Canadian National Railway’s Earnings Call Balances Gains

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 upbeat tone, as management highlighted record grain volumes, stronger network performance and robust free cash flow despite earnings pressure from fuel, foreign exchange and weaker commodity markets. Executives stressed that operational and cash-generation gains are real and durable, but tempered optimism with clear acknowledgment of safety setbacks and macro uncertainty.

Volume Growth and Record Grain Shipments

Revenue ton-miles rose 3% year over year and carloads increased 2%, underscoring resilient demand despite a choppy macro backdrop. The standout was grain, where CN delivered a first-quarter record and sees April tracking to another high, with seven of the last eight months now all-time records and grain car cycle times improving 15% versus last year.

Improved Network Fluidity and Operating Metrics

Management leaned heavily on improved network fluidity as a key pillar of the story, with car velocity and train speed both up 6% and terminal dwell down 4%. Trains also ran 2% longer and heavier while gross ton-miles moved 3% more, signaling a materially more efficient network that should support margins as volume cycles ebb and flow.

Productivity and Asset Utilization Gains

The company reported notable productivity gains, including 12% improvement in train-and-engine efficiency and a 7% reduction in T&E labor cost per gross ton-mile. Locomotive productivity climbed 8%, availability reached 91%, and fuel productivity improved 3%, delivering CN’s best-ever first-quarter fuel efficiency and underpinning its cost-control narrative.

Strong Free Cash Flow and Capital Returns

Despite modest top-line pressure, CN generated roughly $900 million in free cash flow, up about $275 million or 44% from a year ago. The railway returned much of this to shareholders, repurchasing 6 million shares for $870 million and allowing leverage to drift toward 2.7 times, signaling confidence in cash generation and a shareholder-friendly capital allocation stance.

Commercial Execution and Pipeline Conversion

Commercial teams were credited with converting approximately $100 million of incremental revenue from a targeted sales pipeline, reflecting strong “boots-on-the-ground” execution. Wins spanned plastics, asphalt, fertilizers, aggregates, scrap steel, steel billets and growth in international intermodal, particularly via the Gemini service at Prince Rupert and expanded NGL and export moves.

Segment Wins in NGLs, Potash and Intermodal

Within the portfolio, NGL traffic stood out with revenue ton-miles up 16% year over year, highlighting the strength of that franchise. Potash volumes exceeded expectations, helped by easier comparisons, while intermodal posted a solid quarter supported by Prince Rupert and improving domestic service levels, partially offsetting weakness in other commodities.

Fast-Track Initiative Delivering Early Savings

CN’s cross-functional “fast-track” review of terminals is about one-third complete and is already generating tangible benefits, with roughly $40 million of run-rate savings captured so far. The effort focuses on terminal productivity and lower dwell, and management framed it as a structural efficiency lever that should compound as more locations are addressed.

Disciplined Financial Performance Despite Macros

Reported diluted EPS came in at $1.87, up 1% year over year, while adjusted diluted EPS was $1.80, down 3% or $1.83 on an exchange-adjusted basis, down 1%. Management kept its directional guidance intact, emphasizing disciplined cost control and a goal of earnings growth outpacing flattish volumes even as macro and commodity conditions remain mixed.

Safety Deterioration and Higher Incident Costs

The main sore spot was safety, with accidents rising year over year and management describing performance as below expectations, both operationally and culturally. Incident-related costs were over $30 million higher and contributed to roughly $50 million of additional “other expenses,” making safety the primary internal focus for improvement.

Revenue and Adjusted EPS Pressure

Reported revenue declined 1% from the prior year, though it increased 2% on a foreign-exchange-adjusted basis and about 3% when stripping out FX, fuel surcharges and Canadian carbon tax. Even with solid volume growth and operational gains, adjusted EPS fell 3% to $1.80 as non-operational items and cost headwinds offset much of the underlying efficiency improvement.

Fuel and FX Headwinds

Fuel and foreign exchange combined to shave roughly $0.07 from first-quarter earnings, with fuel alone accounting for about a $0.04 drag and roughly 80 basis points of negative impact on the operating ratio. Management cautioned that if fuel prices stay near current levels, second-quarter OR could face more than 200 basis points of pressure, though the back half of the year might see as much as a $0.15 EPS tailwind.

Higher Purchased Services and Weather-Related Costs

Purchased services and material costs rose about 9%, driven largely by harsh winter storms that inflated snow removal expenses, alongside higher trucking, transload and material costs. Advisory fees of $17 million also weighed on the quarter, adding to the non-core cost burden that diluted otherwise strong productivity gains.

Challenged Commodity Segments

Several commodity groups remained soft, with metals and minerals hit by reduced gas drilling and lower frac sand demand early in the year, and forest products still pressured by subdued housing and trade duties. Coal volumes slipped on unfavorable export conditions, while steel and aluminum shipments continued to feel the impact of tariff-related headwinds.

Limited Visibility and Tougher Near-Term Comparables

Executives repeatedly emphasized limited visibility for the rest of 2026, noting tougher year-over-year comparisons in areas like international intermodal in the second quarter and timing effects from tariffs. As a result, CN is anchoring expectations around volume trends rather than specific numerical targets, maintaining a measured and cautious tone despite internal improvements.

One-Time and Non-Operational Adjustments

Results were also shaped by one-offs, including a $66 million pretax gain on the sale of a subdivision and $17 million of advisory fees tied to industry consolidation themes. Management noted that prior-year investment-related remeasurement gains and a higher effective tax rate together clipped about $0.06 from adjusted EPS, complicating clean year-over-year comparisons.

Guidance and Forward-Looking Outlook

CN reaffirmed its directional 2026 outlook for roughly flat volumes with earnings expected to grow slightly faster than those volumes, supported by ongoing cost discipline and productivity gains. The company plans to keep prioritizing free cash flow and capital returns within a target leverage of about 2.7 times through 2026 before easing to roughly 2.5 times in 2027, assuming oil prices and currency hover near updated planning ranges and tax rates stay in the mid-20s.

CN’s earnings call painted a picture of a railway executing well on the levers it controls, from network efficiency to cash generation and commercial wins, even as external headwinds restrain reported earnings. For investors, the message was one of steady operational progress, strong shareholder returns and disciplined guidance, tempered by safety issues and macro sensitivity that still warrant a measure of caution.