed its 2026 framework of flat volumes with earnings growing slightly faster than volumes, underpinned by ongoing productivity and pricing discipline. The company plans to sustain a focus on free cash flow, maintain leverage around 2.7 times through 2026 before easing toward 2.5 times in 2027 and continue returning excess capital via buybacks.

CN’s earnings call painted a picture of a railroad sharpening its operations and cash generation even as near-term earnings face pressure from safety lapses, fuel, FX and soft spots in key commodities. For investors, the story hinges on whether CN can lock in its productivity gains, improve safety and ride out macro uncertainty while steadily compounding free cash flow and shareholder returns.