Canadian National Railway Company Aktie

Good morning. We had a good outcome in the game last night. So thanks, everybody, who is joining us at the event. And I had to go back to the hotel room because it wasn't working my way until much later in the game. But anyway, with that, we're very pleased to get started with the last day of the conference here, still running strong and very excited to have Canadian National joining us to kick off this morning. So from the company, we have Patrick Whitehead, who's EVP and Chief Operating Officer; and to his right is Janet Drysdale, EVP and Chief Commercial Officer. Good morning, guys. Thanks very much for being here.

Morning.

Good morning.

So, I think probably the best way to start off is what we've been doing with most of the companies that have been presenting so far, which is to just kind of go through a little bit of what you're seeing so far here in the second quarter. So RTMs are trending fairly well, I think, plus 4% or so quarter-to-date, a bit ahead of expectations. I guess how do we feel about the market environment as it stands right now, the volume outlook as we're looking to close off here the quarter?

Yes. I think I'm going to let Pat kick it off first because what he does on the operating side makes the commercial team's job relatively harder or relatively easier. So I'm going to let him kind of start off with how the railroad is running.

Sounds good.

Well, and I would say that our goal is to make sure that we make the job much, much easier for Janet and team. That's our desire. So first of all, Chris, thanks for having us. And for everyone here and that has dialed into the webcast, thank you for joining us. Let me start by talking a bit. It's great to be here in Chicago, first of all. I'm from nearby Indiana, so it's always good to be home.

Let me start with operations and explain a little bit about where we stand and how we feel about it. The operation is running very well. I'm very pleased with where we are. But I tell people all the time, my job is to never be satisfied. It's always to be pushing for better performance, improved productivity. And I'll go through a bit of that before I pass it over to Janet to go through the markets. So let me start with the operation. The engine is running well. The railroad is performing very well. I would start with the health of network metrics that we watch. Network train speed is up 2% year-to-date. Car velocity remains above that 200 miles per day, which is a good place for us to be with the velocity of the equipment out there. We feel good about that.

Train load, so the weight of our trains is up about 3%. Train length is up about 1%. However, I would say it's the benefit of our disciplined scheduled operating model. Our trains fit within that model that we've built and that we stick to. And we don't build trains that don't fit on our network. That really -- we made that change 4 or 5 years ago. We really leaned into this operating model. And you can see in the health of network metrics and the productivity that we're producing, you can see how that strategy has played out. And I'll talk a bit about that. And as you think about those health of network metrics, really, what matters is what is that doing for our customers. And I'll start there.

We have a metric that we watch local service commitment plan or LSCP, and we continue -- that is the measure of our first mile, last mile service to our customers, and that remains above 90% -- we're always going to push to get that higher and higher to ensure that our customers are getting the value from the service that we provide. But pleased with where that is trending. You think about all of that also is translating into meaningful productivity, and I'll go through just a bit of that. The productivity of our locomotive fleet, our locomotive fleet is running the best that it ever has from a reliability and availability standpoint. That is producing a locomotive fleet that is 7% more productive.

All in, all employees, so our entire employee base, we are 9% more productive on a GTM per employee basis. And the number for me that really matters is as you look at our train and engine service folks, the folks that are out there moving trains for us, that productivity has increased 13% year-over-year. That is the product of the way we have looked at matching our resourcing to the volumes that we see. And we're seeing meaningful productivity come from that. I would also say, when you think about -- we talked a bit on the Q1 call about our Fast Tracking initiative, really Fast Tracking is all about our continuous improvement mindset, how do we continue in everything that we do to improve. And we look at that through the lens of this is really about setting up the terminals across our network, which see about 80% of the traffic passed through these major terminals. There we outlined and identified 26 of them. So about 80% of our traffic passed through there. About 50% of our staff and the train and engine ranks work in one of those major terminals. And what Fast Tracking is, is we focused on let's set up those big rocks properly so that we feed the traffic into the network when we need to. And we look at it through the lens of we're always matching the resourcing in those terminals to the volume, and it's a continuous cycle.

We don't just set it and forget it. We continue to go back and make sure that the plan that we've set up is executable and that it's delivering the output that we want to see. And I would say when you look at the metrics and the way we're performing, that work is producing results. We identified on the Q1 call that we've seen about $40 million in savings from that initiative. We are a little over halfway through those major terminals that we identified that we would go through and do the work with more to come. We are very pleased with the work that we have done thus far in identifying savings opportunity, reducing dwell in terminals, really getting the cars out there, earning more and sitting less. That's really the guiding light of our Fast Tracking initiative. So we are pleased with how that is trending.

And then I would finish up with, as you think about capacity, we have built capacity over the last several years. We're towards the end of a pretty heavy investment cycle. And we identified really the bottlenecks of our network being Western Canada, so Edmonton, Alberta, West towards Vancouver and Prince Rupert. We added about 25% capacity in some double track projects. We also did some work between Chicago and Winnipeg with a couple of double track projects there where we improved the fluidity between Chicago and Winnipeg and with that work, removed a crew start. You think about as we all travel and you fly through -- we took a connection out of the flight of a car. So now there's one less crew start between Chicago and Winnipeg. Work that we're very pleased with. It was well done and increased our capacity across the network.

So I feel very good about where we are from a capacity standpoint. So when I think about our resourcing and the ability to catch volume as we see an uptick, which we hope to see very soon, we're positioned well. We have about 600 furloughed train and engine service employees. Those are folks we can call back into service when we see the volume return. We have 200 stored locomotives that are serviceable. And again, part of that is the fact that our fleet, our locomotive fleet is running better than it ever has. That gives us the ability to park locomotives, work on them as they're stored and they are in a surge fleet should volume come back. And we've addressed the bottlenecks across our network with the capacity investments we've made over the last 3 or 4 years.

So very pleased with where we are. And I'll say it again, I mean the network is running very well. We have all of the resources, assets, capacity to pick up the growth when it shows up. And I think that we are delivering a product that our customers are pleased with. So with that, I'll turn it over to Janet.

All right. Thanks, Pat. From a commercial perspective, we really couldn't be more pleased with the service Pat and his team are providing to our customers. And that matters because when the service is good, it obviously helps us to be able to grow volumes and it helps us in terms of underpinning our pricing. So a few words on pricing. Our pricing strategy remains very, very consistent. We price for the value of our service. We price ahead of our rail cost inflation, and we sell into our capacity.

What's really important for me is that when we bring on new business, it's business that we can really service well. And so we stay very closely connected to Pat and his team to make sure that we're putting our customers in the best position to win. And when they win in the marketplace, we win. If we look at volumes, we were about 3% RTM growth in Q1. As you said, we're about 3.5%, 4% or so, so far in the second quarter. We are really pleased with how those volumes are coming in. They are, for sure, a little bit ahead of our expectations, largely driven by grain. So strength in grain Canada, grain U.S., we're talking about some record crops here. So that's been positioning us very well. And the supply chains have been working tremendously well. So the grain is getting delivered to the terminals. The car cycle time is phenomenal in terms of the rail piece, but it's also getting to the waterfront in those terminals. So the end-to-end piece is working really, really well.

We also saw some more strength than expected in potash. Energy, really, really strong on the refined products as well as the NGLs. And we're seeing more resilience actually in the Metals segment than what we would have thought given the significant tariffs. So as we look into the second half, the macro is still murky. So we've got a close eye on the trade, on geopolitics, on affordability in the consumer. The energy prices are pretty high. We're seeing some inflation numbers come in this morning. So we're mindful of that in terms of how we're thinking about the second half.

We also had all-time record grain months in September, October, November, December, not to mention February, March, April, May. But that means in the second half of this year, we will have some challenging comps to lap that. But I expect the crop to come in a little bit later. So we'll kind of see how that plays out. But we're feeling very, very good about the volumes, and we're feeling very good about the service.

And if I kind of look ahead to 2027 and beyond, I think this is where we're most excited just in the context of the energy franchise in particular, you saw recently that we've entered into a long-term deal with Keyera and AltaGas. This is on natural gas liquids. The Montney shale region is one of the most significant deposits in North America. And that is really just getting going. And this was about making sure that LNG had an export capability. And now that, that's kind of underway with LNG Canada, we just see this as a long-term growth play for the liquids. We ship the propane, the butane. We see opportunities around ethane availability feeding into plastics.

So we're really excited about that opportunity on a long-term basis. And I think Pat talked already about just how we've kind of invested in our capacity. So CN is built for growth.

That's a great overview to start off. I guess one of the things I wanted to hit on, Pat, right off the bat is that the volume so far has been outperforming, I think, the guidance that you guys laid out for us. I think the first half was supposed to be a little bit slower, the second half a little bit faster. Obviously, you're off to a good start so far. So how is the operations of the business sort of responding to this higher-than-expected volume? And how do you feel about sort of the sustainability of what's been pretty good service over the last several months?

So I feel really good about it. And I would say that we've come out of Q1 with a lot of momentum. Q1, you typically see a lot of disruptions with winter weather. We weathered the storm, no pun intended, very well, came out of Q1 very solid with our operating model, demonstrating the strength, and we've been able to keep up while keeping the resources very tight. Again, 200 locomotives stored. That's probably 3x of where we were in 2025 from a stored locomotive standpoint. It's that speed and velocity that we have built through being very disciplined and sticking to our operating model. We really have several years now of leaning into that model. And you can see it showing up.

I look at it this way, speed and velocity produce locomotives, for example, for -- we look at our network and the size and length of our network for every 1 mile per hour that we see an increase in train speed, it produces somewhere around 60 to 70 locomotives of availability. So we really have focused on how do we get the asset base correct with -- to meet the volume with better performance. And we continue to push on that. I feel very good about where we are. The -- as we have to lean into these furloughed employees to come back to work, which has not been that many of them, we were at about 750 furloughed employees in the middle of Q1. So we have called some back and the return rate is very high.

So we have a lot of confidence in when we need to call employees back. they are returning at a very high rate, 90-plus percent, which is very high for the railroad. It tells you a lot about how people are feeling about the job market, which we are glad they're returning. And also the locomotives that we've stored are serviceable. These are good locomotives to put back in service as we see the volume. So I feel very good about our ability to handle what we see now and what we see in the future that Janet's team is out there drumming up more business. And we have room to grow into our train package. So as I look at -- while I say train load and train length are up, we are not yet spilling over of that base operating model. We have room to grow into that general merchandise network. As you see more bulk and intermodal, if it's a train load of growth, we still have the ability to take it on. but there's plenty of room to grow into our base train package. We would love to see 1,000, 1,500 more feet of general merchandise traffic show up in our general merchandise plan. That's all upside.

And that would be what drives probably the best incremental margins if you're thinking about volume growth from here.

Absolutely. There's room to grow into the train and absolutely.

So Janet, I guess on that point, you're about 5 months in. We're running at about 4% RTM growth. I guess you guys have talked about being pretty close to flat from a volume perspective this year. I know the back half was supposed to be a little bit easier. So how do we think about the full year? Is there upside to that guide?

Yes. I think, look, we're really pleased with the volumes that have come in so far. And a lot of that upside has been driven on the grain side, as I've said. And really, some of it was related to the resolution in the U.S. with China on soybeans and then resolution in Canada with China as it relates to canola. So a little bit of that coming in ahead of our plan, I would say. As we look to the second half, I think we continue to feel good about the AG franchise. We feel good about energy. I would say we're keeping a close eye, like I said, on the consumer, and the U.S. consumer has been pretty resilient so far, but we are mindful of kind of the inflationary pressures and what that could mean.

So I think we're kind of on balance kind of just kind of seeing how things come in, and we'll continue to reassess where things stand. But our job on the commercial side is to stay really close to Pat and his team and make sure that we've got alignment on what we're seeing and when we're seeing it and so that we can continue to handle the business as it comes at low incremental cost.

So let's talk a little bit about the pricing side. So I think you guys have talked about sustainable pricing ahead of cost inflation, which is great. And I guess, as we think about the year, what the opportunity might be, but maybe also more specifically in 2Q. So Other folks have talked about maybe running into -- cents per RTM running into the high singles or maybe even low double digits as we've gone through the second quarter. Fuel is clearly a piece of that. And I think you guys are lapping some of the carbon tax credit dynamics that we saw over the last several quarters. So how are things trending here in 2Q from a yield perspective?

Yes. I think -- look, I think we have to be really careful with these measures and what we think they mean or don't mean. So a dollar per carload or a cents per RTM really says more about mix than it says about pricing. So for sure, all of the rails are going to benefit from the fuel surcharge, and you're going to see that in the cents per RTM and the dollar per carload. The mix of business will also really influence the cents per RTM. If you think about segments like Intermodal and Automotive, railways see a lot of growth in their segments. Those segments, you're going to see the cents per RTM go up because the tonnage is low in those segments. So it's not a pricing indicator.

Now I know we don't give you same-store pricing anymore. We used to do that. We stopped doing that in the rail industry because it was not comparable. So some railroads like CN would talk about same-store pricing. And when we measure price internally, that's how we do it, same origin, same customer, same car type, same destination. Did it move last year? Did it move this year? What's the delta price? What's the delta volume? When you do the math that way, what you're really doing is trying to figure out how much dollars am I putting into the bank account. When you talk about pricing on a contract renewal, -- if my salesperson comes to me and says, "Hey, Janet, give me a high-five, I got 6% on a contract renewal". My hand doesn't quite meet their hand because I want to see the volume come in before I give the high-five. If you don't move the volume that goes with the price increase, you don't have dollars to put in the bank account.

So comparability matters when we're talking about pricing. So my coaching, I guess, to you would be careful of cents per RTM and dollar per carload. When we talk about pricing ourselves, we're talking about that same-store price measure, and that's where we're trying to drive pricing ahead of our rail cost inflation.

It's fair to say that given all the dynamics there, that is going to be a big, I think, a contributor to some sequential revenue growth acceleration as we think about 2Q.

It will be. Yes. Absolutely.

Okay. That's helpful. Jumping around a little bit, Pat, I wanted to kind of come back to the Fast Track initiative. You talked a little bit about it. Obviously, there's some cost savings opportunities. I think you said you're about halfway through that process. I guess, how big can this be? I guess, as you think about the opportunity in terms of cost savings and some of the yard work that you're doing, the terminal work that you're doing? I mean, can we think beyond the $40 million? How does it play out over time?

Absolutely. There's more to be realized. I would say this, that, of course, we set ourselves up for success on the front end. We put the biggest rocks upfront, like any initiative, you want to see success quickly. So we did go into the largest terminals and start the work there. But -- and this will not -- this is not a set it and forget it. This is a part of our continuous improvement. We will continue to do this work. This is work I've done in the past. The team has done in the past, and we will continue to find the opportunities. And it's wide ranging. It is how do you match the assets to the volume, but it's also go through and look at the rubber tire fleet.

We own a lot of vehicles. We have facilities, buildings. There are a lot of things that in that Fast Tracking touches. You don't just go in and look at how many training engine crews, how many locomotives do I have versus the train package that I'm running. It's -- you take a clean sheet of paper and you start from there and say, what would this operation look like if I start it all over again with no predisposition to it must look like it did 10 years ago. It is if I was starting all over, how do I look at this terminal and how do I optimize all of the costs within that. Every department and we go through and look at -- I mean, it's -- the savings comes in many forms. And we will continue to do that work, and we'll continue to do a look back on is it still properly set up.

And maybe, Chris, just if I can jump in, I think I would be lying if I didn't say an operating clean sheeting exercise doesn't make the commercial team a little nervous. But I got to tell you, we're doing this hand-in-hand with Pat and his team. And so it is very much customer-centric. And so when we're looking at the volumes and we're doing this at a very granular level, we're saying really what is the volume that's moving and what is the appropriate level of service or frequency of switching that's required to move that volume. And in fact, in some cases, it's allowing us to have conversations with our customers around, well, look, we -- you just don't have enough volume for necessarily 4 days a week, we're going to move you to 3, and they want to keep 4, bring us more volumes. And so it's really being done hand-in-hand. And so this is actually something that is not hindering us from being able to grow. It's enabling us to grow at low incremental cost.

And I would say that is a critical component of the Fast Tracking. And I would say the way we look at it is we want this to be -- this is being done with and for stakeholders and customers and employees not being done to them. And if not done properly, like Janet talked about, where it's done hand-in-hand, it can be perceived that way. So I think there's been a lot of good work done on making sure that this is a joint effort. And it has produced some opportunities where we can pick up incremental carloads.

So let's talk about how this translates to the operating ratio. Obviously, we're all very focused on that. So I think you guys have said maybe shorter term, 2Q normal seasonality is about 300 basis points of sequential improvement. Fuel is going to be a headwind to that. I can understand that. So maybe think about the performance you're seeing, the Fast Track that you're working on, how do we think about 2Q? And then maybe expanding out a little bit beyond that, what is the opportunity for CN from an OR perspective? Is there any reason to think that you should be materially different from any of the sort of North American peers who are beginning to sort of push down towards that 60% and potentially beyond over time?

Let me start with just a few things, and I'll pass it to Janet. So let me -- I should have covered this before. Let me start with fuel. So to your point, when you think about the quarter, so a couple of facts. CN is the most fuel-efficient railroad in the industry, and we are having our best ever record fuel efficiency year-to-date. We are 3% more efficient from a fuel efficiency standpoint than we were last year, and it's the best that we've ever produced. When you think about that in the sense that we spend billions of dollars on fuel, we are controlling what we can control. And that control is I can control as the operator how much fuel I dispense and consume.

So when you store 200 locomotives, they're not being fueled. When you control the person that is operating the throttle of the locomotive through technology and oversight, you also control how much fuel that you burn in the course of the trip. And those are the levers that we're pulling to achieve that record fuel productivity. Now we pointed out before, the fuel price uptick that we saw in the beginning of the quarter and the lag of the fuel surcharge is going to be somewhere around $0.03 to $0.04 of EPS and 200 -- over 200 basis points on the OR. Now set that aside, we are controlling what we can, and we're controlling that lever of how much fuel do we dispense.

And I would say this, you've heard a lot of railroad operators say this, the operating ratio is the output of good railroading. I believe in that. And that is exactly why we are -- the strategy that we have deployed, the Fast Tracking, the working on a more reliable locomotive fleet, bringing down our train and engine headcount, all of those levers we're pulling, we believe will help us bring that operating ratio down. I can't guide on where that will be, but we are making the right decisions, and I feel good as an operator about the decisions we're making to bring the cost down to match the volume. And we'll be able to pick it up as we see the volume return.

I would just add, I mean, the fuel, to your point, will provide a bit of a headwind, but the sequential OR improvement pattern is intact for sure. And certainly, for us, the OR is the byproduct of doing everything right. So Pat and I are much more focused on growing earnings and doing the right things from an input perspective, whether that's growing the volumes, getting the pricing or the operational efficiency and clean sheeting that Pat has talked about, all of that will translate into the right OR as we go forward.

So as you think about the opportunities on the revenue side that you've highlighted, and it sounds like '27 has potential to be some pretty interesting from some of the other projects that are going on in the network. I guess there's no reason to think that incremental margins can be good, you can get that sort of OR improvement, which ultimately leads to your point to earnings growth acceleration, I think, from the guidance that you've given this year. Is that a reasonable way to think about it beyond '26?

Again, we haven't guided to '27. So this is your words, not mine, but I think you're thinking about it in a reasonable way, Chris.

Fair enough. I'm trying here. I'm trying. That was good. There's two other topics I want to dig into a little bit. Maybe, Janet, a little bit about USMCA and how we should be thinking about that. I think we chatted a little bit earlier. I don't know that you're seeing much from a shipper perspective in terms of anticipation or planning for any outcomes, but any thoughts there would be great.

Yes. I think our working assumption, and I think we're seeing that from our customer base as well is kind of status quo. Whether it's USMCA or whether it's kind of the current level of tariffs, we're kind of expecting right now that what we have today is what we're going to have tomorrow. What I have been super pleased about, Chris, is just the agility of our customer base and ourselves, our commercial team and our operating team to adapt.

And if I look at metals as an example, we're much more optimistic today, and we're tracking really well. We found new movements in the U.S., so U.S. to U.S. We have a new scrap train actually that started up and that kind of is moving in partnership with another railroad, going really, really well. We found more intra-Canada moves. We're seeing the aluminum shipments actually start to return to the U.S. So this is a segment that is proving more resilient than what we anticipated initially. And it's really about being able to adapt to how the market is changing, being agile, being fast. And we're doing that in other segments as well.

If we look at, for example, our Petroleum & Chemicals segment, we're being able to capitalize more on spot moves. And it's just about the team being as responsive as possible, knowing where the capacity is and being able to capitalize on, "well, I have an opportunity here for 3 months or this one might go for 4 months." And we're just kind of hitting those home runs. That's a little bit about the boot on the ground that we're talking about is knocking on the doors and just being really efficient and agile in bringing incremental business on wherever we can make the market happen.

And I would just add from my perspective, we plan in a way it's not just the short-term planning. So we -- a lot of folks will ask us about spot moves and volume that we can pick up. We kind of put it into layers. So the first being the forecast we look at for the next 3, 5 years, very rigorous process. We go through, we look at and match the forecast to the assets we need. But then I would say that what Janet brought to the team and what the teams do very well together is there's that forecasting, which allows us to plan capacity, plan for locomotives, plan for all the assets, the people. And then you take that down a level, we have a sync every week that's formalized with the transportation and sales and marketing team to say, all right, here's what we've seen in the past week, here's what's on the horizon and what we can go get as spot moves or opportunities that we see out there, and we can the assets to meet that.

And then it's the conversations in between and the connectivity between the teams of, well, I'm not going to wait for the weekly meeting to talk about an opportunity that I see, here it is, can you handle this operations is a question you'll get from the sales and marketing team. And I think we've done a really nice job of being nimble and flexing to pick those up. So there's the long-term planning, which I think is a very well-run process, but then it's the touch points in between and being more nimble to pick up those opportunities.

And I'd be remiss if I didn't get to sort of the big topic that continues to be sort of out there in the space, which is M&A. So you guys have been opposed to the UPNS merger. So I guess maybe any incremental thoughts that you have. Obviously, we're sort of in a bit of a maybe a holding pattern to some degree as we're waiting for incremental information from Union Pacific around the application. But any thoughts that you have that are what you're hearing either from customers or how you guys are thinking about the opportunity or potential headwinds that you might see?

Pat and I flipped a coin on this one, and he lost the coin.

He gets to talk about it.

He didn't mention he thought the coin was a 2-headed coin. It's not with me, so I can't prove otherwise, but he's going to lead off on the answer to that question.

Yes, I'd like to see that coin. I'm still not sure that I lost fair-and-square. So I was going to say there's a merger being discussed. Okay. I don't know. All right, something in the industry. So let me start with, we are not anti-merger. We are pro-competition. And I say that because let me -- I have the utmost confidence and faith in this operating team. I would put this team up against anyone in this industry as you think about how we compete in the marketplace. And I think the strength of our operating model and the strength, more importantly, of our team that operates that scheduled operating model, anywhere that we have access to, I believe we bring competition. So let me start with that.

And then I'll say this. I -- so I think back through every merger that I've seen in my time, I've been in this business for 34 years. And I happen to be what I call a Conrail survivor. I started with Conrail in 1993. I lived through, and I use that term very intentionally, the acquisition of Conrail by Norfolk Southern and CSX. And I saw the struggles of implementing a railroad, absorbing a railroad and bringing it into -- it's not just putting the two companies together operationally, it's the IT systems, it's the culture of the two companies. There's a lot of work to be done.

I would say this, what we've seen thus far, the application has not met the requirements when you think about the new merger rules of enhancing competition. Our position is that we haven't seen that hurdle met yet, and there's still work to be done there. And so the questions come up several times there are the comments around concessions. And look, every merger in this space in the Class 1 industry, every one of them have produced significant concessions to the other Class 1 carriers. So there will be -- every railroad is, I'm sure, doing the same work of what do the concessions look like for each railroad as you think about if this were to be approved, what would that need to look like from a concession standpoint for the industry to ensure that competition is preserved.

And I'm sure everyone is making those lists. And the idea or the thought that there will not be concessions as an output of this, I wouldn't agree with that. So I think it will come down to what does that look like and what does each railroad. I say this, if we can extend our reach, just like everyone else in the industry would be looking into, then we can be competitive in the markets maybe that we don't currently reach. And I would kind of leave it there, Janet, if you have anything.

I think you have said it well, Pat. Thank you.

Any particular markets you're willing to share with those of us?

Markets we don't get to today.

Yes. If you look at our map, the places that we don't get to and the places that we could get to, we can enhance competition, I believe.

Okay. That's helpful. There's two quick things I want to hit on before we wrap up and the shot clock is running down here. But first, Janet, going back to you on grain for a moment. So obviously, it's been quite strong. I think you've had some agreements, international agreements that have been helpful as well. As you think about the duration of the strength and maybe when we could see things slow before the next crop? Any thoughts around that?

Yes. I mean I always hesitate to comment on a crop that hasn't been fully planted yet, and there's a lot of mother nature that comes into play on that. But I think the trend line over time is that yields are improving and kind of the trend line would suggest kind of 1% is kind of -- 1% CAGR growth on crops going forward. I think this crop is getting in a little bit late. So I think we will see a later harvest. So August could be a little weaker and September could be a little bit weaker. But October, November, December typically run flat out. I mean this is when as much grain as possible is trying to get to the market.

So again, AG is a good news story for us. And whether it's on the grain side or the fertilizer side, Potash is a growing market. So that pie is growing, and we think we have a great franchise to be able to grow the -- our growing share of that growing pie. So AG is strong going forward. Energy, again, as I said, I'll reiterate, this is a great growth opportunity for us.

Our Toronto fuel facility into Phase 2, unit trains are moving. That's refined products. The NGLs, we talked about already. So we're really looking forward to '27. We have some automotive business as well that will kick in, in '27 as we've got a couple of plants that have been retooled and are coming back online. So we're excited about the future.

That's helpful. And then Pat, last one for you. Just safety came up on the first quarter call. Can you just sort of give us an update on how you're thinking about that in 2Q and then the rest of the year maybe?

Yes. So I would say when -- number one, the basis -- the foundation of our operation is safe operations. And we are never pleased with any incident or accident. I subscribe to and have my entire career to a philosophy in this business that every incident, accident, injury can and must be prevented. And we will never be satisfied until we reach that.

What we saw in Q1 was not one singular cause. We had a landslide. We had a few engineering-related derailments, mechanical. Was a variety of causes. I will say this, what we do is we take very seriously root cause analysis. We feel very good about double-clicking into each of those accidents, understanding what happened and more importantly, identifying what we do now to prevent that. So we feel good about where we're headed. -- and we'll put Q1 behind us.

Triple zero is right on the dot. That's pretty good. So...

We run a precision railroad.

Pat, Janet, thank you so much for joining us. Really appreciate it.

Thank you.

Thank you.

Thanks, guys.

Good morning, everyone. Thank you for joining us, and welcome to Bernstein's Strategic Decisions Conference. We're grateful for your support, and thank you for coming out to join us. Thank you also to Canadian National Railway, Tracy Robinson, CEO; Jamie Lockwood; Francois Belanger and Yannick Landry.

Doing very well, David.

Close. It is still early. So [indiscernible] also join us here in the audience, we'll be taking meetings. So before we get started, just a couple of things. You do have access to Pigeonhole. So if you want to put questions up for the Q&A, I'll try to work them in as best I can. We do want to make this as a productive session as possible. So please don't be shy about proffering up ideas to keep the conversation going. Tracy is going to start us off with a couple of prepared remarks, and then we'll get into the Q&A. So I will hand it off the mic to you.

Thank you, David, and thank you for hosting this morning. It's always great to be in New York and good to see you and great to catch up on all the railroad topics of the day. I wanted to start today by just summarizing from 3 perspectives, why we believe so strongly in the long-term value proposition for CN. And I'll cover just briefly why we're so excited about the long-term growth opportunities that we have ahead of us, what we're doing to make sure that we are fit and ready to respond to those. And then finally, what you get when you can create a pro -- you can combine a proactive commercial presence with an intensity of operational excellence and how that drives shareholder value.

So we have this great network. You're very familiar with it, David. We span across Canada and down through the U.S. into the Gulf Coast, great port access with optionality on all coasts. And we have a portfolio of business that spans from the consumer segment to the industrial segment to the resource segment. And there's growth opportunities in all of those. I'm sure we'll have a chance to talk about those over the course of the next hour. But there's one unique one that we've seen emerging over the last few years and is starting to grow with some intensity that I wanted to make a special point of, and that is the Natural Resources segment in the resource sector. We have the benefit on this network being positioned on top of a very rich natural resource base, various points of our network, but particularly in the North. And these are the commodities that North America needs, that the world needs. This is what we're talking about, all the energy products we're talking about, potash, grain, metallurgical coal, frac sand. And over the longer term, you think about the resources of critical minerals.

There is a tremendous amount of investment going into the natural resource sector, particularly up in the North. If you think about all of the energy products, even just natural gas alone, that industry is predicting 25% to 40% growth over the next kind of decade. And if you look out further, they believe they'll double it. That drives frac sand demand up in the Montney. That drives the production of NGLs that want to get into across North America and into export markets. Potash development predicted to increase production by 35% in the next 5 years, some say up to 75% or 70% over the next decade if you think about what's happening in the ag sector in grain, the incredible worldwide demand and the advances in yield. So that growth overall and the investment in the development of these resources is significant.

We happen to sit proximate to that. And we have the ability with our network to get it deeply into North American markets. But this is increasingly becoming an egress into global market question. And that's where -- that's our sweet spot. We can get these commodities into Vancouver, but we can also exclusively get them into Prince Rupert. And Prince Rupert, which for the -- over history has been more of an international intermodal play, is becoming now a very balanced international intermodal and natural resource or an export play. So when I joined CN just 4 years ago, 40% of the business there was carload. We're now up to 55% and the development at Rupert is matching the development of the natural resource base, and we're going to continue to see that grow. So we're really excited about those opportunities.

We have been doing a tremendous amount of work over the last 4 years to make sure that we're ready with the capacity and the capabilities to respond to this opportunity. We had underinvested in some key areas, the network, but also the locomotive fleet and some of our railcar fleets. We've leaned into that. We've addressed it. We're coming to the end of that big capital cycle or the capital investment cycle. We have capacity and we have capability. The railroad is running extremely well. You're familiar with the productivity numbers that we're putting up, the operating model customer service. This is all -- we are creating a high level of customer service that's creating commercial opportunities, but also at the same time, driving productivity that's creating operating leverage for us. So we're pretty excited about the commercial opportunities that are coming from that, which brings me to the third point, which is the magic that happens in how we execute this.

So we're pretty focused on making sure that we do this right, which means that we pair the operations team and the commercial team in building and creating our success out of this. And so we have them out working together on long-term structural growth opportunities. We announced the ACE terminal a couple of weeks ago. And this is -- we're partnering with 2 energy customers, Keyera and AltaGas on a unit train facility that will move energy products from Northern Alberta to Prince Rupert for export. It will start at 3 to 4 trains a week. It's going to have the capacity to go 3 trains a day. It starts at NGLs. It will have the ability to do other types of energy commodities as well. This is structural fundamental growth that will persist over time. We're also out there in Janet's boots on the ground to look for every opportunity, right? So they are partnering with the operations team to identify where we have available capacity and they're selling that capacity. And so that we've converted in Q1 of this year, $100 million of those opportunities. They tend not to be long term. They tend to be a little bit smaller, but they're incredibly important. So we're being very disciplined and focused on how we deliver and how we create our own success with this. So the combination of those things is creating really strong financial leverage and long-term financial value. And so we like the earnings algorithm that we're building. We're excited about the long-term value proposition, the long-term growth opportunities. With the operating leverage that we've built, with the capacity that we have now in place and available to sell, we have the ability to drive this through earnings and cash flow to the bottom line.

So I'm really happy with how Q1 has gone and how the year is starting, but I'm even more excited about when I look out over the longer term around the opportunities that are ahead of us and how we're positioned to capitalize on them. We are, as we say, now built for growth. And we think it's great for customers and it's great for shareholders.

All right. Well, thank you for that introduction. I definitely want to dig into the Western Canadian Resources opportunity in a second. But I also want to kind of step back a little bit. First quarter, as you mentioned, was great, productivity running very, very well. I did sense, though, from the management team a little bit of -- maybe we don't really know what's coming up in terms of the volume outlook. How have things changed since the earlier part of the year? What are you seeing in the underlying sort of day-to-day from a demand perspective that would be useful for an investor looking at Canadian National as maybe a barometer on the broader economy?

Well, this year, what we're very focused on is controlling what we control. It's a very dynamic environment out there with all that's going on in the geopolitical area and even in North America on trade and tariffs, and we've all navigated that. I think we're becoming much more resilient to it. But what we've decided to do is focus on what we can control and what's going to be helpful for our customers at the end of the day.

And so we have the operation -- the operating model is the right one for us. It's operating extremely well. Customer service is strong, but so is productivity. It makes us nimble, and we have capacity available to sell. And that strong foundation of service is allowing us to capitalize on growth opportunities. So we're moving a record grain crop right now. And we haven't had to throw extra assets at it. We've increased -- we've improved cycle times by 15%. We're just spinning the assets faster. We've delivered a record for this company grain movement in Canada every month except for January, where we were -- I think, we were the second highest in our history. And that's because we're operating well. So that's an opportunity we could capitalize on. We're delivering a record corn crop in the United States. The energy sector is running very hard. We are on the fifth consecutive quarter of domestic intermodal growth based on that service capability and that share. And that service is also allowing us to continue to price above rail cost inflation. So it's the foundation of what we do is the consistency and the efficiency of that operation. So we've used that in Q1 and continued through April and May to deliver volume growth that's admittedly a little higher than we expected it would be.

As we look forward into the remainder of the year, I think it's uncertain. This is the year of the renewal of the USMCA. And we've gotten used to the tariffs that are out there now. We've all adjusted. We're with our customers, being very nimble in adjusting to that. We're not sure what's going to happen from here. We're watching it very closely. But I can tell you, I'm really proud of the adaptability that we've developed. We've got capacity in every part of the network. We've got 12% of our locomotive fleet available to us -- tied up, but available to us, and we can be very nimble in responding to what's happening out there.

Okay. So if you think about the business cross-border with the U.S. Obviously, that's been maybe a little bit softer. The rest of the business is operating well. How do you think about the size of the operating leverage that you can get if we get a more normalization of trade between Canada and the U.S. and that volume becoming a little bit more stable? Like how would you frame that opportunity set either from a margin or a volume perspective?

Well, maybe let me give you an update on how the volumes are going so far. I mean, certainly, we felt an impact last year at this time as we had a lot of announcements on tariffs. And Janet just talked about the impact on steel and aluminum, where most of the Canadian steel and aluminum goes into the U.S. market and the tariffs got to 50%, stopped most of that volume. I would tell you now aluminum, even at a 50% tariff, is starting to move into the U.S. again. The demand is so strong. So that kind of has moderated from an impact perspective already.

If you think about steel, that's a tougher market for them, but we've worked closely with our customers. And we're getting the Eastern Canadian steel into Western Canadian markets. We're moving more steel in the U.S. intra -- within the U.S. We've mitigated a lot of that impact on us. The steel industry, I think, is still suffering. The real impact that's continuing to persist is in forest products and lumber in particular. And I think that's an issue related to tariffs, but also related to just the overall continuing weakness in housing starts. So we will see that respond as housing starts pick up if and when they do. But I don't think we will have the same capacity that we once had. So that will be a lingering item.

The whole tariff issues around the ag sector, whether it was with China or U.S.-China or Canadian-China, Canadian-India, that has resolved itself, and we're moving, as I said, a record grain crop. So as we look at it, we have adjusted to the current tariff scenario reasonably well. We had a $350 million revenue impact from tariffs last year. We have replaced most of that. It's a different kind of a mix, but we've replaced most of that.

But the operating leverage that we have in place now because we understand where our capacity is, trains are running longer, but they're not yet, from a merchandise perspective, full. We're selling into that capacity. We have available capacity, train capacity in every corridor. We can move quickly on it. As I said, we've got locomotives available to us. So we're able to move very, very quickly. And with that kind of operating leverage, as you bring on incremental volumes, you don't need to invest in it. It falls directly to the bottom line. So we like what we're looking at as we look forward, the opportunity for both in the immediate term, the kind of volume growth that we're seeing, but especially in the longer term as we see the opportunity for long-term structural growth, the ability for that to drive right to the bottom line into earnings and free cash flow is significant.

And as you think about that progression from here, obviously, it sounds like you're saying that some of the trade stuff is stabilizing. You've got Western Canada kicking up. Is '27 then an inflection year from an earnings perspective? Or does it take a little longer? Or is it still somewhat dependent on USMCA?

Well, I would tell you that what we know now is that the environment is going to continue to be dynamic. I spent a lot of time in Washington, a lot of time in Ottawa, and they both say the same thing. We, as a business community, have all been saying, we need to know what the rules are. We need to be predictable and well understood. They're telling us get over that. It's going to be different. It's going to be far more uncertain on an ongoing basis. So we need to be ready for whatever happens. And what I like about where we're positioned on top of all of the natural resource sector, we know the world needs this. In any tariff scenario, in any geopolitical scenario, these are developments that are going to -- it's going to be -- make economic sense to pursue. And I think there's a lot of opportunity in that.

And then maybe just kind of putting the U.S. issues aside for a second, Canadian trade diversification has been a theme. How durable do you think some of those changes are going to be? Is this opportunistic shifts that you're making that you think are going to be in place until something changes between the North-South relations? Or is this something that you think is going to really kind of build for a longer term?

There is a lot of effort up in Canada on trade diversification. But it's not an or, it's an and. So the Canadian, U.S., Mexico trade relation is critically important, I think, to all of us. But certainly, 75% of Canada's trade is with the U.S. There's no replacing that, and everyone understands that. I think everyone in the U.S. understands the importance of that relationship as well. This is about, given what's going on in the world, the benefit of also exploring trade opportunities and relationships with others around the world, and there's a lot of momentum around that.

So we're spending a lot of time, especially given our presence on the natural resource sector and our presence at the ports in Vancouver and Rupert and Halifax and Montreal and Saint John, around where we have capacity and how quickly we can bring it to bear. We have been the beneficiary of some of Canada's trade corridor funding that's helping us do some incremental work at Rupert and some incremental work that I think you may have seen outside of Vancouver to make sure that those supply chains have capacity and they've got some resiliency. So all of that work is taking place. So there's opportunity there. It doesn't in any way replace the U.S. trade relationship. It's in addition to. And we're all working very hard to make sure that we do that in ways that are structural.

So if you think about in the energy sector, there is significant investment in assets, infrastructure being put in the ground. That is sustainable. That will be durable no matter what happens. Those are long-term arrangements and long-term agreements. Think about NGLs and all of the work that's happening in that energy space. Even if you think of refined products, some of what's happening on the condensate side. If you think about grain, that is going to move regardless of what happens in North America and potash, 40% of the world's production comes from Saskatchewan. That will move regardless of what happens economically in North America. It's one of the benefits is that we're becoming less tied to the North American economy and more tied to this fundamental natural resource base.

So there will be some and many of those that are structural and they'll persist. There'll be others that are opportunistic and could revert back. They'll go to where the best netbacks are. So there's some that could revert if we get to a productive agreement on USMCA that could revert back to more traditional flows or new flows. But what I like about the capabilities that we've developed is we're flexible and nimble, and all of that is okay. We've got capacity, and we're prepared to use it. And we're built -- as I say, we're built and ready for growth.

Okay. So as we kind of think about that growth opportunity in Western Canada, you mentioned a significant amount of CapEx going in over the years to harden that infrastructure, expand that mainline capacity up to Rupert now to Vancouver. Can you help investors think about like how much capacity there is to grow? Like is this a 2-, 3-year opportunity or a 5-, 7-year opportunity as you think about the utilization of that excess capacity before maybe you would need to start adding even additional infrastructure in the West?

Absolutely. So when we talk about capacity, it is track and network capacity, but it's also locomotives and it's also railcar fleet. So an important part of what we've done is modernize the locomotive fleet. And so it is now exactly where we need it to be, and it's operating at reliability levels that exceed what we've ever done before at CN. That's an important part of us being able to deliver both capacity and deliver from an operating reliability perspective.

From a network perspective, we knew and we could see 4 years ago this opportunity for growth in the Western, and we've talked about it for a long time. We hadn't invested heavily enough in it. And so we have now. We have, in effect, increased the capacity in the Western part of our network by about 25%. The pinch point is that piece between Edmonton and Jasper that all the trains run, anything going from the West Coast to any part of the other network, they all run on that piece. We've increased that by 25% in effect. We are continuing to develop capacity just outside of Rupert at the Zanardi Bridge and then just outside of Vancouver, and we're continuing to tweak. But in effect, we've added 25% of capacity.

And when we think about what our requirements are for that capacity, you have to look at all of the segments. So Forest Products is down a little bit, NGLs are up. Grain is running a record year, but you look forward as to what you think the sum total of that's going to be. And we see -- we think we've got a few years of capacity before we need to lean into it. When we do next, we've got all of those projects ready. We know exactly where the next pinch point will be, and we're organized from a project perspective to lean into it. But that's probably -- it's a few years away before we need to get lean into a capital cycle again.

Okay. And you mentioned earlier the ACE terminal expansion. And obviously, you took us up to Rupert a while back, and we saw a lot of the facility expansion that's up there. Can you help us maybe frame the size of the opportunity for resource extraction moving west over to Asia Pacific? Like how do you think about that as an addressable market?

From an energy perspective?

Yes, just in terms of -- because obviously, it's growing, right? The Montney Shale is a huge resource that can be exploited. But as you think about the revenue opportunity for you in the next sort of 3 to 5 years, how do you think about dimensioning that?

So we're bullish, really bullish on energy for 3 reasons. One is that the urgency of demand. North America needs this, the world needs this, and that's not going away. One is that it's not a single project or a single commodity. It's crude oil, it's NGLs, it's condensate, it's refined fuels, and it moves in every direction. It is an export kind of opportunity, but we've got refined fuels in the Toronto fuel facility that we're now on Phase 2 of. And the third thing is that we are uniquely positioned to do this as we grow. So we're very bullish on energy for all of those reasons. And as we see it, we see the -- what I like about this is, also that it's growing at scale.

If you think about the ACE terminal, we've been starting to move NGLs, export through Rupert for a number of years now. Now this is going to scale to something that's much more significant. There's a number of those projects behind it. So we have frac sand that's moving in to support the energy. We were moving frac sand into the Montney region. We now have 4 unit train facilities for frac sand. So it's scaled up in Northern British Columbia. We are, as I said, on Phase 2 of the refined fuel facility in Toronto. So this has got considerable scalability, and that also drives when you have that kind of investment that your customers and supply partners are making, that's a durable structural kind of growth opportunity. So we see significant growth in energy export, yes, but also across North America as we look at the opportunities going forward. So there -- and the good news is that we have prebuilt the capacity for it.

And as you think about the crude part of that story, obviously, liquid crude off of Western Canada, particularly in the North is not possible now. Is there a continued effort, I think, in Ottawa to maybe open that up as a way to kind of free...

You're venturing into the hottest topic in Canadian politics right now, David. Yes, there is an intention without a doubt. There's an understanding of both the opportunity and the urgency of getting crude oil into international markets as well as increasing the flow into the U.S. And the Canadian government and the Alberta government, in particular, are quite taken with this. They've signed an MOU around building a pipeline or the conditions around which a pipeline will be built. They've met recently to refine those conditions around what it will be built. We have a little more work to do. The producers have to agree to invest to produce that crude oil.

And I think we're going to see incremental gains, but there is the potential out there for a step function increase. There may be an opportunity for rail in that. It takes some time to build pipelines. We're certainly engaged in dialogues with a number of our customers around what that opportunity would look like. But I think there's greater potential for that than there has been in some time. What they need to do is to deal with things like the tanker ban in Northern British Columbia. That is the subject of much debate and the conditions under which that could be modified.

I admire your restraint because I would think that if you were going to go ahead and move crude off the Western Coast, that would be a significant revenue opportunity for you.

That would be meaningful because crude doesn't move in small volumes. And so anyone who's looking to invest in that kind of a supply chain is looking to do a pretty big project.

Okay. And then as far as kind of the grain opportunity, that's the other side of the agriculture and energy sort of focus for you guys. Record grain crops continue to happen pretty much every year.

It's been a good few years.

Yes, it's been a good couple of years here. So how do you think about longer-term growth in that? Is there room for that to continue to expand? I don't know how you're talking about it with the farmers and the grain.

I grew up on a farm in Saskatchewan. My brother still is on the farm in Saskatchewan. And so we have a debate about rail service all the time, but also around where it's all going. And I would say that with technology on the farms, just like every other business, the yields continue to grow in the farm community. Now in any given year, we're moving a -- on the farm, we call it a bumper crop and railroads, we call a record crop right now, and it surprised us on the upside given the moisture conditions last year. We'll see what the next one looks like. But if you look at the longer-term trend, that industry believes, in the next decade, there's 10% to 25% growth in ag production. And some of that will be in the more regulated grain, the grain that go offshore. Some will be in the canolas that either go offshore or go into the crush kind of opportunities that are out there. But 10% to 25% over the next decade is what they are predicting based on what's happening on yields in some of the -- where the acreages are and what's being planted.

Okay. So we talked a lot about agriculture, talked a lot about energy. Rupert did start out as an intermodal opportunity.

It did indeed.

Right. And how do you think about the longer-term prospect for Intermodal for Rupert?

The Gemini service, I think, is the best proof point of what Rupert can do and the confidence that the industry has on what Rupert can do. So Gemini chose Rupert as the fastest way. What they're out selling is they want reliable and fast service, right? And so they chose Rupert as the fastest way from Asia to Chicago, which is what we've been selling for quite some time. And you have a port there that the moment you're off the vessel, you're on a train, the dwell is negligible, and we can get you into Chicago faster than any other path on the West Coast. And so the Gemini service has signed up for that. We continue with Gemini to move more volumes than have been committed. So it's attracting that kind of volume and momentum. And we think that there's the potential to do more of that. Rupert also serves the Canadian international market, but its sweet spot really is the speed in which it can get into the U.S.

But as you think about the overall sort of, I guess, the generalist view that trade tensions between Asia and the U.S. might mean a headwind to that growth. Is that something that concerns you? It doesn't concern you?

I think the economics will prevail. We've been talking about that for a while. And I think the economics of getting from Asia into Chicago favor Rupert and the speed, if you look at kind of the cycle times favor Rupert, if you look at the development that's taking place at Rupert around the facilities that you saw, either to transload or destuff or cross-dock, what we're doing is using the opportunity of empty containers going back to Asia to use that capacity for carload volumes, for manifest volumes, whether it's agricultural volumes, whether it's forest products, whether it's plastic pellets. So as we load those empty containers going back, that creates an even more compelling economic opportunity and creates that stickiness at Rupert. Are there political considerations here? Absolutely. And we'll navigate those as we go. So far, we haven't seen any of that impact.

Okay. So the productivity side a little bit. I want to kind of switch to that before we talk about some of the strategic issues in the industry. Pat has done a great job driving productivity. CN has always been viewed as obviously one of the -- I don't know if the birthplace, but the maturation of Precision Scheduled Railroading. How is it that we're finding new opportunities for productivity after having run the model so well?

Productivity is never -- it's a never-ending kind of effort, right? And because the business changed, flows change and the opportunities change. And so we call it good hygiene. So in the first part of when I arrived when we reverted back to the scheduled operating model, we focused on over the road. This was about getting the scheduled operation up and running. Trains depart on time, they arrive on time. You got to make sure that the schedule is right so that they make the meet at the right place. And a big part of our initial lift in service and productivity was over the road.

Now it's time for the terminals. And most of the workload is in the terminals. And so Pat's going through there with his team and completely whiteboarding it and saying, based on our current volume flows and how the business has evolved, how do we most efficiently and most effectively move this volume through the terminal. So that is resulting in changes in services and less locomotives, less facilities, less manpower as we go through. And we've started with the biggest facility, so we're getting the biggest benefits upfront, but we're going to continue to do that. And we'll probably do it again in a few years because the business will have evolved again. And part of this is building that capability into your management team and the operating cycle, so you don't have to do an effort and initiative, you continually adjust as the volumes change.

As we look forward, we've seen this in the past, and we'll see this again, the opportunities for technology to be brought to bear on how you think about what goes on in a hump yard or even a flat switching yard around how you process cars, either in an intermodal terminal or in a yard, it's going to create the need and the opportunity to do this again and again. And there's going to be continued opportunities from a productivity perspective without a doubt. Right now, in Q1, I think we were -- overall labor productivity, if you account all of us, we were up 7%. But in the T&E, they were up double digit, right? And so this is -- we're starting to see this traction. And locomotive productivity was up 7% or 8%. Since Q1, Pat has put 20 more locomotives away, even though the volumes are higher than we expected, he has put 20 more locomotives aside because we're just getting that velocity out of it. And that's how you create operating leverage is when you can use your assets to move more and more volume without having to invest in the next side of the piece of track or the next asset. That's the place we're at.

Okay. I think it's worth probably also kind of mentioning or discussing a little bit technology and the role that, that is kind of playing and whether you see opportunities for AI or large language models to kind of help facilitate that process of institutionalizing that.

It's massive. One of the things that we have given the investments that we've made in the past in this industry around wayside detection. So the amount of data that we collect as we monitor trains that go by and the health of the assets and the data that we collect with our ATIP cars as they run over around the health of the infrastructure. We have an incredible amount of data. And the opportunity to work with AI on that to become more predictive than we are now, either in routing or in the health of the assets, is significant.

Now we need a regulatory environment that helps support that. It's a different conversation. But I think that we'll get there over time because the opportunity to improve safety, improved reliability is meaningful as well as productivity. We're also looking at the potential for AI in everything else that we do. We have an effort underway in the white-collar population that would say, how can we use it to do things differently. And we're finding some really significant surprises in there where we've missed revenue or an opportunity to bill a car. We don't need translation services anymore. Those kinds of opportunities where we have to be nimble and always looking at how we apply them. I think we're at the very front end of all of that. But without a doubt, this is going to change the way we all work. Your business, too, I expect.

I would -- definitely, definitely. Okay. So maybe if you think about the operating plan development and obviously using technology to maybe get into crew scheduling and get into that side of it. Is that untapped territory for you guys? Or have you guys already kind of kind of started to work on that part of it?

I think we started to work on it without a doubt. And it's an evolution, not a revolution at this point in time. And so we are in the midst of updating a number of our key basic foundational operating systems, which is necessary. So you need to get the data into a certain position where you can then use it to do some of the predictive things. But I think over the next 10 years, you're going to see some significant changes to the way that we operate and other railroads operate as we lean into what technology can do to help us. And it's an exciting time.

I think there was some hope in the industry with the appointment of an FRA administrator that was kind of from industry that we might be able to see some changes in the regulatory landscape that would allow you to actually unlock that productivity because I think you're still burdened by 100-year-old regulations on how often you got to drive out and look at the track when we're using AI and ATIP cars running over it. So has there been any shift in that regulatory environment that would allow you to actually yield the benefit from some of these investments?

I think the shift is that there's a greater understanding of both the need and the opportunity for a more constructive regulatory framework on all of that. Certainly, David understands, as you say, both the challenges and the opportunities. And we all -- there's an opportunity for us to invest, but in order to invest, we've got to be able to secure the benefits from that. I think it's moved slower than we had hoped it would in this administration for all kinds of reasons. But without a doubt, there's an intention to try and move that way. It's a frustrating part for us in the industry because we can see the potential to not be able to step into it.

In Canada, we're starting to attract a lot of attention as well. Canada does not want to be less positive or productive from a regulatory perspective to do work. It takes time to change, but we actually have now in Canada some exceptions and waivers that go beyond what we've done in the U.S. So I think that there's some momentum behind it, but it is frustratingly slow. It's tremendous opportunity there.

Okay. And then obviously, there's now support for this Railway Safety Act that's moving through D.C. How do you think about that from a...

It's a solution looking for a problem, quite honestly. What is contemplated in that act suggests that a solution to a problem that doesn't exist. If you look at the safety record of the railroad industry over the last decades, the investments, but also the improvement has been significant. If you look at the problem that they're suggesting that came out of the East Palestine incident, where there happened to be 3 people in that locomotive on that train, there was no problem with the size of the crew base. There was no problem. The issue was not the length of the train. So a lot of the solutions that are in that have no bearing on anything that created that incident or any of the other incidents.

So I think it's a solution that is not addressing any problem that exists in this industry. And there's some danger on that and that you become more prescriptive and more difficult from a railroad operating environment. Our job is to power the economy and to do it effectively and efficiently. And when you layer on kind of regulatory requirements like this, it gets in the way of us being able to move the economy's freight, and that is a significant risk as we look forward. So I think we're having some of the right conversations, but it is -- in the political environment, it's a problematic space.

Okay. One of the other issues that stand out to me from a regulatory standpoint that I kind of scratch my head about sometimes is you have the U.S. economy -- the U.S. administration kind of pushing for things like the Rail Safety Act, at the same time, going all gas, no breaks to work on autonomy on the highways. How do you think about autonomous trucking in relation to the railroad business? And how would you sort of frame that as an opportunity or risk set for a generalist investor who might be looking at a railroad investment?

I would say that -- so we are both part of a logistics supply chain, right? And so we, in Canada, as CN has in from a Canadian perspective, we have the largest trucking fleet in Canada. So we're watching this very, very closely. We take that -- we do that last mile with our CNTL and the trucks. We have TransX. And so this is a space that I think has a lot of opportunity. The technology in the case of both trucks and railroads is there or nearly there. It is the regulatory, the social framework that we've got to get around it that convinces us all that this is safe and we should progress with it. And that's a conversation that if we really are serious about building the economy in North America, whether it's in the United States or Canada, we have got to get our heads around how we do this efficiently. If we ever reach our aspirations around what these economies can do, we do not have the labor force to respond to that. If you look at the generational change, to respond to that in a way that's going to allow the economy to grow, we need to embrace technology to let technology handle what it can handle and free up our resources, our human resources to do things that technology can't. And that's going to be a critical part of the path forward, whether it's in the trucking industry or whether it's in the rail industry. It's a critical path forward for the economy, and that's the conversation we need to start to have.

All right. I appreciate that. So let's talk a little bit about some of the strategic issues that are happening in North America with railroads, with consolidation and the potential merger between UP and Norfolk. You've been pretty publicly skeptical of the proposed transaction from day 1. Can you talk about the basis for that thinking, how your thinking has evolved? And what do you think is going to happen prospectively?

I think our thinking has been pretty consistent. This is a significant transaction, significant change. If this merger were to proceed, that we have a single company that was controlling 40% plus. It will be more than 40% of the rail freight in North America. And that concentration of market power is meaningful, and it needs to be something that we're very thoughtful about. We're never going to -- you never back out of something like that. And so we believe that this needs to be looked at very carefully. The way the regulatory framework is, requires this to be in the public interest to achieve outcomes and goals that couldn't be achieved without the merger, that increases competition for the benefit of the economy and that considers downstream effects.

And the merger application and even the revised application that was recently submitted, we don't think comes close to contemplating that. It doesn't provide all of the right data and information to allow all of us to assess what the impact really is going to be of this transaction, particularly as it relates to competition. And so we're not -- it's not personal for us. This is a structural issue that needs to be considered very thoughtfully. We don't think that the application is up to muster. The STB is going to opine on it, and we're going to hear, I think, this week around whether it's complete, which is the first step, whether it's got the right information. And then we'll start to have the conversation around what needs to happen -- in the event that this merger were to take place, what needs to happen to ensure the protection for the benefit of industries and customers and the economy to ensure that it has the right level of competitive options.

Okay. So if you think about the maybe the generalist approach to looking at this issue of single-line service versus interline service. I think it seems to make sense that a single-line service would be more efficient than an interline service. Like why wouldn't that be a good thing for shippers to have in terms of like GN being able to ship from the Mexican border to Detroit without having...

So the question is, can you get that benefit any other way? And that's the regulatory framework is can you get the benefit in any other way. And I think that we've demonstrated in this industry, it's not easy. But since the CPKC merger, there's been a lot of effort to demonstrate the network can work, including with UP, the Falcon service that we have, with Ferromex, the UP and CN. And we've consistently delivered truck-like service from Monterrey in Mexico to Toronto in Canada for 5 days. And so we know that it can work. And so the question is, do you need a merger to make that happen? And that's the regulatory question that has to be asked and answered. Can there be some benefits? Yes. But they have to be weighed against the very real potential for competitive harm and the impact of that on the industries that we serve and on the economy of the United States. And that's the question that I think we're considering under the application.

Okay. As you think about this whole concept of enhancing competition, what would an application -- forget about this application, what would an application need to have in it that would make you think you were enhancing competition?

Well, okay. So the concept of enhancing competition came out around in, you know this better than I do, 1999. It used to be -- railroad mergers are not a new idea. We've done a lot of mergers over time. And it used to be under the regulatory framework, what you had to do is just demonstrate you weren't harming competition. But now we're 6 of us. And so the regulators in 1999, 2000 decided that the standard needed to go up. And you needed not just to demonstrate that you were not harming, but that you enhance competition, given how important this is for the economy. And so it's undefined. It's never been tested. There hasn't been a big merger since that happened around what does enhanced competition really look like.

But if you think about a merger and having to have more competition, you've got to fit in more rail competition and achieving this public interest piece. You've got to think about how you introduce other rail competition to areas that are impacted. And as we think about this, we believe that our network could be very useful in introducing competition and driving kind of our network further down into the U.S. markets, for example, and introducing another competitive option in some of the markets that we don't currently serve. So there are options around trackage rights or haulage or interline arrangements or divestitures or even kind of some of the gateway commitments that could be make that actually do something versus the ones that they have in the current application. So there are ways to think about how do you deal with the competitive issue, but it's a pretty high bar to hit. We've got a lot of work to do.

But it sounds like you and your team have put some thought into what you might be able to do to help enhance competition through this transaction. I'm sure we'll hear about it if this thing does propose to the merits. But if you take a face value that there is some value in single-line service, is that something that you would be a proponent of pursuing? Or is that something that you would kind of pursue defensively in terms of like trying to bring some of those solutions to bear.

Yes. I think I'd tell you, at the point of the state of this application right now, we think it's a negative thing to the industry and to the economy, right, without a doubt. Are there conditions under which it could enhance competition? Yes, but it's a very high bar and a lot of things would have to happen. And you wonder whether the benefits -- any benefits to the parties that are merging would still exist once you get through all of those conditions. CN is in a pretty good spot on this. We are kind of more of a north-south when it comes to the U.S. We originate 85% of our volume, and we originate and terminate 2/3 of our volume. So we've got a pretty good moat around us from a defensive perspective. We would be impacted without a doubt. But I think our assessment and that assessment that's in the application was that we would be impacted far less than any other railroad. We're concerned about that, and we'll do what we need to do to take care of that. But we do think that there's opportunity if this goes forward for us to be position our -- use our network to position our customers in an even more favorable position. Whether there is enough of that to get this full merger to the level that it increases competition is the bigger question.

Okay. And as you think about the potential for the regulator to actually approve the merger, you've talked before about entertaining all options to creating value for your shareholders. Without getting into specifics, like what is that?

It's exactly what we've been talking about. So we'll be a very engaged part of this process, right, and where we think that there is harm. And I do not believe that this merger will be approved without any concessions. I think that, that is highly unlikely to impossible, just given the impact to the industries that the railroads serve and the economy of the United States. So we will be very actively engaged as we think about what are the provisions that need to be put in place, what are the concessions that will maintain and enhance competition. And so that's from a defensive perspective.

From an offensive perspective, there's opportunities as we think about where our network runs down through the center of the continent and the opportunity to extend that service into some of the other markets that we're sitting on top of this natural resource base. We already handle all the way to destination 2/3 of our volumes, but think about the potential for that natural resource base to push even further on our line into the North American markets, and we're doing our work.

All right. So coming back to CN and thinking about this year being -- your guidance, I think, has been for flattish EPS as you're dealing with...

Flattish volumes and EPS..

EPS a little bit more, yes. When you think about setting up the outlook for the next couple of years, like I said before, are we -- is this a transitional year ahead of an inflection? Or is this a transitional year ahead of a -- we'll wait and see that comes out of the USMCA?

I think the USMCA outcome is always going to have an impact, but so is the geopolitics. And so we've become very nimble and we've positioned ourselves well. So we are at the end of what is, I think, a transitional period. So we've done the investment. We've got the capacity in place. We've got the capabilities in place. We have capacity to sell, and we're out in the market in a very disciplined way, creating our own success on that. We've created operating leverage, which means that as that happens, that falls to the bottom line in earnings and in free cash flow. We're positioned on top of a very kind of a rich resource base in Western Canada and other places as well. If you think about the U.S. and the ag space in the U.S. that we're positioned very well over the longer term to see that develop for the world as well as for North America. So we're kind of at the end of what will be an inflection point. I'm excited about what the opportunity looks like going forward for our customers and for our shareholders and for our company.

Okay. And then just kind of real quickly on the balance sheet as far as cash flow coming out of the business. Leverage is kind of running a little bit above plan. Is the plan to grow into that and continue to do opportunistic buybacks? Or are we going to be deleveraging before buybacks? How do you think about that?

So we've been pretty nicely -- our stock is a pretty good buy, right? It has been a good buy for the last couple of years. So we leaned into that. We announced a temporary increase in leverage. We've leaned into that and done a little bit more buyback. We're at the end of the investment cycle. So our CapEx is lower. Our free cash flow is running higher. We're 44% up in free cash flow in the first quarter of this year. That's going to continue. We've committed to return that to shareholders. Our framework is always if there's a growth opportunity, high return opportunity in the business that goes to the business. If not, it's consistent, predictable dividend increases and it is, then we return the excess cash back to shareholders. We're going to have more free cash flow going forward. We've leaned into that in the first quarter. We have said at this point in time that the increase in leverage is temporary and will revert back next year, but we'll continue to kind of focus on making sure that, that free cash flow gets back to our shareholders.

All right. Well, we're coming down to the close here. So I usually like to give you an opportunity to make the bull case for the stock. You've got a group of investors in the room that are looking at Canadian National's opportunity. Why is this the right place and the right time to put money into CN?

Okay. We have an incredible network. It can't be replicated across Canada in the northern part of Canada, down through the U.S. We sit on top of a diverse portfolio of commodities. We have a particular and unique opportunity in the natural resource base across the network, but particularly in the North and even more particularly in Western Canada. We have spent 4 years in building out our capacity and capability and getting ready for this. We are built for growth. We've got operating leverage, ways to bring that volume into the system with low incremental investment. And so that falls directly to the bottom line. We're positioned with strong operating leverage and the ability to drive both earnings and free cash flow. And we will have the opportunity to return that -- do the right things for our customers, but return the free cash flow to our shareholders.

If you think about the bull case, it's not just about the North American economy kind of recovering and volumes returning. I think about the bull case more as the continent Canada, but also the U.S. to realize the full value of the natural resource and the commodities that we have and the appetite that we have to get those into the global marketplace. And this company is uniquely positioned to play a role in that. And we're ready for it. We're built now for growth. We've got the operating leverage to do it, and we can respond very quickly. And I think that's going to be very good for our shareholders and our customers.

Excellent.

Thank you, David.

Well, with that, I think we're going to bring it to a close. Thank you all for joining us. Enjoy the rest of the conference. Thank you to CN and the team for coming out and supporting the conference.

Thank you, David. Good to see you.

Yes, good to see you, too.

All right. Good morning, everyone. Welcome to Day 3 of the 19th Annual Wolfe Global Transportation and Industrials Conference. I'm Scott Group, Transport and Airlines Analyst here at Wolfe.

We are going to get going with our first session of the day with Canadian National. We have Janet Drysdale, Chief Commercial Officer; and Jamie Lockwood from Investor Relations. Thank you, guys, so much for being back at the conference. I appreciate it as always. I think Janet's got a couple of quick things she's going to start with, and then we'll jump right into questions.

Sounds good. Thanks, Scott. It's great to be here. As you know, I always appreciate the opportunities to spend time with the investment community.

So I'll make just a few kind of brief high-level remarks and then like you said, we can dive right into the Q&A. I think let me start off by saying the railroad is running really, really well. I couldn't be more pleased with the service that Pat and team are providing to our customers. And that matters because the service, number one, helps us to grow volumes. Number two, it helps us with pricing.

So let me talk about pricing for a minute. We have been very, very consistent with our pricing strategy. And we have spoken about it on the last 3 analyst calls. I'll speak about it on the next 3 at the risk of sounding like a broken record, but it's pretty straightforward. First and foremost, we're going to price to the value of the service that we're providing our customers. We're going to price ahead of our rail cost inflation, and we're going to sell into our capacity.

So let me say a couple more words about that. When we are out meeting customers, when we're out trying to drive new business onto the railroad, what we want to do is make sure that we can service that business really, really well. Because if we do a good job for the customer, the customer is going to win. And when they win, we win. And we service it well, we do it at low incremental cost as well, right? So you're not jamming up your network. So that really matters a lot to us.

Let me say a word about revenue per revenue ton mile, while I'm talking about pricing. You'll remember, Scott, many years ago, railroads used to provide same-store pricing. We stopped doing that because it wasn't comparable the way it was measured between the railroads. And so you're kind of left with revenue per carload or cents per RTM as a kind of proxy for pricing. I have to tell you, it's not a great proxy. There's a lot of noise in revenue per RTM, and I think we saw that in the first quarter, when you think about things like FX, the fuel surcharge, and on the Canadian side, we have the carbon tax as well. So it gets hard to measure kind of on a year-over-year basis and really have an understanding of the underlying pricing.

When we think about the mix of business, there can be a huge impact to revenue per revenue ton mile based on mix. Just to drive that point home, if you look at the numbers, you'll see intermodal and automotive as examples, where the revenue per revenue ton mile is much higher than the average of the other categories. Now that's not to suggest that intermodal and automotive are the most profitable business units, nor should it suggest that you're getting the most pricing in those segments, but it's just a way to drive home the point that mix has a significant impact on revenue per revenue ton mile.

So let's talk for a minute on volumes. We had about 3% RTM growth in Q1. As of this morning, I would say we're pretty close to 3% on a quarter-to-date basis in Q2. So that is running, Scott, a little bit ahead of our expectations. Where we've seen some really good strength is Grain Canada, grain U.S. We've seen strength in our refined petroleum products, and that relates to the Toronto fuel distribution facility that we opened up and are now into Phase 2 of moving unit trains with that facility. Natural gas liquids, which I think we should spend a little bit more time talking about today, have all kind of surprised a little bit to the upside.

Some of the other areas that have been more resilient, where we expected maybe more weakness are things like metals and automotive that were impacted by tariffs. These segments have proven more resilient than we expected. Potash is surprising to the upside. Automotive, I think I said automotive already. So we've got -- the more weeks, I guess you could say, under our belt, the more confidence grows. When we think about the second half, I would say it's still a bit murky the macro. And so we remain cautiously optimistic, but the good news for you is that we report volumes on a weekly basis, so you can track it with us as we go.

When we look a little further out, so kind of that was half 1, half 2. If we now kind of think about where we're getting to at the end of '26 and what does '27 and '28 look like, I think that's where we're just really excited. I think we have tremendous growth opportunities, multi-project, multi-commodity, and I think the announcement that went out earlier this week on ACE terminal, this is a partnership with Keyera and AltaGas, who have been great partners to CN and will be great partners for many, many more years to come. This is a little bit of an underappreciated, I think, opportunity for CN, where our network is really just built for growth. So if we think about the Montney Shale region, which borders Alberta and BC, this is one of the most significant natural gas deposits in all of North America.

Now we don't move natural gas as a railroad. But what's happening in Canada is we're getting more export capacity for natural gas. When that happens, there's more drilling that takes place to produce more gas. This is a deposit that is very rich in liquids. So natural gas liquids, you're talking about propane, butane, ethane, condensate. All of that moves by rail. And so this ACE terminal is going to be an important long-term growth opportunity for us. And this is, of course, all linked to growing export capacity at the Port of Prince Rupert and the new capacity coming online there with REEF to actually get the propane and butane offshore. The ethane is also an important component because this is making it cheaper to produce plastics. And so plastics eventually will be another key export opportunity in Canada as well.

So let me wrap up by just saying we're built for growth. We have the capacity available. We have the franchise that is well positioned to where incremental growth is going to come from. And we believe that, that growth is going to be able to come on at a low incremental cost.

Okay. Great. So I'm going to start with some questions. If audience has questions, raise your hand, we'll get you involved.

I appreciate your -- you start in your opening comments talking about sort of price -- because I don't know that we typically hear opening comments from rails start that way. So I appreciate that. I guess I agree with you, right, that rev per car, cents per RTM are not perfect, right? We look at it because we don't have a choice. And I guess then I would sort of post to you, why not go back to the same-store price? And you can't say because it's not comparable anymore because no one else is doing it. So why not be the leader and start reporting the same-store pricing?

I think this is an area where there is not a big advantage to kind of be out on your own with the number. I think the guidance that we can give you is that we are pricing ahead of our rail cost inflation, right? And right now, I would say our inflation is driven by 2 major components, it's labor and it's materials. And our inflation is probably running in the 2.5% to 3% range. And so you can assume that we're pricing ahead of that.

And when we say we're pricing ahead of that, right, there's a discussion some rails have pricing dollars and...

Yes, yes. Let me explain what we mean.

Because ultimately, are we -- like it's not obvious, right, that pricing is accretive to margins because margins have sort of been steady, right?

So yes, no, 100%, Scott, it's a good question. So when we measure pricing, we measure it on a same-store basis. So it's a very detailed measure. Is it the same origin, the same destination, the same commodity, the same car type? You kind of have to check off all of those parameters and then did it move volume? So is my price this year higher than my price last year, and I measure it against the volume, which gives me the pricing dollars, okay? So it's a pretty rigorous measure.

What we're seeing is that we continue to have this mix headwind. And so we talked about that a little bit in Q1, where mix is essentially offsetting our same-store price dollars at the moment. And the mix impact is really driven by -- kind of headline would be the forest products, right? So we're seeing 40%, 50% kind of tariffs and duties on Canadian lumber into the U.S., and that has hit us hard. Now that will continue to probably about October of this year because that's kind of following the sequencing of when the incremental duties and tariffs were applied last year.

Metals has been a headwind. But as I mentioned, it's actually faring better at this point than what we would have expected. So I would put most of the mix issue on the forest products that give you the sense that as we kind of lap the tariffs that were placed last year, we should have the opportunity for the pricing to show through without the mix impact.

And just one more, just on this sort of thing I'll add. If you're pricing 50 basis points above inflation, you're sort of at the whim of mix being a headwind. If you start pricing 1, 2, 3 points above inflation, then you could say, hey, mix the headwind, we don't care. We're still getting net price [indiscernible]. Is there an opportunity to sort of accelerate that price?

So my customers will tell you there's not an infinite pricing capability, right?

Sure. No, I'm not suggesting we go 10 point. I don't know, like is the some opportunity to sort of -- you understand what I'm saying, no?

No, I -- listen, I'm very, very comfortable with the team's approach to pricing, and we do this on a disciplined basis. We're looking at individual origin destination lanes, understanding the relative competitiveness. But there is no point for me to renew a contract at 6% if I don't move the volume. Okay, that's theoretical pricing.

What I care most about is dollars that I can put in the bank account that support earnings growth. And so it's not -- there's not unlimited pricing power. I think we're in a market where we've had multiple years of weak volumes. We're seeing that now start to correct itself. So we're seeing the tightening truck rates and capacity. We're seeing all of the rail is getting a little bit more volume growth. So I think we're kind of coming out of the worst of it. And then it's service, like how good of a service are you providing? That's where you need to be able to anchor your price.

And is this trucking phenomenon, certainly in the U.S., is that any signs of it spilling over into Canada so we can...

Yes. There are some early signs. It is stronger, like in the U.S., I would say, and I think you see that from the various companies that you cover. But we are seeing some of that traction take hold in Canada as well.

Okay. And then maybe just -- I'll get to you. One second on questions. If there's a mic, well, we can get around.

So you mentioned RTMs tracking up about 3%, again, the guide sort of for the year has been flat, right? You mentioned some macro uncertainty. Do you feel like there's upside potential? Or is this, hey, grain is really, really good right now. Do grain comps start to get harder as the year progresses? Is that sort of part of the...

Yes, I think grain is always the unknown, right? So I think that's an important point. And the single biggest driver of the strength has been grain Canada and grain U.S. Normally, at this time of the year, we actually see a little bit of a slowdown in grain shipments because the farmers around in their field planting.

The planting has been delayed. It's been quite wet in Western Canada. And so those volumes are holding steady. And then it's all about trying to predict what the next crop looks like. And as farmers get a better handle on that, they'll make decisions around how much of the current crop they hold back or release. And then that gives us a better sense of what does the, I would say, September to December time period look like in the context of grain. The crop isn't even planted yet. I think that's the key point.

Yesterday, CP suggested that they think from a year-over-year standpoint, grain could look pretty good through December. Do you have that visibility yet or hard to know?

Well, it's hard for me to predict the crop that hasn't been planted. I would say that I think the visibility is pretty good on the crop that's in the bins right now. So we feel good about -- and it's both Canada and U.S., I want to make that point. Like we've had an all-time record crop in Canada, but it was a record corn crop in the U.S. And then the resolution with China on soybeans in the U.S., the resolution between Canada and China on canola, all of that has been constructive for shipments this year.

Okay. And then -- just a couple more on the volume side. So you mentioned we get to October and some of like the lumber, forest product comp should start to ease?

Yes.

We're still in a pretty weak housing market.

We are in a weak housing market.

Are things not continuing to -- are things stabilizing at a low level and so we just have to lap this? Or is there a risk that we just continue to see downward drift on...

Yes, I think that's a little bit of the unknown. I think housing is such an important segment, not just lumber, but for the broader economy. And when housing goes well, you have your lumber, you have your roofing shingles, you have your wallboard, and then somebody builds a new house and they want all new appliances and they want all new furniture. So it actually brings growth in intermodal as well.

So when the housing market is doing well, our railroad volumes are doing well. So I would say -- the way I would answer your question is that the #1 issue is the housing starts. The secondary issue is the duties and tariffs. So we will lap that issue, but we don't expect growth to return until the U.S. mortgage rates come down a little bit and we see housing starts move up a little bit.

Okay. You said we should talk more about NGL. So let's talk more about it. So how big is that of a business today? Where do you see over the next 12 months, 2 years, like how much growth should...

Yes. I mean this business is growing at double digits. And this is all related to that Montney Shale region that I was talking about. So the more opportunity that Canada creates to export more natural gas, the more that this is a long-term opportunity. And so there's multiple projects that are being kind of fast-tracked to increase export capacity.

I think you've seen kind of the Canadian government be very focused on liberating Canadian energy. And obviously, it's a good time to be doing that. So as that grows, we're going to grow with it. We have more fractionation capacity that's actually coming online in the second half. So what I mean by fractionation, if you're less familiar with that, once you kind of extract the liquids from the production process, it goes through a fractionator, and the fractionator is what separates the products into propane, butane, condensate and ethane. And so more capacity coming online in the second half.

And then I think the Keyera, AltaGas, CN announcement is kind of the proof point that this isn't growth for a year or 2. This is a decades-long growth story. And I think that's an important piece. And it doesn't just mean more propane, condensate and butane opportunities. It will help crude oil opportunities. It helps plastics opportunities. So it does have an outsized impact, I think, on overall volumes, and it's something that our franchise is particularly well suited to in that Northern BC area. Frac sand as well. I mean that's the kind of key input to make this happen.

So do you think there should be double-digit growth for multiple...

For that segment, yes.

And is this a -- where does this rank in terms of like, is this a better margin product or something, I don't know.

It's within our Petroleum & Chemicals business unit, which does tend to be at the upper end.

And you mentioned this is a growth opportunity. I've heard over a long, many years, lots of different growth stories. We've talked about -- all the rails, there's Meridian Speedway, there's Lazaro. There's this East Coast Port, there's this triangle strategy and these -- there's one growth pitch that has really, really hit, and that is Rupert. But it's -- the last few years, that has stopped. And Rupert is down a lot from where it was. What wrong with Rupert of late, and when does that start to come back?

So you have to kind of split Rupert in half, okay? Because Rupert used to be just an intermodal story, and it is equally, if not more, a carload growth story today as well as an intermodal story. So on the intermodal side, we did, we had some challenges, labor issues in Canada, both at the port and the rail side, where we lost some of that traffic to the U.S., and we're working hard to get it back. I will say that we have the Gemini service at Prince Rupert. It is going extremely well, exceeding our own expectations, I think. And that creates a proof point for other shipping lines.

And so I think all of the structural advantages of Prince Rupert remain fully intact, and it's more about kind of giving the proof point around the stability of kind of labor and the supply chain is the important point going forward, and Gemini is helping us demonstrate how successful the port can be on the intermodal side. The carload side, like I said, we've talked about the NGL exports. We think there's incremental opportunity for metallurgical coal. So it's becoming as much a carload growth story as an intermodal growth story.

What is Rupert growing this year, do you think?

I don't know off hand, but it's outpacing...

Is it growing?

Absolutely, yes.

So you think Rupert, you think is back on a growth...

Rupert is back on a growth trajectory, absolutely.

Okay. Sorry, there's a question. Mic is coming right behind you.

It's more just going back to the pricing side. So you say pricing in excess of inflation. But can you just drill into that a little bit? Like what does that mean? And like, when you talk about inflation, is that like realized inflation or some sort of pro forma thing?

And then when you think about this year, I know you do a fuel surcharge pass-through, but a lot of your other inputs would be sort of petroleum-based, I'm thinking like lubes and things like that, that could see really significant inflation. So like how are you factoring that in? And how do you sort of get comfort that the ultimate price will actually be in excess of inflation?

So the fuel is well covered by the fuel surcharge. So it's -- the vast majority of that is the diesel fuel for locomotives. And yes, there's some other products that kind of get used on the railway, but that is well covered with what is a pass-through fuel surcharge.

So when we're talking about other inflation, we're talking about labor being a key part of that. In Canada, the labor inflation is about 3%. We have a smaller base in the U.S., that's maybe running closer to 4%. And those are really just based on the negotiated collective agreements. So there are known, and they're typically known kind of multi-years.

The balance is materials. And so that's how well you're contracting for other materials that are used on the railway, and that's running a little bit lower. That's more in the 2.5 kind of percent range. So when you put the basket together, -- this is the inflation that we're talking about. It's the specific inflation for CN that we're trying to make sure that we're pricing ahead of.

And for sure, that this is dynamic, right? As we kind of go through the economic cycles, when demand is higher, when inflation is higher, we're going to see price move up. We do have regulated grain that we're dealing with. So a certain portion of our business is regulated. This is export grain in Canada. And so that has put a little bit of pressure on our pricing for this year. That regulated grain increase is about 1.7% for the '25-'26 crop year. I wish I could tell you that, that was going to improve as we think about next year, but the pricing has already been released, and it's 0.66% for CN for the '26-'27 crop year.

Now that segment, the fuel is embedded in the index. So there isn't a separate fuel surcharge. So fuel can cause a lot of noise in that regulated grain number. And so it's not as responsive. So it tends to be a timing issue of when you kind of get the benefit of fuel, but that timing issue could be like a year later. So that's just something to keep in mind about how we kind of move through the cycle and how we price differently according to the market conditions that are out there.

So what you're -- so August of '26, regulated grain rates only go up less than 1%?

Correct.

And it's on like a year lag, right? So you're going to have -- that piece of your business is going to see a real margin hit relative fuel that's up meaningfully? And then in theory, next August, regulated grain rates, including fuel, go up a lot. And then fuel, hopefully by then, is normal, and regulated grain margins should look really good in the back half of '27?

That's the theory.

Right, in theory.

Now I would just say that it is a bit of a black box in terms of how the government does these calculations and then how they correct for prior year forecasting errors. But yes, the theory that you outlaid is sound.

And is that like enough of the margin hit that mismatch on grain rates versus fuel to impact my model?

I don't think so, Scott. I think you've just got to -- when we talk about the mix headwinds, you got to factor in a little bit on the grain side. I think that's how you should think about it, not showing through maybe as much as we all would hope in the near term, but catching up timing issues.

Okay. So that like, I think leads like a -- like a bigger picture question. I think I asked it to you maybe on one of the earnings calls, but I'll sort of ask it again because I think it's important to sort of understand this, right? For so many years, right, the thought was rails could grow earnings high single digits, maybe even low double digits without much volume growth. There was enough price, there was enough cost margin, there was enough buyback to sort of get us there even without much volume growth. And certainly, it doesn't feel -- that's not what we're -- last couple of years, we're sort of flattish on earnings this year, you're saying volume flat, earnings up slightly more than volume, like can we get back to that better sort of earnings growth algorithm? What has to happen to get there?

Yes. So let me start off and then Jamie can jump in. I think, Scott, we're going to kind of Wikipedia this to your name, Scott Group, earnings algorithm. So it has become a thing.

Instead of the OR question.

Yes, yes. So yes, the earnings algorithm, we believe, is actually fully intact. Now year-to-year, you're going to have some noise. But do we think that the CN railroad has the capacity in a supportive environment, economic environment, good macro, to be able to deliver high single, low double digit? The answer is yes.

Jamie, maybe you can give a little bit more color.

Well, and I think if you -- even if you start looking last year, we had 1% volume growth, 7% EPS growth. So I think in 2025, so that as the base going to prove us that earning algorithm theory. This year, we have FX issues and a higher tax rate, some headwinds from other income. But when you pull those aside, Scott, and you look at the base of how the business is performing, how Janet's doing on the commercial side on -- and with volumes, how Pat's doing operationally, I think you see that at the core, and the core engine is running well, and the earning algorithm is actually intact.

Okay. And so looking ahead a year, if we lap these headwinds, maybe there's -- if the volume environment is picking up a little bit, maybe then the pricing environment picks up, like the pieces -- grain could turn into a -- grain pricing could turn into a tailwind back half '20 -- like those are the pieces that could get us back to that.

There's leverage in our business. And when the volume comes back, when you see the volumes come back, you'll see the earnings follow it.

And then just one other -- I know there was a question on fuel -- I did the Canadian grain. Any thoughts of changing the way the surcharge mechanisms work to more frequent resets?

Yes. I mean we're -- we have a 2-month lag. Most of the rail industry has a 2-month lag. On a regulated basis, it's really hard to get shorter than a 1-month lag. You have a minimum 20-day notification period that you have to respect when you're changing tariffs. So I don't think it's a high priority, to be honest, Scott. I think the overall fuel surcharge functions well and as intended as a kind of a pass-through mechanism. So no, I think we're comfortable where we are.

Just sort of a near-term question. You talked about on Q1 call few set headwind from fuel in the quarter and sort of 200 basis points on margin, right? Typically, we see margins improve, I don't know, 2, 3 points, Q1 to Q2. Given that fuel headwind, like do we -- should we still see some degree of margin improvement Q1 to Q2?

I think you'll see it -- Jamie is going to correct me if I'm wrong here, you'll see it on a sequential basis, so that normal seasonal pattern will hold, but fuel is hitting both your top line and your bottom line. And so it kind of comes at 100% OR. And so when we look on a year-over-year basis, I think there may be just more of a headwind.

Do you think it's still fair to see like the normal...

The normal sequential improvement comes through and then you have -- I think just like called it out at -- at Q1 of a 200 basis point hit from fuel. That was -- fuel was at $95 a barrel. So we'll see if it stays north of 100, it was back down yesterday. So there's a little bit of noise, maybe a little bit plus, minus on that 200, Scott.

And then last -- just a few minutes, maybe just a couple of minutes just on the bigger environment with M&A. Maybe just at its core, like what are your greatest concerns about the merger? And what do you say to the argument of, hey, there's already a transcontinental system in Canada. It works. Like why shouldn't we have that here in the U.S.?

I think for us, the biggest concern has been making sure that there is adequate data to make an assessment of the impacts of the merger. And I think we've demonstrated through our various filings that we don't think it's -- we're there yet in terms of the robustness of the data.

I think the other piece is really...

Can I jump in for one second, sorry. You're not even making a comment about the merger. You're saying the application is still incomplete in your...

Yes, yes.

And we'll find out next Friday.

Exactly. But this is significant, right? This is the most significant merger, I think that the industry has contemplated. And with the most significant bar in terms of the necessary remedies to demonstrate enhanced competition. And to be clear, the measurement for enhanced competition here is as an existing rail customer. It's not truck to rail conversion. That maybe is kind of community benefit or a social benefit. But if I am an existing rail customer, you have to be able to demonstrate to me that this merger creates enhanced competition.

I don't think that bar has been demonstrated to this point, and it is a high bar. So when we think about is this going to happen, is it not going to happen? One, we think having the right data is really important. Two, we are the railroad probably least impacted by the merger just due to the nature of our network. We originate about 85% of the traffic that moves on our network and we originate and terminate about 65%. But if there's a way that we can play a role in the context of remedies or if there's a way we can influence what we think remedies look like to demonstrate enhanced competition, then we're going to be an active participant in that process.

And then maybe just as we wrap up, anything active participant -- any specific things you would like to see from a concession standpoint? And then just hypothetical, if this gets approved, is it inevitable that one merger leads to 2 or 3 or 4 mergers?

Yes. I don't know about inevitable, but I think it's -- we're running all scenarios, and likelihood would suggest so. I think for us, we remain focused on growth. And I think as we've kind of talked about today, we have a network that is really built for growth. We're well positioned to bring volumes on at a low incremental cost and to benefit from our operating leverage. So this is where we're really putting our time and energy.

And trying to leverage -- we talked about the NGLs, we talked about Northern BC. We didn't have time to talk about just kind of the build Canada and the amount of infrastructure projects and the acceleration of those infrastructure projects, whether it's critical minerals or other -- just energy products. So we are quite excited about how we kind of move into '27 and '28, and that's what we're focused on, growing.

Do you want to take a minute and just talk about that? Like you just -- what that opportunity is?

Yes. So I mean I think we've taken a new Canadian government, a new approach in terms of trade diversification, desire to really liberate Canada's natural resources, whether it's energy, whether it's critical minerals. And so I think rails are going to play a really important role in that in getting Canadian goods to offshore markets. And I think we're primed to be the railroad to help support that, particularly given our northern reach to where some of these resource bases are located.

Jamie, thanks so much for being here. That was great.

Thank you.

Welcome to CN's Annual General Meeting. My name is Shauneen Bruder, and I'm the Chair of the Board of CN. [Foreign Language]

I would like to introduce the senior officers of CN Annual General Meeting [ joining me on the webcast ] this morning, Tracy Robinson, President and Chief Executive Officer; Ghislain Houle, Executive Vice President and Chief Financial Officer; and Cristina Circelli, Vice President, Corporate Secretary and General Counsel. I will act as Chair of the meeting, and Cristina will act as Secretary of the meeting.

Before we continue, I would invite Cristina to address introductory remarks, a safety moment and forward-looking statements.

Thank you, Madam Chair. [Foreign Language] In the context of CN regarding reconciliation, it's important for you to recognize that our railway has been built and continues to be used on many traditional territories that are under treaty with indigenous people.

CN's network spans 13,200 miles across Canada and operates within or adjacent to more than 220 reserve lands of nearly 130 First Nations and Metis communities. We are grateful for the privilege of working and living on these lands. we acknowledge and honor the first people who continue to be these traditional custodians of land.

I would now like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. Today's meeting contains certain forward-looking statements within the meaning of U.S. and Canadian securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.

At CN, every work assignment begins with a safety moment. Today is no different. [Foreign Language] With summer just around the corner, many behind of us are probably planning road trips with family and friends.

In addition to the importance of staying alert and observing road signs while driving Operation Lifesaver offers advice on safety around railway tracks and trains, do not go on to the railway tracks, trains travel faster than you might think. You will not hear or you will not feel the train approaching. And by the time you realize it's close to you, it might be too late.

Use railway crossings. They are designed to allow you to cross the tracks safely at crossings, stay at least 5 meters away from the tracks when a train is passing. Obey the signs. There are many railway signs and signals that indicate when a train is approaching and where and when you can cross the tracks.

Following these instructions ensures your safety. Be careful and keep to our distance. At train stations, stay away from the edge of the platform or the safety line. The best way to avoid being hit by a train is to stay out of the path.

Thank you, Cristina. It's an honor to preside over our meeting of shareholders. I want to thank our staff, my colleagues, our clients, our shareholders as well as the communities where we work for continued support.

At CN, our railroaders are driven by our purpose to power the economy and to safely deliver essential goods across North America. In 2025, we demonstrated the resilience of our network amid a challenging macroeconomic environment. By focusing on operational efficiency, service consistency, cost discipline and capital allocation, we delivered strong performance and positioned ourselves well for 2026 and beyond.

As a Board, we continue to exercise oversight of CN's strategy with a view to ensuring that management is driven effectively leveraging our network advantages, navigating market uncertainty and pursuing opportunities aimed at driving strong business performance and growth. We are confident in the company's direction. Moreover, the Board and management remain focused on collaboration and believe that competition is imperative and in the best interest of our customers, our shareholders and the economy.

Safety is our core value and foremost priority. CN is providing the leadership, training and resources necessary for our continuous improvement in safety as we work toward our ambitious safety objectives. In 2025, we proactively trained more than 5,000 first responders on rail safety and emergency incident response. And our annual emergency preparedness exercise in British Columbia was recognized with an award from the Railway Association of Canada.

CN is charting a course for a sustainable future by delivering responsibly. We act responsibly for the environment. We attract and develop top talent, and we help build safer, stronger communities. We do all of this while upholding the highest standards of governance and creating value for shareholders. Sustainability is at the heart of our business strategy.

Continued success is driven by our teams of experienced [ rate ] holders. Through talent development and succession planning, the Board ensures that we have the necessary leadership rather, capabilities to achieve CN's long-term strategic goals.

We are also deepening engagement with stakeholders across our network. Of note, in 2025, CN made meaningful progress in the first year of our indigenous reconciliation action plan, which provides a strong foundation for our ongoing efforts to support and honor indigenous communities in Canada.

In addition, the Board continues to listen directly to customers and maintains open dialogue with key stakeholders in order to capture valuable opportunities today and in the future. Finally, the Board remains steadfast in our commitment to ensure the highest standards of corporate governance. Good governance means good business.

I would like to take this opportunity to welcome Ms. Madeleine Paquin, who joined our Board of Directors last fall; and extend heartfelt thanks to Ms. Margaret McKenzie, who is retiring this year as a Director of CN. To our shareholders, we appreciate the trust each of you places in our company and our leadership. We are focused on driving sustainable growth as we work toward our purpose to power the economy.

I would now ask Tracy Robinson, our President and Chief Executive Officer, to address the meeting to share with us the highlights of 2025 and give us her perspective on what lies ahead in the coming months. But before, let's watch a short video on CN's purpose and corporate strategy.

[Presentation]

Good morning. Thank you for being here at our Annual Meeting of Shareholders. [Foreign Language] First of all, I am extremely proud of our [ rate rollers ] of work that we've done in 2025. I'm very proud of how the results were obtained with discipline, with team spirit and continuous commitment towards excellence. At CN, we're driven to create value customers and our shareholders through all economic cycles. And I'm optimistic about what we'll continue to accomplish together.

2025 was not an easy year. Demand was volatile. We rose to the challenge by focusing our efforts on what we could control, efficient network operations, reliable and consistent service, disciplined cost management and a high degree of agility in servicing our customers.

[ Discipline ] matters. It helped us navigate uncertainty and market headwinds. And once again, our people and our network proved to be resilient. The actions we took in 2025 leave us well positioned for this year and for stronger growth as volumes and economic conditions strengthen.

Now let me start where we always should, with safety. Safety is our core value, and it's what matters most. In 2025, CN recorded its lowest injury rate in its history. This is a powerful testament to the work of our teams. I commend them for their vigilance and their commitment to doing the job right. Our priority is simple, to ensure that every rate holder gets home safely every day.

We're continuing to strengthen our safety culture through better training, strong leadership and new technology. We're changing how we manage risk and prevent incidents, including the development of a mobile app that uses AI-driven analytics to help leaders improve safety performance.

Our people also feel empowered to speak up and act because safety isn't someone else's job. It's a responsibility we share every shift, every day. Delivering responsibly is central to how we run our business and how we build for the future.

CN, it is already one of the most efficient railroads on the continent. Our goal is to continue providing our customers with more sustainable transport solutions. Last year, nearly 12% of the fuel used in our locomotive fleet came from renewable sources. We're expanding renewable fuel blends, working closely with industry partners and continuing to explore a hybrid electric locomotive pilot.

We must make the right choices for ourselves and our customers. Our scheduled operating model continues to deliver results. We are improving the reliability of our service. We are increasing the speed of our trains. This enables us to consistently be there for our customers.

Over the past 3 years, our teams have built real discipline around that plan, and it shows in our operating metrics. Our adjusted operating ratio improved by 1.2 points to 61.7% and operating expenses per GTM came down by 2%. And we're not stopping here. We are optimizing our locomotives and terminals to improve productivity and reduce costs. We are also managing our investment projects more efficiently.

We're also investing in strategic parts of the network, projects like the Zanardi Bridge expansion in Prince Rupert, double tracking on the Edson Subdivision in Alberta and upgrades on Iowa's Osage Subdivision to handle heavier loads. These investments enable us to operate a more fluid network, offering us the flexibility to grow thanks to the capacity that we have built. We have a strong franchise and it's well positioned for the long term.

We move commodities the world needs, grain, potash, critical minerals, refined fuels and natural gas liquids. These are products that tend to hold up better through economic cycles. We also have an unparalleled port network that provides access to all major global markets. As trade patterns continue to change, that gives us a real advantage and a clear path to grow with our customers.

Every day, our sales team is out on the field. They seek out new business opportunities and provide solutions to customers targeting new markets. In Northeast British Columbia, our investments are enabling more frac sand and NGL movements. In the U.S., we're growing our agricultural franchise. We're facilitating more opportunities by enabling heavier loads and strengthening connections between Midwest markets and the rest of our North American network.

None of this works without our dedicated railroaders. [Foreign Language] CN's future depends on dedicated skill team and our leaders at every level. This past year, we launched a new leadership program to support our frontline supervisors in their critical roles. We'll also continue to develop our future leaders by investing in talent and succession planning.

At the same time, we're focused on a stronger workplace culture, making sure our railroaders understand our priorities, feel heard and empowered to contribute. We're listening to feedback and we're acting on it.

We're moving confidently into 2026. Our network is strong. Our plan is clear and our teams are delivering what is expected to them. We are managing costs with discipline. We are making the right investments and taking a proactive approach. We're ready for what's ahead as uncertainty hasn't disappeared. There's still plenty of noise out there.

But our focus hasn't changed, execute with discipline, stay close to our customers, keep the commercial intensity high, control what we can control and how we show up and be really good at it. We're fit, we're nimble, and we can adapt to whatever environment we're in. We will continue to meet our customers' expectations and build long-term value for our shareholders.

Across the industry, we also remain focused on collaboration. We think that competition is essential to keep costs down and the economy sound. So to all CN employees, thank you very much for your commitment to operating our railroad safety and reliably every day. And to our shareholders, thank you for your continued trust and support. Together, we're ready to move forward and continue to power the economy.

Thank you, Tracy. Now on behalf of CN's Board of Directors, I am pleased to call this meeting to order. Before we continue, I will ask Cristina to review the process for the vote on today's motions as well as the question-and-answer session that will follow the vote.

Your participation in the affairs of CN is important to us. So we are pleased to provide close captioning, and we will proceed in both of Canada's official languages. Shareholders are invited to interact with us in French or in English. CN is also providing toll-free conference call numbers for shareholders and duly appointed proxy holders, who do not have Internet access to participate virtually or prefer to use the phone.

Voting during this meeting can only be done through our online voting platform on the webcast. You will not be able to vote your shares over the phone. If you have voted in advance of the meeting, you do not need to do anything more, and we thank you for your participation. Shareholders participating in the online webcast can put their questions in writing or ask a question using our voice or video features via the webcast. Shareholders attending by phone can ask questions orally.

Selectiveness of the method used, the meeting operator will manage the order of questions and connect you -- with you when it is your turn. We will provide more details on how to vote and ask questions during the meeting.

For the purposes of the meeting today, voting on all matters will be conducted by a single electronic ballot to provide our shareholders with ample time to vote. Voting will commence when we introduce the first motion, and the poll will stay open until all motions have been presented.

You will be asked to vote today on: one, the election of directors; two, the nomination of auditors; three, the nonbinding advisory resolution on the company's approach to executive compensation; and four, the nonbinding advisory resolution on the company's climate action plan.

During this meeting, all registered shareholders and duly appointed proxy holders, including unregistered shareholders who have appointed themselves as proxy holders; will be able to vote online and only online.

When we introduce the first motion, if you already have voted prior to the meeting, we thank you, and you do not need to vote again -- once voting opens, unless you wish to change your vote. If you choose to recast your vote at the meeting, your votes submitted today will override your votes submitted prior to the meeting.

During the meeting, the Chair will entertain questions relating to a specific motion after that motion has been moved and seconded. Any questions not relating to a specific motion will be addressed during the question-and-answer session at the end of this meeting. Shareholders may submit a question at any time during the meeting as follows: One in writing by typing your question in the messaging field at the top of the webcast screen and clicking the Send arrow; two, verbally directly through the live webcast by clicking on the Request to Speak button in the broadcast tab and clicking on the green checkmark. You may need to scroll down to the bottom of the broadcast tab on your browser to access the green checkmark; or three, by calling by phone, the numbers shown on the screen. [Operator Instructions]

In all cases, you will need your control number found either on your proxy form or voting instruction form as applicable in order to ask your question at the meeting. Your question will be placed in the queue by our meeting operator.

[Operator Instructions] We strongly recommend that you submit your request long before the motion in question is presented in order to give our operator to place you in the queue. The operator will open the web or phone line at the appropriate time during the motion so that you can ask your question.

If time permits on subject to compliance with the rules of conduct of the meeting available on our website, we will answer all questions submitted in writing, by phone or through the webcast platform. Relevant questions that cannot be answered during the meeting due to time constraints will be posted online on CN's website along with our answer. The questions and answers will be available shortly after the meeting and will remain online for 1 week after they are posted.

All question submitted in accordance with our rules of conduct will generally be addressed in the order they are received. When asking a question verbally over the phone or via our live webcast, please state your full name, whether you are a shareholder or duly appointed proxy holder and the name of the city and province or state where you live.

For technical assistance, you may contact the meeting support team by e-mail at [email protected] at any time during the meeting. To keep the meeting efficient, certain shareholders have already agreed to move and second formal motions, and I will call on them at the appropriate times.

Back to you, Madam, Chair.

Thank you, Cristina. The business matters to be conducted at the meeting are set out in the management information circular of the company dated March 9, 2026. As permitted under Canadian securities rules, the company has used the notice and access regime to make available its meeting materials and sent a notice on March 25, 2026 with all relevant information in that regard to holders of common shares at the close of business on March 6, 2026, the record date. A copy of the confirmation of mailing of such documents has been filed with the Corporate Secretary for inclusion with the minutes of the meeting.

I would now like to appoint Steve Gilbert and [ Vlad Telebasa ] of Computershare to act as scrutineers at the meeting. I have received the preliminary scrutineer's report. And based on the proxies received prior to the meeting and the shareholders and proxy holders attending this meeting via live webcast and conference call, there is a quorum for the meeting. I therefore declare that the meeting has been regularly called and properly constituted.

The next item of business is the submission of the financial statements of the company. There is no formal action or resolution required with regard to this item on the agenda. I will take this opportunity to ask our Chief Financial Officer to present the company's financial performance in 2025 and the Q1 2026 results. Ghislain?

Thank you, Madam Chair. Our disciplined execution of scheduled railroading supported by an energized commercial focus enabled us to navigate a challenging market in 2025. We also took deliberate action to align our cost structure with volumes and drove meaningful efficiencies across the business.

Together, these efforts delivered strong EPS growth and highlighted the resilience of our operating model going into 2026. CN's diluted earnings per share increased by 8% to CAD 7.57. Adjusted diluted earnings per share, which excludes items that affect the company's of CN's financial results, increased by 7% to CAD 7.63.

Despite the weaker macroeconomic environment and the impact of tariffs that weighed on traffic levels, the commercial team stayed close to customers, helping to identify and enable new opportunities and support demand. Volumes measured in revenue ton miles increased by 1% despite these challenges.

2025 revenue were up 2% to reach CAD 17.3 billion, an increase of approximately CAD 250 million compared to 2024, driven by higher volumes and flight rate increases, partially offset by the elimination of the Canadian federal carbon tax program.

In 2025, the operating ratio, defined as operating expenses as a percentage of operating revenue, was 61.9%, an improvement of 1.5 percentage points. The adjusted operating ratio in 2025 was 61.7%, an improvement of 1.2 percentage points compared to previous year.

For management and investors, the adjusted operating ratio serves as a key performance indicator for cost management and overall operational efficiency as it shows the extent to which management is effectively controlling costs relative to total operating revenue, excluding exceptional and nonrecurring items.

CN generated over CAD 3.3 billion in free cash flow, an increase of almost CAD 250 million from the prior year due to higher net cash from operating activities in 2025. With a number of significant infrastructure and equipment programs now behind us, our capital requirements will ease in the coming years. These investments have reinforced the safety and efficiency of our operations and positioned our network with the capacity needed to support future growth.

CN invested CAD 3.3 billion net of customer refunds in 2026. The company expects to invest about CAD 2.8 billion in its capital program, net of amounts reimbursed by customers to improve the safety, the efficiency and integrity of its network.

From a financial management perspective, CN has constantly taken a prudent approach. We take pride in the strength of our balance sheet, which gives us the final flexibility -- financial flexibility rather to quickly respond to changing circumstances.

CN's Capital allocation priorities have been consistent over many years. We continue to reinvest in safe, efficient operation while maintaining our strong commitment to returning capital to shareholders. CN has delivered dividend growth year in, year out since the company was privatized in 1995.

Our strong track record of dividend growth continues into 2026 with our Board of Directors' approval last January of a 3% increase in the dividend.

Using the share repurchases as a flexible lever to achieve a targeted leverage, our cash flow generation has enabled cumulative share repurchases of over [ 15 billion ] in the last 5 years while maintaining our strong investment-grade credit rating. On a combined basis, we have returned over CAD 25 billion to shareholders in the last 5 years. Our current share repurchase program slated to continue until February 2027, provides for a repurchase of up to 24 million shares.

We are greatly confident in our planned operating model, which improves resilience and recovery capabilities and maintains excellent service for our customers. CN reported diluted EPS of CAD 1.87 for the quarter was up 1% with a 3% increase in volumes in terms of RTMs, solid operational execution and continued boots-on-the-ground commercial approach.

Back to you, Madam Chair.

Thank you, Ghislain. Note that we will take questions on CN's financial performance in 2025 during the question period following the end of the formal meeting. We will now proceed with the election of directors. According to the resolution of the Board and in accordance with the Board's governance policies, 11 directors are to be elected. Information regarding the nominees is set out in the management information circular. All of the nominees for election to the Board at the meeting are currently directors of the company. I will now turn it over to Cristina, who will read the names of those nominated for election as directors.

Here are the candidates positions of directors for the CN Rail Company, Shauneen Bruder, Jo-ann dePass Olsovsky, David Freeman, Denise Gray, Justin Howell, Susan Jones, Robert Knight, Michel Letellier, Al Monaco, Madeleine Paquin and Tracy Robinson.

Cristina, I would ask [Patricia Di Taddeo] to move the motion to nominate the directors.

Madam Chair, my name is [Patricia Di Taddeo]. I am a shareholder of the company, and I am pleased to nominate each of the persons named by the Secretary to be elected as a director to hold office until the next Annual Meeting of Shareholders or until his or her successor is duly elected or appointed.

Thank you, Patricia. [Heidi McFall], will you second the nominations?

Madam President, I'm [Heidi McFall], and I am a shareholder of the company, and I support these nominations.

We will now entertain questions from shareholders relating to the nomination of directors. Cristina, are there any questions relevant to the election of directors?

Madam Chair, there are none.

Merci, Cristina. Pursuant to a resolution adopted by the Board of Directors, 11 directors are to be elected and 11 eligible candidates have been nominated. The poll on all resolutions is now open, and you may vote at your convenience by choosing your preferred voting option, being for, against or withhold each motion as applicable. You may change your vote at any time throughout the meeting until polling closes.

The poll will close after the last item of business is presented, at which point your vote will automatically be submitted. For this motion, you are prompted to click the for or against button below the motion with respect to the election of each director. The Board of Directors and management recommend voting for the election of each director nominee. The next item of business is the appointment of the company's auditors. I would now like to call on [Patricia Di Taddeo] to present the motion to appoint KPMG LLP as auditors of the company.

Madam Chair, my name is [Patricia Di Taddeo], and I'm a shareholder of the company. I move that KPMG LLP be appointed auditors of the company to hold office for the fiscal year 2026 or until the close of the next Annual Meeting of Shareholders.

Thank you, Patricia. [Heidi McFall], would you please second the motion?

My name is [Heidi McFall]. I am a shareholder of the company, and I support the motion.

We will now entertain questions from shareholders relating to the appointment of the company's auditors. Cristina, are there any questions relevant to the appointment of auditors?

Madam Chair, there are none.

Thank you, Cristina. For this item of business, you are prompted to click the for or withhold buttons below the motion with respect to the appointment of KPMG LLP as the company's auditors. The Board of Directors and company management recommend voting for the motion.

The next item on the agenda is consideration of the nonbinding advisory resolution on the company's approach to executive compensation. The statement of executive compensation contained in the company's management information circular discloses such approach in detail. The results of the vote will not be binding on the Board. However, the Board will take into account the results of the vote together with other relevant information or comments from shareholders when considering the company's approach to executive compensation. I will now call on [Patricia Di Taddeo] to move the motion.

Madam Chair, my name is [Patricia Di Taddeo]. I am a shareholder of the company. I move that the nonbinding advisory resolution on the company's approach to executive compensation as set out in the management information circular be approved.

Thank you, Patricia. [Heidi McFall], will you second the motion?

My name is Heidi McFall. I am a shareholder of the company, and I support the motion.

We will now entertain questions from shareholders relating to the motion on the company's approach to executive compensation. Cristina, are there any questions relevant to the nonbinding advisory resolution on the company's approach to executive compensation?

Madam Chair, there are none.

Thank you, Cristina. For this item of business, you are prompted to vote for or against the motion. The Board of Directors and company management recommend voting for the motion. The next item on the agenda is the consideration of the nonbinding advisory resolution on the company's climate action plan. The results of the vote will not be binding on the Board. However, the Board will take into account the results of the vote together with other relevant information or comments from shareholders. I will now ask Ghislain Houle to present key highlights of our climate action plan.

Thank you, Madam Chair. Advisory vote on CN's climate action plan complements the detailed and comprehensive climate-related information that CN has long provided. The information covers our governance, our actions and targets, our strategy and our risk management practices. The detailed plan is contained in the company's management information circular as well as our annual CDP report, which includes a TCFD index.

CN has been making a positive contribution in the fight against climate change by offering efficient transportation solutions to our customers. In locomotive fuel efficiency among North America Class 1 railroads using approximately 15% less fuel per gross ton mile than the industry average. And we are actively working with some of our customers to help them reduce the carbon intensity of their supply chains by leveraging rail for long haul and trucking over shorter distance. We want to be more efficient. So this is also for short distances. CN has science-based targets in place and is committed to reducing Scope 1 and 2 emissions intensity by 42% by 2030 and its Scope 3 emissions intensity from fuel and energy-related activities by 40% by 2030, both from a 2019 base year.

To remain on track to meet its 2030 targets as validated by the Science Based Targets initiative, SBTi. We have progressed 27% towards our Scope 1 and 2 target and 44% towards our Scope 3 target. We are currently in the midst of calculating our 2025 performance. Overall, achieving our 2030 target is dependent on the availability of sufficient volumes of cost competitive renewable fuels, which will require collaboration between locomotive manufacturers, fuel producers and governments. This ecosystem of collaboration is a key area of focus and potential risk. Those were my remarks, madam Chair.

Thank you, Ghislain. I will now call on [Patricia Di Taddeo] to move the motion.

Madam Chair, my name is [Patricia Di Taddeo]. I am a shareholder of the company. I move that the nonbinding advisory resolution on the company's climate action plan as set out in the management information circular be approved.

Thank you, Patricia. [Heidi McFall], will you second the motion?

Ms. Chair. My name is Heidi McFall. I am a shareholder of the company, and I support this motion.

We will now entertain questions from shareholders wishing to ask a question relating to the motion on the climate action plan. Cristina, are there any questions relevant to the nonbinding advisory resolution on the company's climate action plan?

Madam Chair, there are none.

All voting items have now been presented to the meeting. If you have not yet made your voting selection, please do so now. Polling will close in a few moments. As a reminder, the voting items for the meeting are as follows: a, the election of 11 directors to sit on the Board of Directors of the company; b, the appointment of the auditors of the company; c, the nonbinding advisory resolution on the company's approach to executive compensation; and d, the nonbinding advisory resolution on the company's climate action plan.

The 4 resolutions are displayed on your screen. To cast your vote, simply select your desired voting option either for, withhold or against as the case may be for each resolution. Your voting selections will be highlighted on your screen. Once polling closes in a few minutes, your votes will automatically be submitted and a confirmation message will appear on your screen to show that your vote has been received. We will provide shareholders approximately 1 more minute to complete the electronic voting. Once voting is completed, I would ask that the scrutineers compile the report regarding the results of voting on all business matters.

[Voting]

Thank you. Voting is now closed. We have now received the report of the scrutineers. According to the proxies received and the results of the electronic voting, each director nominee received 50% or more in favor of their election of the total votes cast for or against and on average, in excess of 94% of votes in favor. I therefore declare that the 11 nominees have been duly elected as directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are duly elected or appointed.

I declare the appointment of KPMG LLP as the director -- as the auditors of the company has been approved by 89% of the holders of common shares represented at this meeting. I declare that the nonbinding advisory say-on-pay resolution on the company's approach to executive compensation has been approved by 91% of the holders of common shares represented at this meeting. I declare that the nonbinding advisory resolution on the company's climate action plan has been approved by 96% of holders of common shares represented at this meeting.

I would now like to congratulate the members of your Board of Directors on their election. They're a talented group from all over North America who make every effort to bring value to shareholders of this company. Jo-ann dePass Olsovsky, David Freeman, Denise Gray, Justin Howell, Susan Jones, Robert Knight, Michel Letellier, Al Monaco, Madeleine Paquin, Tracy Robinson and myself, Shauneen Bruder. Thank you to our shareholders for your continued support. As we have now completed all the business before this meeting, I will entertain a motion to conclude the formal part of this meeting. Heidi, would you please move the motion?

I am [Heidi McFall]. I am a shareholder of the company, and I move to adjourn the formal portion of the meeting.

[ Patricia Di Taddeo], will you second the motion?

Madam Chair, my name is [Patricia Di Taddeo], and I am a shareholder of the company. I second the motion.

Thank you, Patricia. We will now proceed with the question-and-answer session. Cristina?

We will be answering to questions received online by phone or through the webcast platform. [Operator Instructions] We will take questions in order and the Chair will invite a CN representative to respond. For questions submitted in writing, I will read the name of the person who submitted the question and then I will read or summarize the question. Over to you, Madam Chair.

We will now begin the quest-and-answer session. Cristina, could you please direct us to the first question?

Madam Chair, we have a question from both James Michel and Jean-Philippe [indiscernible] as follows: Can you offer some thoughts on possible conditions to the STB merger approval that could better CN's performance, such as granting CN haulage rights to reach deeper into the Southeast U.S. markets or perhaps direct access to Mexican markets to compete with CPKC.

Thank you, Cristina. Tracy, would you address that question?

Certainly. UP and NS have filed a new application that's designed to address the significant deficiencies in their original filing. And we will reserve detailed comments until we finished our final analysis. But based on our preliminary review, we remain concerned that the merger fails to meet the regulatory standards and will weaken competition. Now under current STB rules, proponents of a Class 1 merger must demonstrate that the transaction is in the public interest, not only remedying any loss of competition, but actively enhancing it.

We believe that this merger raises significant competition issues requiring strong remedies, which could include improved gateway conditions, access to markets at risk of losing competitive options through trackage or haulage rights and elimination of contractual restrictions that limit interchange with shortline railways. At CN, we believe we're well positioned to address some of these issues and protect optionality for our customers, and we look forward to sharing our views in due course. I want to thank you for your questions.

We'll now proceed with the next question.

Madam Chair, we have a question in writing from Daniel [indiscernible] as follows: CN serves my home state of Iowa, which is arguably one of the biggest producing areas of meat and meat products in the entire United States. I'd like to know why CN hasn't reintroduced intermodal services to the Iowa division mainline to tap this rich market.

Thank you, Cristina. Tracy?

Thank you for your specific comments on Iowa. We are very proud to serve your state. Now at CN, we regularly assess our ability to serve specific markets, and I will follow up with Janet Drysdale, our Chief Commercial Officer and the Intermodal team to have someone reach out to you directly.

Cristina, next question please?

Next question is in writing from [indiscernible] as follows: any comments or thoughts on upcoming CUSMA negotiations and how this will impact the firm?

Tracy, could you respond?

Over the past year, we have all been watching closely the negotiations around the renewal -- the review and renewal of the CUSMA agreement. This remains an important part of our business. So we're watching it very closely with our impacted customers. Now we believe that fair trade, including the removal of trade barriers, whether they be national or international, contributes to a stronger economy for all of us. So here at CN, we continue to invest in the fluidity and the capacity of our network to support the needs of our customers no matter how the trade flows emerge over time.

We'll now proceed with our next question. Cristina?

Madam Chair, we have a question from [Daniel]. As I'm sure you're aware, there are several passenger rail proposals currently under review, some of which could involve using CN's Iowa division mainline, specifically West of Rockford, Illinois to Dubuque, Iowa and possibly to Waterloo, Iowa. Why has CN been reluctant to entertain Amtrak or another operator as a tenant?

Thank you, Cristina. Tracy, could you respond?

We work very closely with Amtrak on providing passenger service in various parts of the United States. I don't know the answer to your specific question, but I will ask our passenger services team to get back to you on this question as well. However, I can tell you that we balance capacity on our network. So we have to be very careful with dealing with our partners on the passenger side to ensure that both passenger services and our freight operations operate effectively.

Thank you. Next question, Cristina.

Chair, we have a question on the English phone line. Operator, would you please open the line for Madison Krieger of NorthStar Asset Management.

My name is Madison Krieger with NorthStar Asset Management in Boston. My question is, on March 4, CN Rail released its Indigenous Reconciliation Action Plan, annual report for 2025. We recognize the progress the company has made to advance indigenous reconciliation to meet the Truth and Reconciliation Commission call to Action 92. However, we are concerned that CN's Indigenous Reconciliation Action Plan may not completely reflect the report provided by the Indigenous Advisory Council, all of whom resigned in 2023 and respond to the council's recommendations.

Can you provide shareholders with more information on how the Indigenous Advisory Council report and recommendations shapes the commitments contained within the Indigenous Reconciliation Action Plan and any other related indigenous reconciliation commitments? Additionally, we recognize that external indigenous advisory councils play a crucial role in supporting and monitoring the progress of a company's indigenous reconciliation commitments and strategies by providing guidance, strategic visioning and advice for effective implementation of the company's reconciliation commitments and goals.

CN recognized the relevancy and importance of such a council before its members all resigned in 2023. Can you speak to CN's plans to reconstitute an indigenous advisory council to support the implementation of its indigenous reconciliation action plan and related reconciliation commitments?

Madison, thank you for your question. I will invite [Olivier] [indiscernible] to respond. [Olivier]?

Thank you for your question, Madison. Our reconciliation action plan was informed by many sources, starting with the input from the communities themselves both through our regular engagement and through the specific consultation we carried out on our reconciliation action plan. We also took into account the Indigenous Advisory Council's perspective. Our reconciliation action plan evidences our genuine desire to build stronger, mutually beneficial relationship with indigenous communities. It is a living document that will continue to evolve based on the feedback we received from communities and our lived experience. While we are grateful for the wisdom our counsel shared with us, we do not intend to reconstitute a new council at least for the time being. Thank you.

Thank you, [Olivier], and thank you for the question. Cristina, next question, please.

Madam Chair, there are no further questions. This concludes the question-and-answer portion of the meeting. I will now turn the meeting back to the Chair of the Board, Ms. Bruder. Over to you.

Thank you, Cristina. In closing, I want to thank everyone who made today's event possible, including all of those who worked so hard behind the scenes to ensure our shareholders were able to participate in the meeting online and over the phone. [indiscernible] participation at the meeting and for your continued support, and good health to all. Thank you so much until next year. Goodbye.

[Audio Gap]

I'll be your operator today. [Operator Instructions] At this time, I would now like to turn the call over to Jamie Lockwood, CN's Vice President of Investor Relations and Special Projects. Ladies and gentlemen, Mr. Lockwood.

Thank you, Christa. [Foreign Language] Welcome, everyone. Thank you for joining us for CN's First Quarter Financial and Operating Results Conference Call. Joining us today on the call are Tracy Robinson, our President and CEO; Pat Whitehead, our Chief Operations Officer; Janet Drysdale, our Chief Commercial Officer; and Ghislain Houle, our Chief Financial Officer.

You can turn to Page 2 of the presentation, which includes our forward-looking statements and non-GAAP definitions for your reference. These forward-looking statements reflect our current information and educated assumptions and include estimates, goals and expectations about the future. These involve risks and uncertainties, and actual results may differ from what we expect. As a reminder, forward-looking statements are not guarantees and factors such as economic conditions, competition, fuel prices and regulatory changes could impact actual outcomes.

It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Thank you, Jamie. [Foreign Language] Thanks, everyone, for joining our call. I'm pleased to walk you through our first quarter results. This was a solid quarter where we delivered on plan. This is reflective of our continued focus on execution and performance across the entirety of our operations. We're doing exactly what we said we would do at the outset of the year, and the results can be seen across the business. We're increasing our commercial intensity, and we saw volume growth in the first quarter. We're executing with urgency, and we're not done. As we look at the quarter, our performance is best understood through key commitments we laid out around execution, financial discipline and guidance. Now let me walk you through each of those.

First, on execution, we committed to pulling every lever we have in the areas we control to deliver regardless of the macro backdrop. We have leaned into workforce productivity, asset utilization and operating efficiency, and the railway is running well. All of our key operating metrics improved year-over-year, and this has contributed to a structurally improved cost base. At the same time, we continue to intensify our commercial execution in this environment where every carload counts. The team is delivering by staying nimble, empowered and responsive, capitalizing on our strong service.

Now second, we committed to strengthening free cash flow and returning excess capital to shareholders while maintaining a strong balance sheet. In the quarter, free cash flow increased by about $275 million. We repurchased 6 million shares and increased leverage to 2.7x. This reflects our confidence in the underlying earnings power of this business. Expect this focus to continue. And third, we committed to providing directional guidance tied closely to volume trends rather than precise targets. Now we're encouraged by the start of the year, and our view remains that earnings will grow above volumes on an annual basis. It's too early to change our outlook for the year. But if volumes come in stronger, we're confident we will deliver earnings leverage in the business.

Now as we exit the first quarter, the business is positioned for better financial progression, not just as comparability becomes less demanding through the balance of the year, but in anticipation of the operational leverage that will come through as and when the volume environment improves. So let's turn to the quarter.

We are pleased with how we started the year. I am proud of how the team is performing. It speaks to the strength of the network and to the quality of the operating model we've built. We're handling volumes more efficiently with fewer people and locomotives. And that matters because it positions us to convert growth more effectively and improve financial performance as the year unfolds. And from a commercial perspective, volume growth was led by grain, potash, natural gas liquids and intermodal. In fact, we set a new first quarter record for grain movements, and we continue to see our service reliability and commercial intensity creating opportunities for us in the marketplace. Janet will walk you through the key revenue puts and takes in a few minutes.

Our productivity is a key focus for us, and we're hard at work pulling every lever. Our fast-track initiative, which Pat will speak to in a moment, is progressing as expected as this cross-functional review further drives network efficiency. Q1 was set to be the toughest year-over-year comparison of 2026, and the quarter came in largely as we expected. Now the benefits to EPS from our commercial and operational execution were impacted by a few factors that are not reflective of the underlying performance. Ghislain will provide details on those.

In addition, fuel and FX had a combined $0.07 drag on the earnings in the quarter. The engine is running well, and you will increasingly see the benefits drop to the bottom line as the year progresses. The one area in which we're not satisfied in Q1 is safety. We have consistently improved our safety performance over the last number of years. However, in Q1, we fell short of our expectations. We remain fully committed to continue improving our safety outcome, and we're already seeing improvements in both accident and injury rates in April. Pat will speak to our safety performance in more detail.

Now looking forward to the rest of the year, our priorities remain unchanged: disciplined execution, increased commercial intensity and continued focus on cash flow. Longer term, the opportunity in front of CN remains compelling. Our advantaged network, our extensive port access and the natural resource base uniquely positioned on our network provide us with an incredible opportunity to grow beyond what the broader economy alone can deliver. We remain bullish, especially on agriculture and energy with the potential for increased egress opportunities for Canadian energy to be positive for our NGL business and our frac sand franchise. We're seeing green shoots and potential in these sectors. Recent announcement around natural gas projects in Western Canada reinforce that view. The investments we've made position us very well to support our customers in both existing and new markets.

And as we go forward, we'll remain disciplined, but our focus on execution is working. Q1 has delivered to plan through better service, productivity and asset utilization. We're sharper and faster and the organization is well positioned to deliver going forward for our customers, employees and shareholders.

Over to you, Pat.

Thank you, Tracy. Once again, this team delivered another disciplined quarter in Q1, building on the consistency we've been driving across the network. That consistency matters because it allows us to handle volume efficiently, make better use of our resources and support better financial performance as the year unfolds. It's another proof point that the model is working and that this network has durable advantages. I feel very good about where we stand operationally and about the progress the team is making, and I want to thank the entire CN team.

Turning to the next slide, let's look at some of the key operating measures. Compared to Q1 2025, we improved network fluidity through solid execution, driving car velocity up 6%, dwell down by 4% and train speed up 6%. We maintained good customer service with local service commitment up 1%. We ran longer and heavier trains by 2% and overall, we moved 3% more GTMs. While winter conditions were less severe overall, our performance reflects continuous improvements in the elements under our control, supported by sound decisions and deliberate investments we have made over the last few years. Capacity investments have structurally improved the resilience of our network, allowing for faster recovery from cold stretches. At the same time, our unique air car fleet enhances asset utilization by optimizing the size of our trains and redeploying locomotives in the right trains.

The key point is the better operating performance and more consistent service are creating opportunities for Janet and her team to go win business. Janet will touch on some in a minute. The operations and commercial teams are tightly aligned. We jointly evaluate incremental opportunities and determine where it makes sense to pursue them. Looking ahead, we use forecasted volumes to anticipate our needs, including how many people, locomotives and railcars we require. This allows us to plan proactively and ensure everything operates efficiently across the network.

What this process leads to, and you can see it on the next slide, is improved asset utilization. Looking at it year-over-year, our T&E productivity is up 12% and more importantly, T&E labor costs per GTM is down 7%. Our locomotive productivity is up 8% with locomotive availability remaining at 91%. Locomotive fuel productivity improved 3% with our best ever Q1 on record. These results and the ones of the last few quarters reinforce our ability to grow volumes without a proportional increase in cost, and they are not accidental. They reflect a predictable approach to operations and disciplined management of our people and assets. And we're still early in the journey with a clear line of sight to further efficiency and value creation.

Our cross-functional reviews, fast track are helping us further improve both our operations and resourcing. This is a progression of our scheduled operating model, highly focused on matching demand with our existing assets, running lean and staying nimble. The resource management metrics we just discussed are early proof points of that work. We are approximately 1/3 of the way complete of the major terminals on our network and remain on track to complete the work through the summer.

Finally, one area where we were not where we wanted to be in Q1 was safety. Safety performance in Q1 fell short of the high standards we set for ourselves and that demands our full attention. Accidents were up year-over-year. And while this comes in comparison to last year's exceptionally low levels, no incident or accident is acceptable. We take this very seriously and are actively addressing it. One important finding so far is that there is no single underlying cause driving this increase. Some incidents relate to wheels, some to track conditions and in one instance, a land slide impacted a train. We have taken targeted and concrete actions to ensure that the learnings from each of these incidents are fully understood and translated into safer outcomes in the quarters ahead.

Taken together, this quarter reinforces my confidence that a scheduled operating model, disciplined execution and accountable leadership will continue to deliver strong, reliable and durable performance.

With that, Janet, you're up.

Thanks, Pat, and good morning. Overall, Q1 finished on solid footing. Volumes were slightly ahead of our expectations, supported by strong execution across the network. Revenues were down 1% year-over-year. They were up 2% when adjusted for foreign exchange, and they were up 3% when adjusted for foreign exchange, fuel surcharge and the Canadian carbon tax. Revenue ton miles increased 3% and carloads increased 2%. Mix was a headwind that offset same-store price.

Now on pricing, our strategy remains consistent: price for the value of our service, sell into our capacity and price ahead of our rail cost inflation. This reflects continued pricing discipline as we grow volume. Now as I've said before, in this environment, every carload counts, and the team is bringing it home. I am extremely pleased and proud of the team's agility and the tight alignment between operations and sales, which enabled us to seize new opportunities. We have converted about $100 million in revenues in Q1 from our boots on the ground pipeline. Our wins have been across commodity segments, including, for example, plastics, asphalt, fertilizers, aggregates, scrap steel and steel billets. Our service in Q1 also supported incremental volumes of international intermodal and potash as well as record shipments of Western Canadian grain. I'll briefly walk through how the performance showed up across the portfolio.

We delivered an excellent quarter on grain. Canadian grain benefited from robust demand and strong service, including grain car cycle times that were 15% better than the prior year. We also benefited from the reduction of Chinese tariffs on canola. In the U.S., growth was driven by a strong soybean program following the agreement between the U.S. and China. Potash was above our expectations on resilient operational execution and aided by favorable year-over-year comparisons related to last year's terminal outage in Eastern Canada. In petroleum products, volumes increased across the portfolio. We delivered a 16% increase in NGL RTMs, driven by weather-related demand for propane, strong exports to Prince Rupert and our ability to capitalize on spot butane shipments. Refined products benefited from increased gas and diesel into the Greater Toronto area, including our first unit train into the Phase 2 expansion of the Toronto fuel terminal.

Intermodal delivered a solid quarter, driven by the Gemini service at Prince Rupert and service-related gains in domestic. Results were more challenged in metals and minerals as reduced gas drilling in Western Canada impacted frac sand demand. Steel and aluminum continued to be affected by tariffs, but we were able to partly offset the impact with new long-haul shipments of steel intra-Canada and new moves of scrap steel. Q1 was the final quarter impacted by last year's closure of an iron ore facility. Forest products continues to face a difficult environment, driven by weak demand for lumber and the ongoing impact of tariffs and duties. Finally, coal volumes declined due to unfavorable market conditions for thermal exports.

Turning to Slide 10 and looking ahead to the balance of the year, we remain appropriately cautious. Visibility is still limited this early in the year, and the geopolitical environment remains volatile. By segment, grain remains very constructive. We do expect that our record Q1 performance included some pull forward. We continue to be bullish on energy-related commodities and global energy disruptions are expected to drive sustained long-term demand for Canadian products. CN is extremely well positioned to serve this market. We have several projects and expansions that are scheduled to come online later this year, and we're very excited about our future prospects.

Rising thermal coal prices driven by the Middle East conflict could support improved export demand for thermal coal. Year-over-year comps get tougher for international intermodal volumes in the second quarter, but should improve in the second half. Consumer demand bears close watching, but CN's service reliability remains a key differentiator. In automotive, near-term demand remains pressured, but we are encouraged by recent share gains that position us well for the back half of the year. For metals and minerals, we expect demand to continue to be bumpy. We have strong conviction in our frac sand franchise, and we will benefit from the new unit train receiving terminals that have come online in Northeast BC.

More recently, we are also seeing higher demand for U.S. frac sand shipments. We are expecting increased intra-Canada and intra-U.S. steel moves along with higher shipments of scrap metal. Cross-border shipments of steel remain challenged. In forest products, it's difficult to foresee improvement in the near term given muted housing activity in addition to the dampening effects of tariffs and duties.

So let me wrap up. Our strategy is consistent, stay close to our customers, grow volumes that fit our network and maintain our pricing discipline. CN is very well positioned to deliver strong incremental margins when the demand environment improves. Ghislain, over to you.

[Foreign Language] Starting on Slide 12, we began the year on solid footing. We delivered financial performance that was in line with plan through our continued focus on asset and labor productivity. First quarter reported diluted EPS was $1.87, up 1% from last year, while adjusted diluted EPS was $1.80, down 3% from last year or $1.83, 1% lower on an exchange-adjusted basis. These results reflect 2 notable adjustments: a $66 million pretax gain tied to the sale of our new market subdivision and a $17 million in adviser fees related to industry consolidation.

There are also some year-over-year factors that are not reflective of the underlying performance. That includes a higher effective tax rate this quarter as well as last year's remeasurement of CN's investment in Iowa Northern. These factors negatively impacted year-over-year adjusted EPS by $0.06. And as Tracy mentioned, fuel and FX were an additional $0.07 of drag in the quarter. As Tracy said, the story of the quarter is free cash flow. We generated around $900 million in Q1, approximately $275 million or 44% higher than last year. This was mainly driven by lower capital expenditures, the proceeds from the disposal of our new market subdivision and higher net cash from operating activities.

As we outlined in January, we have taken advantage of our strong free cash flow generation to increase returns back to shareholders. Across our current share repurchase program, which runs from February 1, 2026, to January 31, 2027, and the previous NCIB, we repurchased a total of 6 million shares for $870 million in the first 3 months of the year. Our leverage ratio increased to around 2.7x at the end of the first quarter. Given the current macroeconomic environment, we expect the leverage ratio to stay at this level through 2026 before coming back to 2.5x in 2027.

Turning to Slide 13. Let me walk you through a few key operating expense categories for the quarter on an exchange-adjusted basis. Labor was 1% higher, driven by general wage increases, which were largely offset by 4% lower headcount and strong labor productivity. Fuel expense was more than $10 million lower than in the same period last year with the positive impact of the removal of the carbon tax in Canada, partly offset by higher fuel prices and record fuel efficiency essentially offsetting the impact of higher volumes.

We are monitoring fuel prices very closely. With the sharp increase in oil prices in March, fuel negatively impacted EPS by $0.04 in the quarter and had an 80 basis point unfavorable impact to the operating ratio. Purchased services and material was up 9%, driven by higher snow removal costs as a result of harsh winter storms across much of the network, advisory costs and higher material trucking and transload costs. Other expenses were up approximately $50 million with over $30 million of that driven by higher-than-expected incident costs.

Moving to Slide 15. Let me provide some visibility to 2026. We are tightly managing costs in this uncertain geopolitical and macroeconomic environment, controlling what we can control. If anything, the uncertainty has heightened since our last January call. We have updated our view of WTI from USD 60 to USD 70 per barrel to $80 to $110, with a wider range driven by higher fuel volatility. We have also updated our FX assumption from $0.715 to the current spot rate of $0.73 for the balance of the year. Our effective tax rate continues to be in the range of 25% to 26%. With that context, we are maintaining our directional guidance of flattish volumes with earnings slightly exceeding volume growth for 2026.

So in conclusion, let me reiterate a few points. We continue to deliver strong operating and financial performance. We have a renewed commercial intensity. Our customers continue to benefit from our excellent service and strong operating performance. We are very pleased with our Q1 results, a solid start to the year and the footing to deliver on our guidance. Let me pass it back to Tracy.

Thank you. Christa, we will go to questions.

[Operator Instructions] The first question comes from Walter Spracklin with RBC Capital Markets.

I think you touched very nicely on the operating leverage, which was the key question here, Tracy. So maybe if I turn over to capacity, obviously, you saw some excellent improvement in your Edson Subdivision, removing that as a pretty elevated pinch point. It also gave you some service opportunities. I'm curious, you've got two more meaningful projects going on Zanardi Bridge and Glen Valley Abrahamson projects. When those come out, are those causing a big pinch point right now? And really my question is when those are completed in 2027, are you expecting to see a nice pickup in service and fluidity there? And as a result of that, also, would you see another step down in CapEx in 2027 when those are completed? Or do you have other projects that would likely fill in that CapEx envelope?

Walter, the operating -- I am very happy with the operating leverage that this team is producing. You saw us do it through last year. We had a great quarter in the fourth quarter, and this is a continuation of this that the railroad is running extremely well. To your question, we, as you know, came to not the end, but the end of a piece of our big investment program in the middle of last year. Edson sub now is, what, 2/3 double tracked. We have 7 incremental trainloads of capacity there that we can sell into. And what remains, as you say, is the Zanardi Bridge in Rupert and a siding just outside of Vancouver.

So as we complete those at the end of 2027, what the benefit that we're gaining is largely in Rupert, it's going to facilitate the ongoing volume expansion that Janet is driving -- for the volumes Janet is driving into Rupert. It's going to be critical for us in that last mile at Rupert. So it's more of a -- it's going to allow the capacity -- volume growth. In Vancouver, this is an investment that's going to continue to allow us to get the next increment of both volume and productivity or velocity through Vancouver. Vancouver is very tight, as you know. And I think you probably have seen this through your tours of Vancouver. So that -- those are both kind of no regret projects, and we're looking forward to their completion at the end of 2027.

As we go from there, I mean, Janet and team are out selling pretty hard and looking to put trains into that capacity. As we go into there, we'll see where we are from a capacity expansion perspective. We are looking at across the network, always where our pinch points are. I'm not expecting to find the next ones from a network perspective in the next few years. But we do have -- we will be spending a little bit on technology. There's some great opportunities there on the next generation of productivity. And so as we go forward, we'll see what that holds, but I'm not expecting a dramatic increase or decrease in capital expenditures as we go forward. Pat, did you want to add any comments on that just before we go on?

I would add -- I would say, Walter, as you saw on the tour, first of all, no, neither of those points where we are investing neither Zanardi nor Glen Valley Abrahamson are currently a pinch point. And I would say what you can see in our performance is the work we have done on the Edson sub has had a significant impact, positive impact on train speed and velocity in the Western region. The work we did around the Thornton Yard to get around the yard and kind of hit that and thread the needle of that gauntlet to landing at the customers. Those coupled together have really helped that throughput through Vancouver.

Again, neither of these are creating a pinch point currently. But as we see volumes uptick and really the value of Glen Valley Abrahamson is as you get out of the DRZ with CPKC, it is the last section of single track, and we will fill in that, create that double track, and we will be able to get all of those trains closer to navigating those final few miles as we land at the customer. So very excited about those projects. But no, not creating a pinch point and what we've already seen with the Edson sub and the uptick in speed, we would expect to see the same impact from these projects.

Your next question comes from the line of Cherilyn Radbourne with TD Cowen.

Janet, I was hoping that you could elaborate a little bit more on some of the short-term opportunities from higher energy prices. But more importantly, if we are in a higher for longer energy price environment, what kind of growth opportunities might that open up?

Cherilyn, I'm going to start off by just giving Janet and her team a little bit of kudos. Janet has unleashed her sales force into the marketplace, and they're doing a great job of capitalizing on what is some really strong service when it comes -- you see that in share, you see that in some of the opportunities that Janet will talk to you about. But they're also creating their own opportunities. That presence in front of our customers, the boots on the ground, you heard talk about what we're accomplishing on that is creating opportunities. Janet, do you want to...

Yes, happy to. Thanks for the question, Cherilyn. So we are seeing some near-term benefit across a number of segments related to the higher prices. So we've seen an increase in the NGLs getting pushed into Prince Rupert and the comments that we just made on the capacity are really important because we see a long-term play at Prince Rupert for continued NGL export growth. We've got a little bit more crude that's moving. We've got some customers that have brought on some additional sets. We've got strength in refined products. We have maybe a little bit more at the margin in terms of domestic potash as nitrogen-based fertilizers have increased because of the Middle East disruption, we see a little bit more farmers switching to more potash applications. So we'll see how that plays out.

It's also been positive at the margin in terms of sulfur. That's another segment where Canada is just so well positioned to meet the changing global demand. Now I don't have a crystal ball, so I don't know how long higher prices are going to last and what the broader impact may be on the macro. And I think that's why we're remaining appropriately cautious. But near term, we've actually seen some nice segments with some benefits that we're certainly capitalizing on. Thanks for the question.

Your next question comes from the line of Ken Hoexter with Bank of America.

So it sounds like Tracy, had a bunch of safety call-outs, not used to hearing that much from CN. But you've averaged about a 330 basis point improvement in the operating ratio from first quarter to second quarter last few years. So maybe given Janet's thoughts on the volumes, some tougher comps coming up on some of the volumes, anything that would let you to underperform or outperform that historical average? I don't know if there's accident carryforward costs or anything else that you want to walk through, but just give us an idea of kind of what we can expect to go forward on the cost side.

Ken, let me say this, and then I'm going to ask Ghis to comment on the numbers. The engine and the underlying business model performed really well in Q1, right? And we did know that we'd have -- it will be the kind of the toughest quarter on a year-over-year earnings compare because some of the specific prior year benefits, and we've had the incidents that Pat talked about. Here's what makes me happy as we look forward in Q2 and beyond. Network fluidity, asset and labor productivity, commercial execution, all improved, and they're continuing to improve. So the underlying engine is performing well. In Q2, the year-over-year comparable is less of an issue. And what we expect for the balance of the year is an acceleration in driving the bottom line results. But Ghis, do you want to comment on Q2?

Yes. Thanks, Tracy. Ken, listen, you're right. Typically, on a seasonality standpoint, the OR in Q2 is typically better than Q1. The dark cloud I'm seeing right now in Q2 is fuel. I mean, if fuel prices remain where they are and for the rest of the quarter, that could be a hit on the OR north of 200 basis points and a small hit on EPS of about a couple of pennies. So that's the cloud that I can see. And obviously, we don't control fuel prices. So -- and that's timing, by the way, because if I look at fuel and if fuel remains the same for the rest of the year, then it would be a tailwind in the second half of the year. So we'll see, but that's the dark cloud. But you're right, from an engine standpoint, we're very -- we're quite confident in the way we're going to deliver in Q2. Thanks for the question.

Your next question comes from the line of Fadi Chamoun with BMO.

So 4 months into the year and your RTMs are up like in that 3% range, which is a pretty good outcome from a growth perspective, obviously. And it sounds that you kind of -- you sound more positive on the volume picture today. And correct me if I'm wrong reading you on that. So is there still a path to improve operating ratio this year if we continue to see this volume trajectory? And I think looking at your 4-week moving average in volume, you probably are tracking in that same range for the rest of this quarter potentially.

And my second question is just on the commercial intensity. I think it was mentioned several times. Maybe if Janet can give us a little bit of insight how exactly have you changed or are you changing how you approach commercial strategy for CN?

So I'll start with that, Fadi. We are really happy with how the year started. But as we sit here, we have officially 1 quarter. We're coming up to 4 months, as you know, behind us. Our expectations of our commercial team remain very high. And I think that Janet and the team are performing to that out in the marketplace. I'll let her make some comments in a moment.

The prudent thing for us to do right now is just given the extent of uncertainty out there, just to see how the next few months unfold before we take a different view. I'll tell you this, however, Pat has this operation running really well. And it's more productive as every quarter passes. We've talked about Janet and the team being focused on securing every available opportunity. But -- and that, I think, on the back of service, and that is on volume and on price. But the entire organization is leaning into driving value to the bottom line. And so we are leaning in very hard. We are being cautious given how much uncertainty is out there. We've experienced this. Things can change pretty quickly. We'll be ready for that. We're placing a high value on being nimble. Janet, do you want to make some comments on what you're doing differently?

Yes, I'm happy to. Thanks for the question, Fadi. So I think commercial intensity, what we really mean by that is speed of decision-making. And so what we've done is we've tried to really drive down decision-making to the front line so that when the account manager is sitting across the table from the customer, they feel empowered to figure out what that customer needs, how it fits on our network, how we price it appropriately and how we service it appropriately. And so that has been extremely helpful. We have implemented a new sales incentive plan for our regional sales team that is really focused on getting hunters out there in the marketplace and the boots on the ground and the knocking on the doors.

We've also -- I think there's a couple of things I want to point to in terms of the quarter. We had some really big benefits from the strong quality of our service, okay? So we had big wins, and those are some of the things that we talked about in the context of grain, and I'm going to take a little minute to brag on grain.

My team sent me out this morning to let me know that April, even though we still have 2 days left, will be another record month for Canadian grain shipments. 7 out of the last 8 months have been all-time records. January was our second best. So that's a hell of a performance. I got to credit Pat and his team. I mentioned it in my formal remarks that the grain car cycle times were 15% better than last year. Now the crop is a crop. So do I think that some of this is maybe pulled forward? Possibly. But we also had some resolution around the Chinese tariffs on canola, and that's helping. And I got to say, when you service performs that well, you get more business on your railroad. We had a little bit of incremental business as well that was service related in the context of potash and even some international intermodal up at Prince Rupert. So all of that performed very well. Some of it was related to that service benefit in Q1.

Now where I'm really, really pleased is just those base hits. And it's the team out there, every carload counts, getting a hit, getting a hit here and there. I gave you, I think, 6 examples in my remarks. I had a list of about 12 and then the IR team told me that was maybe too long of a list. But it is broad-based. I think that's the key message I want you to take away that the team is out there getting wins. We really understand well the capacity that we have in our network. And so we're being really smart about selling into that capacity, getting those 5, 10 extra cars on the merchandise trains. So we're moving business at a low incremental cost. And even on the intermodal side, we've been really strategic about filling out the trains that are moving on non-peak days. So we know where we have capacity and we can sell into that, both in intermodal and carload at a low cost.

So Fadi, the team is super energized. Like Tracy said, we've been unleashed, and we're out there doing everything that we can, and we want to make sure that maybe Pat will give you some capacity pinch points in the future. So with that, I think we -- did we want to address the OR part of Fadi's question?

I think OR follows volume. When you watch what we are seeing on the productivity side, there's no barriers there. And really, as you all know, OR is an outcome of some volume growth and some tight management of costs and a little pricing action. So I think we'll see it follow.

Your next question comes from the line of Konark Gupta with Scotiabank.

Ghislain, do you have any updated view on the full year EPS impact from fuel and FX based on your revised assumptions? And I just really wanted to ask one question from Pat and team on your capacity, I guess. I mean, do you need to relook at your capacity investments and CapEx as these new opportunities that Janet was talking about, they come to fruition over the next few years?

Yes. Thanks, Konark. So on fuel, as we said in my opening remarks, there was a headwind of about $0.04 or 80 basis points on the OR negative in Q1. As I said, in Q2, if fuel prices remain where they are, would be a headwind of a couple of pennies on EPS, and it would be an OR of over 200 basis point negative impact. Now as I said, in the second half of the year, if the prices stay where they are, it will be a tailwind. I would tell you it's about $0.15 of tailwind in the second half of the year. So when you put that all together, it could be a tailwind of about $0.10 of EPS, but it would be negative to the OR by about 20 basis points because as you know, fuel surcharge and expenses, you're adding it at 100% OR. So even if it's a tailwind on EPS, it could be a headwind on OR. So that's the impact.

Now as you know, fuel is extremely volatile. Like I mean, a couple of days ago, it wasn't -- WTI was in the $90 range. today is up over 100. So it's moving. And this is why in our guidance that we maintain, we're not assuming that tailwind of the second half of the year. We're being conservative because we don't know where it's going to go. So we're assuming that we would -- that the price would go back to what we assumed in the plan. I hope that answers your question, Konark.

Okay. Pat, comments on the capacity.

Yes. I would say, [indiscernible], Janet, I certainly hope that capacity is challenged over the next few years because that's where railroaders demonstrate their greatness is when you are up against the capacity, you show just how well you can handle that volume. But let me say this, the volume that we -- the heavy investment cycle we had in the last few years has significantly improved our capacity in the West. You can see it in the metrics, the positive uptick in speed. We are poised for that growth, ready for it. We have those projects that we've outlined, both going into Vancouver and Prince Rupert that we will complete over the next couple of years. And we're ready for the growth. We want to see it come on.

Your next question comes from the line of Chris Wetherbee with Wells Fargo.

I guess we're about 1/3 of the way through the year. RTMs are still positive. I know you're talking about flattish for the full year. So maybe, Janet, if you could give us a little bit of perspective on how you think the shape of the rest of the year plays out? I guess there's maybe sounds like there's maybe a little bit of grain that was pulled forward into this really strong performance we've seen over the last couple of months. So maybe that's one area. I know there obviously is some trade and other dynamics playing out.

And then sort of along with that, I guess, as we think about the moving parts in yields or cents per RTM, obviously, negative with some obvious headwinds in the first quarter. How do we think that plays? Because obviously, that's going to be very key in terms of getting that revenue growth up and that operating leverage dropping through. So just some thoughts on volume and yield going forward.

Yes. Thanks, Chris, for the question. So there are a lot of moving pieces here. And we kind of give you the art and science of the chart in the slides. What I would say is when I look at Q2 and I look at the half 2, there are a couple of headwinds that we're watching in the second quarter. So we have potash, for example, where in Q1, we had a bit of an easier year-over-year comp because we had a terminal in the East Coast that was shut down in the first quarter. They're going to take a similar shutdown, but this time, it's in the second quarter. So I'm mindful of that.

The frac sand volumes were weak to start the year, which is unusual, but the natural gas prices in Canada had been low, and there was a slower ramp-up than I think we thought for the egress of LNG and of the West Coast that kind of impacted drilling. What I'm seeing more recently is actually an uptick in frac sand volumes in the U.S. We've significantly increased the number of trains that we're moving on the U.S. side into the Marcellus Shale region, likely another benefit related to the Middle East. As I mentioned, grain has been strong, but I feel like that's pulled forward.

What I'm telling you is we just don't have a whole lot of visibility on the second half. You called out trade, and Tracy may want to make some comments on that. If you can give me a high confidence level about how long the Middle East situation is going to last and how long oil prices are going to be high, I might be able to give you a better sense of volume. That's where we're still kind of being mindful of that macro environment. But I'm pleased, really pleased with the way the volumes have come in so far. And like I said, some of it's these big wins in Q1 and a lot of it's these base hits. Q2 may be a little bit more challenged.

I'll call out another segment, international intermodal, where remember last year, we had a tougher winter. And so we had some ground count to work through in the second quarter. And then we had pull forward of the tariffs. We actually had record shipments in the second quarter last year to Toronto. So that will be another segment where the year-over-year comp is a little bit tougher. And then, of course, we have in Q2 still the higher tariffs hitting our metals and minerals segment. Those tariffs were applied last year at the beginning of June. And so I've still got to work through a little bit of that noise level.

I am encouraged, again, cautiously optimistic around aluminum coming back into the U.S. We've seen some shifts there where it was going offshore and some of those shipments into the U.S. have resumed again. So it's a lot of moving pieces. I've been in this business 30 years. I don't think I've ever seen so many moving pieces. But Tracy, maybe you want to comment on the trade.

Yes. I would say, Chris, as we put our plan together for this year, it's impossible to predict where the whole discussions on the USMCA or the trade flows, even on the broader tariffs outlook will land. So we've assumed and continue to assume as we look forward that nothing will change on that front because it's -- I think it's the only thing we can assume. But I would tell you this, over the last year, in conversations with the administrations on both sides of the -- in Canada and the United States, it is clear to me that in both administrations, this agreement is important and that a constructive path forward would be positive for all. And you can see some of the jockeying in the press as we go forward.

But I think that although the time line isn't yet clear, those conversations will take place. And we're going to remain close both to the process and what's going on as well as to our customers as they respond and make or adjust their plans. I know Janet is sitting next to them on all of that. So as we go forward, it is one of the things that could have a positive outcome, could have a more problematic outcome, but we'll be ready to manage it. Thanks, Chris.

Your next question comes from the line of David Vernon with Bernstein.

So Janet, I think last year, you called out about $350 million of revenue hit from tariffs. I'm just wondering if there's a way you could help us think about what that tariff impact is going to be on a '26 basis year-over-year? Is it getting better? Is it getting worse? And then in the metal side, this offer to the Trump administration has made to exchange tariff relief for commitments to move production. If you could comment at all on how that's resonating with customer base and kind of what that could mean going forward, I'd appreciate it.

So I think on the actual financial impact of the tariffs, as I mentioned, we're kind of coming into the second quarter where after the second quarter, we'll be lapping the worst of the tariffs. So I think you should think about it in that context. I would also say that we're particularly pleased -- I'm particularly pleased with the way the commercial team has worked so closely with our customers to mitigate the impacts and to find new trade flows. So we found new business, steel, for example, moving within Canada. We've got more business of scrap U.S. to U.S. So we're finding the way. Water finds its way. The team has been able to work with customers to help them mitigate a lot of that.

So I would say the tariff impact from that sense is lessening because we're figuring out how to work around it, how to find new markets, how to do different things. In the context of the latest commentary around trade negotiations and trade-off of tariff relief and production, it's a bit early to comment on that. I think we'll take more of a wait-and-see approach. Thanks for the question.

Your next question comes from the line of Brian Ossenbeck with JPMorgan.

Obviously, we'll have the updated merger application from UP and NS tomorrow. So maybe Tracy, you can give us a little bit of thoughts and maybe some background of the things you've been posting on your website to kind of call out some of the analysis and some issues that you found with that. Do you think that's going to get more or less resolved here when we get an updated document with perhaps some new information?

And maybe just secondly, what are the key things you're looking at when we get that updated document tomorrow as the review really starts to kick off with a fresh start, I would assume, with a bunch of new documents and information. So any thoughts there would be helpful.

Yes, Brian, it's an interesting topic, isn't it? We are eager to see the application when it comes out tomorrow. And I think [ Jamie ] recently confirmed that it would be tomorrow. Our position on the concept of the merger hasn't really changed. We believe strongly in competition. And the merger proposal to be accepted needs to demonstrate, as you know, it's in the public interest and that it enhances rail competition. Now it's a high bar, granted it's as yet undefined, but it's a pretty high bar.

And the first application, in our view, fell really far short of demonstrating that the merger would achieve this. And so -- and it also had -- and this is what we were pointing out in our submissions that it had a number of issues in the data and the approach used in the analysis, not in the model that they use, but just in the quality of the data, which can impact things like the sufficiency of the operating plan and the environmental assessment, those types of things.

So we're looking forward to seeing the revised application. Our interest is to make sure that this is fact-based. -- high-quality facts and that it is a rigorous review. We do believe that remedies will be required and considerable remedies. But we also believe that if this is to go forward, there's a meaningful opportunity to use our network in a manner that would introduce further competition, benefit the global economy, our customers and our business.

So we'll be watching this very closely. I think our guys have a big weekend ahead of them as they get the merger and go through it and look for what adjustments have been made. This is the most consequential thing that's happened in our industry in the last 20 years, and it's something that we're paying very close attention to and will be actively engaged in. Looking forward to seeing what it holds. Thanks, Brian.

Your next question comes from the line of Scott Group with Wolfe Research.

Maybe just on that point, Tracy, like on remedies, do you think there's a path to negotiated remedies? Or is this about waiting for the STB to prescribe remedies? I don't know if you have any thoughts or color there? And then, Janet, I just wanted -- like you keep saying like we're going to -- every carload counts. At the same time, you keep talking about pricing discipline. Like how do you balance wanting incremental volume, but wanting to be price disciplined because while, yes, the comment OR follows volume, I would think OR even more so follows price. So yes, just thoughts on those two things.

Okay. Scott, thanks. I'll start and then Janet, I'll give you -- you can take the second half of the question. Listen, I think we've got a long path to go, a negotiated outcome. it requires two interested parties and two parties that are willing to negotiate. And so far, I don't think that, that has happened, but we'll see how that unfolds. It is a very long put to imagine the concessions or the remedies that would have to be in place in order to have this merger application reach the hurdle that we believe is contained in the new rule.

So with that, I have full confidence in the STB and the rigor of their assessment. And I do think that there's going to be lots that come out of that part of the process as well. I'll leave it at that, and we'll see what comes out in the application tomorrow. Janet?

Thanks for the question, Scott. So for me, what counts the most is contribution dollars. And there's a way to get contribution dollars from pricing, and there's a way to get it from volume. And what I'm asking my team is to use both levers smartly, strategically and get it from both so that we grow contribution, and that's what will help OR. Thanks for the question.

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Tracy, just a follow-up on your initial thoughts on USMCA. Can you help us bracket what the bull case and the bear case here might be to your understanding kind of when you think about the potential kind of opportunities here, what kind of volume growth are you trying to size for and that the network can carry? At the same time, what are the potential kind of negative outcomes here? And how quickly can you adjust for that?

That's a big question. So we are -- as we've gone through all of the analysis on what can happen on this front over the last year, I would tell you there's a very wide range. But what we've also come to understand is how important the trade between the 3 countries involved in the USMCA is to each of those countries. And as we increasingly get into a world where the geopolitics are more uncertain and higher tens. I think that it just reinforces the importance of what we can do as North America. Having said that, I think that there's lots of discussions ahead before we arrive at what the actual outcome is going to be.

We are spending a lot of time -- I spend a lot of time with the administration. Janet spends a lot of time with our customers. We're deep in kind of what the options are. The government in Canada, of course, is very focused not only on the USMCA, but on establishing trades or increasing global trade, diversifying into increased global trade, not less North American trade, but in addition, increased global trade. We are really well and uniquely positioned to capitalize on that given where our network is across North America, sitting on top of natural resources that the world of the globe, that North America and the globe needs. And so we're involved in a lot of discussions around the capacity at Rupert, the capacity of Vancouver, in Montreal, in Halifax and beyond as well as in the Gulf Coast.

And so that's very encouraging to us. As we think about the impact of what's going on in the Middle East, the whole question around the importance of energy, the sources of energy globally has intensified, I think, across the globe. That over the longer term, as Janet says, presents significant opportunities for us. So I think that the question around the immediate review and renewal of the USMCA is important. I think on a broader basis, what's happening across the globe that will drive trade patterns is even more important. And there is without a doubt, some risk there but there is also, I would say, significant opportunity, and we're excited about that.

What is going to be a premium through all of this is our ability to be nimble, be close to our customers to be able to respond. That's why Pat is so focused on the fluidity and the velocity of the operation because we need to be -- and unlocking our pinch point so that we have capacity no matter where our customers need to adjust. And we've made that a priority for the last few years, and we're capitalizing on that now. So we're excited as we look forward.

Your next question comes from the line of Tom Wadewitz with UBS.

I wanted to ask, I think, probably for Ghislain, two questions on the cost side. So the casualty and other was pretty elevated in 1Q. I know there tends to be volatility related to weather and accents and things. But how should we think about that line going forward? Is that kind of a run rate that we should continue? Or is that -- and I know there's seasonality, too, but is that something where you'd say, hey, that's kind of unusual. It's going to come down?

And then I guess the second on the cost one is just like there was some commentary about terminal work and 1/3 of it is done now, 2/3 over the summer, the remaining 2/3. How do we think about framing the potential cost benefit from that? Is that like, hey, that's always doing good things, that's $5 million to $10 million benefit? Or is it like a bigger impact?

Tom, thanks for the question. I missed the first part of your question. Can you repeat the first part of your question, please?

Yes, on casualty and casualty costs in the quarter in 1Q is elevated. So how do we think about that line going forward?

Yes. I mean, as you know, the -- I called out in the prepared remarks that incident costs were higher by over $30 million. The overall variance is over $50 million. In there, there's always -- there's also some IT costs as we continue to migrate into cloud computing. So those are the big variances. As we move forward, as you heard Pat, and I'll transfer it to him, so he can talk about fast tracking. But we're all over safety. We're all over our incident costs. I'm hoping and I'm very confident that this will come down coming forward. Like -- and typically, from a seasonality standpoint, Q1 is always a bit tougher on safety because of the snow and because of the ice and so on and so forth. But I would assume that this -- I'm very confident that this will come down going forward in Q2 and the rest of the year. But Pat, I'll turn it over to you for fast tracking.

Yes. Let me start and just address the accident cost and say this. Safety is our #1 priority. It is the foundation that we build our entire operation on. I want to make that clear. Further, I would say this, I was raised in this business over the past 3-plus decades to believe and to lead my team from the front on the premise that all incidents and accidents can and must be eliminated. So let me say that first and foremost. Our safety critical maintenance remains fully funded. We're fully resourced from a people perspective. And in fact, we are -- we continue to do -- to in-source more of our capital work with CN people.

Now as we transition over to fast track, let me say this, I have very high expectations for this project for fast track and the team is delivering. We've already captured $40 million in run rate savings, and we're about 1/3 complete. Now let me say that as with any project, we started with the largest terminals first. The upside, the savings from this initiative are coming from better and higher terminal productivity, the lower dwell within the terminals and frankly, just all around tighter operating discipline.

While we do this work, we also evaluate all of our facilities, our rubber tire fleet to drive further utilization and cost improvements. As we continue to roll through the remaining sites, we do see a clear path to unleashing more savings and better service reliability. So I am very excited about fast track, and we are delivering with this initiative.

We have time for one more question, and that question comes from Benoit Poirier with Desjardins.

My question is for Janet. You've been successful with $100 million of revenue conversion this quarter. Could you talk maybe about your bidding pipeline? What do you foresee this year and whether you see a pickup in intermodal discussion given the fuel dynamics and tighter truck market? I know it's a much longer length of all at CN versus some of your U.S. peers, but just curious to get your perspective on this.

Benoit, thank you for the question. So a couple of things. On the visibility around this kind of boots on the ground growth pipeline, this is a dynamic list, okay? I get updated every week. We look at it. I've got almost 200 initiatives at the moment that are sitting on that list. And I have good line of sight on about $100 million again for next quarter. As I said, the second half, well, we'll see when we get there. In terms of truck pricing, you're right, we are a little less exposed in our Canadian franchise from a trucking perspective. We have very long lengths of haul in our domestic intermodal business, probably upwards of 1,600 miles. That being said, we are seeing the capacity tighten in truck markets, both in the U.S. and in Canada, and that is supportive of pricing. So we're pleased to see that. Thanks for the question.

So let me just make a couple of comments as we close today. We are very happy with the quarter that we just delivered. We are delivering on plan. I want to thank every member of this team for continuing to lean in. Our railroad is running very well. We continue to get more productive. The commercial team is creating opportunities, capitalizing on strong customer service and our focus on free cash flow is generating results. So this engine is running well, and it -- and we are poised to capitalize on a stronger demand environment and some considerable operating leverage if and as the economy recovers. Thank you all for joining us today.

This concludes today's call. Thank you all for joining, and you may now disconnect.

All right. Good morning. We're going to kick off here the second day at the Industrials Conference on the transportation track. So I'm Brian Ossenbeck. I cover transportation and logistics on the equity side. We have Canadian National here to kick us off. Pat Whitehead, who's the COO; Ghislain Houle, who's the CFO. So thanks, guys for making the time to be here with us today. And I'm going to turn it over to Pat to make some introductory comments and see if Ghislain wants to pitch in, and then we'll go straight into some of the Q&A. So over to you, Pat.

Okay. Brian, thank you, and good morning, everyone, and thank you for having us here today in Washington, and thank you for spending part of your St. Patrick's Day with us. Let me start by talking about the state of the railroad because the story there is a good one. Our network is running as well as we've seen it in over a decade. Conditions in Q1 vary every year. And while we didn't experience the same deep freeze this February as we did last year, we still had to operate multiple days in tier restrictions, both in January and again in February.

We also faced meaningful snowfall on top of that, and you can see the cost of removing that snowfall that shows up in our financials. And through all of it, the network held up. Every time the weather tested us, we bounced back quickly and decisively. It's a reflection of our consistent execution and the operating discipline that this team continues to build. Our results speak for themselves. Our car velocity is up nearly 10% year-to-date in comparison to last year. Network train speed is up 6%. Our terminal dwell is down 6%. Strong labor and locomotive productivity is showing up. We achieved record fuel efficiency in February of 2026. These are not isolated data points. They are very clear proof that our operating model is working for us here at CN.

Now I want to talk about how strong operations are translating directly into commercial momentum. Volumes based on RTMs are up 3% so far this year, slightly ahead of where we expected we were going to be at this point. The fluidity of our network is the major enabler of that performance. But I want everyone to take those results with a grain of salt. Q1 brings a lot of noise with the winter weather conditions. For example, in January, our volumes were down 3% based on some tough winter operating conditions. February, however, was much more favorable in 2026 versus 2025. Volumes were up 15%. And thus far in March, with the return of winter, volumes are down 4%, and I would like to say that winter is in the rearview mirror, but it certainly is not. Winter has come back to visit us just this week, and we are experiencing blizzard conditions across much of the U.S. network across the Midwest of the U.S. and in Ontario, specifically in Northern Ontario.

Both locations have recorded up to 3, possibly 4 feet of snow across the network. Let's take a quick look, though, at Canadian grain. As we've said, it's a record crop, and we moved record volumes in September, October, November and December. Then in Q1, the grain demand remained strong as always, and we delivered our second best ever January and a record grain movement in February. We achieved this by improving car cycle times by 15% versus last year. This freed up real capacity and allowed us to move the volumes with a lower asset base more productively. Now the crop is the crop. And what we moved so far this year may have been advanced from Q2, time will tell. We see similar commercial successes in Q1 with overseas intermodal, domestic intermodal and potash.

Strong service is driving incremental business. A critical part of that success is the tight alignment between operations and sales and marketing. Janet and I and importantly, our teams are absolutely joined at the hip. And that matters a great deal because in this kind of demand environment, when an opportunity shows up, whether it's a spot move or expanding to a new end market, we need to be able to move quickly. This agility is giving us a real advantage right now, and it's something we're going to continue to lean into. Finally, let me speak on what's ahead. We've built a railroad that gives us meaningful leverage for when volumes return without requiring a significant step-up in capital, and we're exactly where we want to be.

We reduced our capital envelope this year not because we were constraining CapEx, but rather we completed the work we needed to do. The major work is behind us. The locomotive fleet is the healthiest that it has ever been, and we have units in storage. The network has capacity to grow into. The foundation is in place, and we're well positioned and ready to move for when volumes begin to grow across the industry again. And structurally, you've heard Tracy say this many times, our opportunity is compelling. As the railroad of the North, we sit at top an incredible natural resource base. We are bullish on agriculture and energy, and we have an unparalleled port network that provides access to every global market. This uniquely positions us to support customers in both our current markets and as trade flows continue to evolve. Ghis, anything to add?

Yes. Maybe just a couple of points, Brian, just to give a little bit more visibility on the first quarter. First of all, Pat you did a good job covering the volumes and the RTMs and putting this in perspective in terms of operating -- winter operating conditions. As you know, Brian, the FX is hovering still around $0.73 to $0.74, and that's versus $0.70 last year in Q1. So that will create a headwind in the first quarter of about $0.05. And I want to reiterate the rule of thumb is every cent of appreciation of the Canadian dollar to the U.S. dollar is unfavorable to EPS by about $0.05 on an annualized basis. So that's on FX.

On fuel prices, as you know, our fuel surcharge is pretty much locked in with a 2-month lag. However, fuel prices with the war in Iran have jacked up. And we believe that, that will create a headwind, call it, $0.03 to $0.04 in the first quarter. And then finally, as you know, and we've talked about this, and I won't dive into it too much, Janet did a good job on the earnings call to talk about the impact of mix. And that obviously continues and will have an impact in the first quarter. If you remember, last year, forest products and metals did not have the size of the tariffs in the first quarter as we do today with 45% tariff on forest products.

I want to remind everyone that CN is the railroad that moves the most lumber in North America. So that obviously has an impact. And metals at 50% has an impact as well, although we were trying and we've been able now to move some intra-Canada moves on metals that has elongated the length of haul, but have put some type of pressure on car supply. Aluminum with 50% tariffs still finds its way in the U.S. So I'll leave at that and maybe turn it over to your questions.

Thanks, guys. Ghislain, I'll stick with you just for a second to finish on the short-term stuff. So fuel is, I guess, first, is that going to be something that just catches up and reverses later? I know the price has gone up really fast. So is there like an actual net loss -- or just more timing?

Yes. I mean, fuel is very, very volatile, Brian, as you know, and you follow this as closely as I do. So if fuel prices, OHD and WTI stays where it is, for the rest of the year, you're right, it should reverse -- it would reverse itself back in the second half of the year to become a small tailwind. So this is more of a timing issue. But again, I mean, it changes almost every week. So we'll see what happens.

And just on the operating conditions, Yes, I thought we were out of winter already, put my snowblower away, and that's probably why we got hit again. But in terms of the impact for the network is usually see a deterioration of about, I don't know, 400 basis points quarter-to-quarter OR roughly. Is this a little bit worse than that from just how you're feeling it in the field? I know it was not quite done with the quarter, we're still feeling it right now, but it seems like it's a little bit worse than normal from just like a cost and operating perspective here in the first quarter.

Do you want to take that one?

So yes, let me talk about -- so I would say this, as you look at our performance, and I wish we could declare ourselves out of winter as well. And I think saying out loud that we might be out of winter may have to your point, brought it back. That and bringing out your snowblower surefire ways to bring it back. Our performance is strong. The velocity is trending the way we would like to see. Our trains are longer and heavier, locomotive reliability is as high as it ever has been.

What we have seen is while it has been a bit warmer, particularly in February, we saw less Tier 2 days. Those are the days that are minus 30 or colder, where we have significantly shorter trains. We saw 6 days in February versus 19. What has been different in 2026 and has impacted cost is the amount of snow we've had to remove. And you can see that in folks that live in these portions of Eastern Canada and throughout the Midwest of the U.S. that has driven a significant cost in removing snow.

Outside of that, I would say that our cost control measures that are in place in the transportation group, I talked a bit on the Q4 earnings call about our fast-tracking initiative where we're going through terminals. And that work continues, and I'm very pleased with that work we're doing, and we continue to have that discipline around operating expenses in both mechanical and engineering with the caveat that in engineering, the cost of snow removal is significant.

And I would say, Brian, that the word at CN is, listen, we all know that we are in highly uncertain times. I think that the uncertainty today is even worse than when we were sitting doing the earnings call at the end of January. So we don't control the economy. We don't control what happens with Iran, but we're pushing on everything that we do control. And as you saw last year, we got ourselves very fit, and we will continue to turn every rocks we can to make sure that, again, we control costs. And we -- and you've got Janet, by the way, on the marketing team having boots in the ground knocking on doors to try to get every carload possible. So this team is energized.

I hope that people could have sensed Janet's energy on the call in January, and she's energized the team. And I think that she's working, Pat, extremely closely with you. And we've got good service. So that's the bottom line. So it allows us to get an additional carload. It allows us to get pricing in a tough environment. So that's the word at CN is we're pushing on everything. And that's what we've heard from shareholders. We understand that there's a lot of things out there you don't control. We want to see proof points that you're doing everything you can on everything you do control.

So one of the things you control, Pat, you just mentioned a second ago, just the focus on terminals and engineering efficiency. So I'd love to hear a little bit more about how that's going here as we start off 2026. Obviously, a little bit of weather in the way, but what do these initiatives look like maybe over the next couple of quarters, maybe the next year even?

Okay. Yes. So we started this work late in Q4. And to date, we have completed our work in 6 of our major terminals. We will go through 25-ish of the largest terminals. And really, if you think about it through this lens, we go into these terminals, we take a clean sheet of paper and we say to the operators that run that terminal and know it, they know it the best, how would you rebuild this operation if you had the opportunity to build it from the ground up, matching the resources to the volume, and let's work it backwards from there, a zero base, what do you need to operate this terminal?

And I would think about it through this lens, that becomes an exercise in what's the baseline of resources, people, locomotives, whatever that may be, minus 1. And let's sweat the assets, let's sweat and let's work really hard to move that -- those GTMs with a lower asset base. That's the basis of the work we are doing. It is going very well. As we are 6 terminals in, we are going to be very aggressive with this initiative and finish midyear. So let's say we finish going through the terminals and doing that work by July. And it will not be a one and done. It will be -- you build this plan from the ground up and then it's the discipline around ensuring that we don't have creep set in when you've gone and rightsized the terminal with volume being the guiding light, how do you continue to have that discipline around having the resources match the volume.

We'll move through that quickly, and then we will continue to come back and check that what we have put in place is working. On the engineering and mechanical side, I would say that while it's been a tough Q1, particularly as I stated on the engineering, that discipline that was built, Jamie Lockwood was our VP of Engineering for about 2 years, and he helped us really work on that capital efficiency work in the engineering group, the operating expense, the cost control, and that work continues. I'm pleased with -- very pleased with where we are as an operations team.

And how are you feeling about staffing levels and just hiring in the pipeline? It's been a challenge for the industry off and on over the years, but it seems like maybe you're a little bit past the crux of that. But how do you think of that now and as you prepare for hopefully some better growth in the future?

Yes. We're poised for growth. I would say this, we continue to have about 800 train and engine employees in a furloughed state. And what we are seeing is an unusually high return rate when we do have to flex up, and we have had to do some of this as volume has come back. When we go to return furloughs, they are returning at a very high rate, higher than what we would have expected. So I am not concerned with our ability to hire this too and staff up as volume returns.

And Pat, I would say higher, like in the 90%.

It's better than 90%, correct, which typically in the past, we had seen somewhere between 70% and 90%.

Exactly.

And for a while, there is the work rules, the work best rules that we're stacking. I mean it feels like we're past most of those things. There's nothing new coming. The network has kind of absorbed how to work through those. Is that correct?

Knock on wood, no regulatory changes in the work-rest world. We -- the U.S. experienced that change in about 2008, Canada in 2023. And I would say you're spot on. It took us -- as we expected, it took us some time to understand what the new world looked like from a duty and rest period, how do we work in that new world. And I would say that we have worked through that and the labor productivity is up significantly. A train and engine employee basis, we're moving 12% more GTMs on the train and engine headcount basis. So we have definitely figured out how to maneuver around in that the new duty and rest period world.

So as Peter mentioned, there's been some changes to commercial and ops teams. They've always worked closely together, but I guess what's changed since we've seen that in the last couple of quarters when it's been more official with Janet in the role? And is it is it materially different? Like how should we think of it from the outside? Because we would think that these teams are working together all along, but like has there really been a change or is it just new people and new seats?

I would say there's a lot of discipline built around how sales and marketing and operations. We have very formal process, as we call it P3X, people power plant. So how many people, how many locomotives, what does the physical plant look like? So there's always been the discipline around how do you sync up sales and marketing and operations to staff to meet the volume. What I would say is when you look at someone like Janet and her career at CN and the respect that she commands within internal and external, I see an energy around her team.

People are committed to Janet's vision. There is the boots on the ground, the energy around going and chasing every carload and the way she's directing that team and back to your point, not just the formal process of how do we link up the forecast to staffing, but the energy and the synergy that I see between the teams, I'm really pleased with what I see. I think Janet was a fantastic pick and she's doing a great job.

And both of you, your teams are well connected with finance. And what we're trying to do is push down the decision-making and cut as much as possible the red tape because we need to be very versatile. And I think that we're succeeding to do that, like Janet was VP Finance with me for years. So we all know each other very well. And it's not a long 2-page e-mail that forces us to make a decision. It's a phone call. It's -- so we're disciplined, but we're fast. And I think we work very, very well together. And then you've built your team, Pat, with some new heads in some of the places and some of the geography. Maybe you want to talk a little bit about that, and I think they're outstanding people.

Yes. I would say that as we've changed our structure, one of the things that we've done is now that we're in a single COO structure similar to the rest of the industry, we did appoint a Senior Vice President of Operations, a long-tenured CN legacy railroader, James Thompson. He's got 25-plus years here at CN. And we've built our team around both legacy CN folks who have been here throughout the entire scheduled railroading journey, also folks from other railroads that we've brought in.

So it's a nice mix of both CN legacy folks and folks from industry. But I would say this, that this entire team in operations and across the company, what we are all committed to is that we run a disciplined scheduled railroad. That is our North Star, and that is how we build the plan, run the plan and sell the plan is that commitment to we run the model that works best for our property.

So one of the things we've talked about a little bit in the past is just the southern and the eastern networks. And you mentioned CapEx and you're not pulling back on growth necessarily, but there's always been a challenge, I guess, in my mind of how you increase the density there. There's only a certain amount of freight that wants to go there. You spend capital, but you want to return on it. So how are you thinking about those 2 areas of the network? And are there any initiatives or end markets that could potentially help balance those out?

Well, I'll start, and I'll ask Ghis to chime in as well. And I would say that, look, as we look at our South and our East properties, you think about it through this lens, the East, tremendous amount of capacity for several reasons. In the past, there was so much industry in Eastern Canada, you think about the automotive industry and the interaction of passengers. So a lot of the capacity that was built in Eastern Canada was not all funded by CN. So to accommodate expanding, you think about it similar to the Northeast corridor in the U.S.

I would call the Kingston sub or Toronto to Montreal is kind of Canada's Northeast corridor. So a lot of that capacity we have was also funded by passenger rail. So we have this capacity to grow into. Yes, it's needed for our operation and to accommodate the robust passenger operation, but there's room to grow. There's also room to grow to continue to grow in our southern network. And I would say we -- this is part of that boots on the ground, talk about Janet's initiatives, folks out there trying to find those carloads to fill up that network. And I would say that while I don't have specific initiatives that I would point to, we are -- even as you look across our network, trains in the East and the South, as we rework the train plan, we are creating heavier, longer trains for what's out there with still room to grow into that train package.

I would say in the carload, the merchandise world, there's plenty of room to grow into that train package. Bulk commodities usually come with additional train starts. We do have a new scrap train move that's specific to the southern region that is moving from Flint, Michigan and going offline, unit train load of scrap steel. And so there's opportunities out there, Ghis?

Yes. It's really the boots on the ground, knocking on the door and convincing customers and noncustomers to build a facility on your rail line. And then if you succeed, then you've got them committed for the next 30 years. One specific example of this that we've talked before is the oil distribution facility in Mac Yard. I'm happy to report that I think the second phase that is finalized and now it's coming online. So these are -- in a lot of cases, these are not home runs, but they're singles, they're doubles and they add up. And I think we -- with the energy that Janet is bringing, to your point, we need to knock on doors and bring more facilities on our line in Eastern Canada and in the Southern region. We have the capacity. We've had the capacity for a while. To your point, some of it paid by us, but some of it paid by others. And this is what Janet has in -- and she's reporting on this every week to us, to Tracy. And I think that this bodes well for us.

So one of the things, obviously, you've had to deal with is tariffs changing end markets and rules and everything basically overnight, maybe sometimes a couple of times. But can you just walk us through how you make those operational changes? And do you think there's any more coming? I know it's been a pretty significant headwind from a financial perspective.

I'll start and say that when you look at the impact to tariffs for our business, I would say the most impacted is forest products. So -- and if you think about not just through the lens of tariffs, but also we would love to see housing starts return to levels of several years ago, which will also get -- we would expect to get forest products moving.

The impact of tariffs to our business in 2025, Ghis, correct me if I'm wrong, was around $350 million. So it's been significant. But my job, my role is how do I absorb as much of that tariff cost through efficiency as I possibly can. And so this is one of the many charges that operations has is how do we become more efficient as we face those uncertain tariff headwinds. And so we'll continue to look for every opportunity to get more efficient. Ghis, anything?

No, I think you covered it well.

Ghislain, just to come back to the cost for the first quarter for a second, how much -- you mentioned snow removal. How much does that usually run, I don't know, per quarter, per first quarter? And can you give us some context in terms of how much more expensive that was this year?

Yes. You're going to see this in the purchase services and material when we issue our results. I would say you're talking in the $10 million to $20 million headwind on a year-over-year basis. So yes, that's the snow.

Got it. So we're going to have obviously a lot of focus on Transcontinental mergers here for a little while, it seems. So I just want to get your perspective as an operator, like what are some of -- if you look at that sort of transaction in the U.S. primarily, like what are some of the integration challenges, opportunities that you think from your perspective, being an operator? And are any of those things you worry about affecting CN's core business as well, if there were some issues or if there are certain areas that you're more particularly concerned about than others?

I would say let me start with one thing I claim as a railroader is I'm a Conrail survivor. So I was a frontline supervisor middle manager with Conrail in 1999 when Norfolk Southern and CSX acquired. There are portions of Conrail, and I lived that integration. So I'll set that aside for a moment and talk about some of the challenges of integration separately. I would say, as I think about our network, I would go as far as to say we are probably the least impacted by the proposed merger.

I would also say that it's important to note that 85% of our traffic originates on our lines and about 60% of our traffic terminates on CN line. So we feel very good about our franchise, not to be confused with what we've said before is, look, we're going to protect our franchise for our customers, for our stakeholders, and we're going to protect what we feel is essential in this industry and protect competition. Now specific to integration, I would say -- and I was asked this last year at SWARS, I think that I'll make no assumptions about approval of the merger, but I would say what I said at SWARS, approval is ground zero.

The due diligence that goes into and the complexity of taking 2 large rail networks and integrating all of the IT systems and that specifically was the biggest challenge is one of the reasons I call myself a Conrail survivor, the IT systems did not integrate well and that's probably a bit of an understatement for those that are familiar with that transaction. So I think assuming that if there were regulatory approval, that's ground zero. The work that is done to integrate the IT systems, the HR systems, the cultures of 2 large organizations and frankly, building an operating plan that can be executed, there's a lot of work to be done assuming that there were to be approval.

So I'm less concerned about service issues that would affect our network, as I talked about our origin -- strong origin and destination franchise. Clearly, though, if there is a disruption in the U.S. rails as there have been in the past with these mergers, we're all affected. And so what we always say in the industry is we are best when the industry is running well, not -- there are a couple of railroads that are running very well, and there are others that are suffering. If you look back a few years ago, some of the service issues that popped up, we really need the entire industry to be strong.

And I would say that's the key risk. The key risk is if the integration is difficult, and as you know, Brian, when you look at all companies that have acquired other companies, it's typically not on the deal that they've screwed up when it's on the integration when things have not gone well. And that could invite reregulation. And if there is more reregulation because of the integration difficulties of these 2 railroads, then the regulator won't reregulate just one railroad. They'll reregulate the entire industry, and that's the risk that we see on that transaction.

Well, maybe one of the other opportunities in the non-M&A world is to do more partnerships. And we've seen a few of those in the past. I think, Pat, you're probably uniquely positioned to comment on the Mid-America one, which I think was between CN and Norfolk, right? So why haven't we seen more of these in the past? What are some of the challenges to get those to work and also maybe some of the opportunities that don't require such a large transaction?

Yes. We see these partnership opportunities as a tremendous potential that doesn't require all of the regulatory approval and all of the integration challenges and risks that come along with it. And if you think about some of the services that we offer, our partnership with Union Pacific, Ferromex, we now -- that is a product that offers service from Mexico into Toronto, for example, with 5 days, our Falcon service. And it really comes down to how do we continue to convert that truck traffic from the road to the railroads.

And I think that if you look at the share of freight that the railroads have in the U.S., roughly all U.S. railroads have about 18% to 20-some percent market share of freight that's moving. The rest of it is in mostly trucking or other modes. So our opportunity is to make truck-to-rail conversions. We are offering a service that is very much truck-like. I look at it and I think about the cost of that service and its competitive nature to truck, that's a tremendous opportunity if I'm the shipper. And so I think we continue to lean into these partnerships.

We find additional partners and services that make sense. We recently -- we have the Nashville opportunity with CSX. Really, it's about how do we get out there and tell the story and grow that business. I think about some of the services over my career that started with, I would see these trains coming and they were 1 or 2, 5 packs of containers when I started 33 years ago, these are now services that are running coast-to-coast that are 10,000-foot trains and sometimes there's 2 or 3 pairs of these trains. So there are cases out there where interline partnerships have grown the business. We just -- we need to continue to lean into these and convert the trucks.

And I would say that if you agree that the partnerships in the past have typically not worked because they have not been operationalized. So it was 2 CEOs going playing a game of golf and then put a nice press release. And then on the day-to-day, the operating people would kind of kill each other. So the first time we've operationalized this was with UP and Ferromex and exchange information. So to make sure that you're like a single-line railroad operating. And to your point, now we have service from Mexico to Toronto in 5 days, that service before because we did have -- we were exchanging with KCS before and Jacksonville, if you remember, that was anywhere between 15 and 30 days.

So you might as well say, I don't have a service. And really, the railroads have lost their market share through the trucks through the years, not short-haul trucking, like we know that trucks are very powerful in a radius of 500 to 700 miles, but it's more 1,200 miles. Like Mexico to Toronto is 2,000 miles. That can, should be on a train. That can, should be on a train. So we need to operationalize exchange information. Now frankly, it's a bit more challenging to manage because, again, you don't own the other railroad. But if you are allowed to exchange information when there's issues, not to point fingers and to work constructively to improve the service and long-haul trucking has been the most overpromised, underdelivered in the last 20, 30 years.

And I would say to that point, it is -- the tone is set at the top and operationally, that partnership and that cooperation is there. The interchange comes in from either railroad and there is a disciplined schedule around, all right, this is part of the Falcon service, that interchange is going to be made, and we're going to continue on as though we're one carrier. And that is how we continue to build these is the discipline around completing the interchange because sometimes there's noise in railroad interchanges. When you operate it as a single service, the improvement and the potential is there.

So we have time probably for one more question. It feels like oil price, energy volatility is going to stick around for perhaps a little while. What are some of the end markets or even services that you're watching or maybe have been impacted already from the volatility we've seen? I imagine it's going to impact a lot of things, but crude by rail, potentially some of the fertilizers, anything that you're really focused on or have already perhaps seen some impact in terms of volume based on what energy prices have done?

I think the biggest risk on energy prices is that it puts some countries into a recession. I think that's the biggest risk I see. And then housing starts, therefore, stays where it is weak. When you look at automobile, it's relatively weak, like 14 million light vehicle sales in the U.S. used to be 17.5 -- so I think it's all the uncertainty that it creates. And you know that uncertainty is not good for the economy. People will wait. People will say, hey, I don't know whether I'll keep my job tomorrow because I don't know what will happen to the company. So I'll wait to buy a new dishwasher. I'll wait to change my car. So I think that's the -- key is this overall uncertainty hopefully will not bring Canada, U.S. and other countries into a recession. I would say that that's the key. Maybe just one minute left. Do you want to conclude -- anything you want to conclude, Pat?

Well, I would just chime in on that and say one of the lenses I think about that through as it relates to oil prices and what can we do a couple of things. First, we are and have been for a very long time, the most fuel-efficient railroad in the industry. And when you think about our results, we continue to set records versus our own fuel efficiency. So we are the best in the industry, and we are finding ways and pulling the right levers to make ourselves even more fuel efficiency.

So again, my job, my team's job is to not allow rising oil prices to offset that with the productivity we see around how we manage our fuel efficiency program, and that's going very well. And as it relates to, as I think about your question, opportunities that could be unlocked, I would just say, again, we have just been through an investment cycle where we have built this network to bring on volume. The Western gateway, our Edson Sub just outside of Edmonton, everything that wants to get to Prince Rupert and Vancouver prior to 2025 was about 40% double tracked. It was definitely the limiting factor of our -- getting to our Western gateways.

Last year, we strung together a series of double track projects that made some very nice long stretches of double track. We now have 65% of that is double track, which created 7 trains per day of capacity. And the way we think about capacity is how much capacity did I create without negatively impacting our health networks, health of network metrics, excuse me. So in other words, 7 new trains of capacity can be absorbed into that portion of the network without an impact to our car velocity and our network train speed.

So as I think about it, if there are opportunities out there that present themselves based on whatever these factors may be, our locomotive fleet is the best that it is most reliable it has ever been. We have plenty of people out there. We have 800-plus more people that we can call back as volumes show up, and we've built the network to take it on. So we're open for business, not just in the U.S. and in Eastern Canada, we have really worked hard at this Western Canadian network to be able to allow that growth to come on.

Okay. Well, that's a good place to end. We are out of time anyway. So thanks very much, guys, for joining us.

Thank you. Appreciate it.

With us, we have Ghislain Houle and Jamie Lockwood. Ghislain is the CFO. Jamie is newly appointed IR, so congrats on the new seat. And I'll turn it over to Ghislain who has some opening comments.

Well, thanks, Ari, and thanks for the ones being here in the room taking interest in our great company and people on webcast listening in.

It's always nice, Ari, to come to Florida at this time of year, especially when you come to Montreal. I think the weather has been quite nice. And it's -- I think you've got a great conference, and we've participated almost every year for the last 10 years, for myself at least.

Let me introduce Jamie. So Jamie is our new VP of IR. For those of you who know Stacy Alderson, Stacy just is retiring as of May 1. I want to thank Stacy for all the good work and good contribution that she's done at CN. She's been a longtimer at CN, and well-deserved retirement.

Jamie, I picked him up from accounting. He's an accountant, believe it or not, and don't hold this against him. About 10 years ago, I took him out of accounting. We brought him into internal audit, trying to make a businessperson out of him, stayed there for a few years. Then he went to strategy for about a year. Then became VP Finance. So we worked together, Jamie in finance for 2 years, I think. And then believe it or not, we pushed him to Edmonton to lead the engineering group. The engineering group at CN is about 6,000 employees. It's synonymous to about a $3 billion construction company. Jamie has led the group for the last 2 years. He's done very well and now is replacing Stacy as VP of IR and Special Projects. So Jamie, congratulations on your new role. It's one thing to get it. It's another thing to keep it.

So let me give a few introductory remarks to set the stage, and then we'll turn it over to your questions. So when you look at 2025, we're quite pleased with our performance.

When you look at Q4, we had great performance in Q4. We had -- our EPS growth was up 14%, the best of the industry. And our OR improved by 250 basis points. We did this on the back of solid cost management, and if you look at our RTMs in Q4, they were up slightly 3%. But really, it's solid cost management that we did deliver a solid Q4.

When you look at the entire year, we delivered EPS growth of 7% despite the fact that our volume growth was only 1%. Again, solid cost management across the board. We turned all the rocks that we needed to turn and the OR improved by 120 basis points. And the 7% EPS growth is at the high end of our guidance, as you know.

So when you look at 2026, I mean the environment is still very murky. Macroeconomic environment is weak. Industrial production is slightly positive to flattish. We don't know what's going to happen with the tariffs. So we're assuming, as you heard on the earnings call, that the tariffs would remain the same for 2026, because nobody knows. So we're not assuming they will improve. We're not assuming they will deteriorate. And on this -- in this type of environment, and we don't know what's going to happen with the USMCA. So this type of environment, we believe that guidance being more directional makes more sense. So we believe that, first of all, our assumptions on volumes will be about flattish in terms of revenue ton miles. And we think that EPS will slightly exceed our volume growth.

We do -- we did highlight a couple of headwinds, significant headwinds in 2026 that we have to deal with, namely, mix continues to be a headwind, especially with forest products and metals and minerals. Forest products, 45% tariffs. Metals and minerals, aluminum and steel at 50% tariffs. So that will continue to be a headwind.

Our capital envelope has reduced significantly by about $500 million, which creates a headwind on capital credits, which really is our fixed overhead costs that prevents us from capitalizing more of that because the capital envelope is smaller.

As you know, our effective tax rate last year was 24.7%. We guided tax rate -- next year effective tax rate to be 25% to 26%. So that will create a headwind of about $100 million. And the capital credits is -- I quantified this to be about $100 million as well.

And then on other income, if you look last year, we had about $100 million, call it, $88 million to be exact. We're going to push to get as much other income as possible, but there is a high probability that we won't get as much of other income in 2026 as in 2025.

So what are we doing to try to offset some of these headwinds? You've heard Pat Whitehead talk about fast tracking, which is really double clicking on all of our terminals and yard, look at processes with a blank sheet of paper to make sure that we try to be as efficient and as productive as possible. We're looking to automate as well. We haven't significantly automated in the accounting department. As you know, last year, we've looked at the span of control, and we decided to consolidate both treasury and accounting. And I think that this will deliver some synergies, not only from an earnings standpoint, but also from a free cash flow standpoint. So looking forward to that.

When you look at FX, FX is a headwind as well. I mean we called it -- if FX stays at the current spot rate, FX could be a headwind of about $0.10 for the entire year. I want to remind everyone the rule of thumb is that every $0.01 of appreciation of Canadian dollar to U.S. dollar is unfavorable to EPS for CN for about $0.05 on an annualized basis. FX for Q1 will be a headwind or could be a headwind of $0.02 to $0.03.

So far, the year is starting pretty good. Q1 is always noisy because of the winter and operating conditions. Our volumes, Jamie, I think, are up quarter-to-date, 2.5%.

2.5%, yes.

January was down 3%. February is up 15%. We have better winter operating conditions in February than last year. Last year, we had like 19 days, Jamie?

Yes, 19 days of Tier 2 in the whole month, at least Tier 1.

So far -- and February has been pretty good, but you were saying to Ari this morning that in Edmonton right now is what, minus 30?

Minus 30, yes.

So I think it's not done, winter in Canada is not done yet. And then I want to remind everyone that from a seasonality standpoint, March is a big month. Like the biggest 2 months in terms of volume for CN is March and October. So the quarter is not over. We're starting pretty much as per plan, but it's not over. And I want to call out again the FX headwind that's in front of us for the quarter.

That's about it. Did I miss...

I think you captured it all.

Okay. Thank you. We're going to work well together, I think, Jamie, if you keep that up.

Just keep saying yes.

Just keep saying yes. Exactly.

Thank you for that introduction, Ghislain. And Jamie, congratulations once again on the new seat. So as you mentioned, Ghislain, it's been a confusing demand environment. I think we've gotten a lot of mixed signals. Certainly in the U.S., I think a lot of people got excited about the ISM, and a lot of industrial investors, in particular, got excited about what that could mean in terms of housing and other more construction, industrial focused end markets. How are you thinking about the prospects for the year to possibly play out a little bit better than expected on the demand side? And give us some insight into the nature of customer conversations that you're having?

It's very tough to call. I mean when you look at -- I mean look at the sectors that are going pretty well. The energy sector is doing pretty well. We believe that it will continue to do well. I think -- and Jamie, you can jump in, I think agriculture, like we have a great record Canadian grain crop. I think that's going to bode well. I think that we're going to move grain. I mean we moved grain all out from September to December. And I think that January was the second best ever of moving Canadian grain. And when you have a big crop like this, what happens is, you move grain longer into Q2 and possibly even a little bit in Q3. So grain is good.

I think domestic intermodal, domestic continues to be good. I think our service is great. But again, the sectors that are hurting is forest products. I don't think that forest products will turn around, especially housing starts is weak. And these tariffs of 45% is really hurting. And just to give you an order of magnitude as a CFO, I need to throw some numbers out there.

So like in the good years on forest products, the car orders, which are for centerbeams, which is kind of the sailboat cars that you put bundles of lumber, on a weekly would be anywhere between 2,300 to 2,500 car orders per week. Lately, we've seen car orders to be 1,300 to 1,500 car orders, so half. So lumber is hurting and lumber is one of the segments that is one of the most profitable for CN. So that is causing a mixed issue.

I think the metals and minerals is weak. I don't see this changing. Aluminum continues to be shipped in the U.S., believe it or not, even with tariffs at 50%. Metals is -- not metals, but steel is a little bit challenged.

And then the tariffs have some type of impact on intermodal international to give you an idea. I think intermodal international in Rupert is coming back, that's the good news with the Gemini service. I'm pleased with that, but it's not where it needs to be. If you look at the peak of Rupert was 1.2 million, 1.3 million TEU annualized. Last year, we did about [ 900 ]. And when we had labor disruptions, if you remember in 2023, 2024, it was as low as [ 700 ]. So it's coming back but it's not where it needs to be. Rupert has a nameplate capacity of 1.6 million. So we have room to grow there. And as I said, what else -- what other sectors do you want to talk about?

Yes. I think the muted housing starts also has knock on impact to other businesses because as new houses get built, you need to fill them up with furniture and everything else, the light goods that come in with some of the manufactured product spend. Automotive sales are a bit muted this year, at least what we see in automotive sales, but other than that you captured everything, Ghis.

The strong Canadian grain crop, obviously, that's a really nice thing. It seems to be supporting a lot of the volumes. I'm wondering how reliable is that as kind of a growth driver? One of the things that I worry about, I mean, again, it's obviously great that it's supporting volumes in Q1, Q2. Is there any downside to that? Do you worry about network balance? Do you worry about overreliance on grain?

No. I mean at the end of the day, the beauty with CN's franchise is we're very well diversified not only from a geographic standpoint, but from a commodity standpoint. When you look at our segments, I would say our biggest segment is intermodal at around 25% and everything else is lower, and grain is lower than 20%. I think it's 18% of our book of business. The beauty with grain is it's not dependent on the economy. People need to eat. And when you look at year in, year out and crops change, sometimes you've got record crops. Sometimes you've got the lowest crops. But like when you look at it over the last 10 years, the yield because of advancement in fertilizer and the way they agriculture the grain, the yields have increased anywhere between 2% to 3% per year.

So grain is a great thing. And I'm not worried about it. We have capacity. We have capacity in Western Canada. And we've invested -- I will finish on this. We've invested in grain cars, like we bought close to 4,500 grain cars. And the beauty on grains is it is the only commodity that we're paid by the ton. And on grain, these grain cars are more bulky, so you can put 10% more grain in a car. And because they're shorter, you can put 8% more car on a train. So it's good and it's good for the Canadian farmers. It's good for the regulator. Canadian farmers typically have a voice in Ottawa. So when you do well on grain, it's good for the country and it's good for CN.

Helpful One of the things you mentioned is the uncertainty around tariffs and the impact that that's had on the business and clearly, it's been substantial. Maybe you could talk about the magnitude of the headwind that, that's represented? And then also, what can CN do, if anything? And I understand, obviously, the geopolitical situation, a little beyond our pay grade. But what can CN do to kind of counter some of those headwinds? Or is there anything that -- whether it's discussing with customers, planning differently, going out and pursuing different types of business, how can we counter that headwind?

Yes. Well, you heard on the earnings call, Janet called out tariffs that had an impact of about $350 million, north of $350 million. And we were able to fill that back up. So we are pushing. We are talking to our customers. Steel is a good example where with tariffs of 50%, it's not going to the U.S., but now we're making inter-Canada moves on steel. So that's one thing we're doing.

I'm very pleased by the way with Janet as her nomination as our Chief Marketing Officer. Boots on the ground, she's bringing, and I hope investors can see a higher level of energy and really knocking on doors to try to get as much of any carloads possible on the railroad. So I'm pleased. I've known Janet for many years. I think it's a good addition to our team. I'm pleased with that.

I think we continuously, Jamie, to make customers to see different ways of how we can get more volume, get more carloads, maybe you can talk a little bit about some of the initiatives we have on the BC Northeast with NGLs and frac sand and maybe the fuel distribution facility that we have in Toronto and some of the self-help that we're doing that's not 100% tied to the economy, but that brings volume to CN.

Yes. I think at the base, Janet and her team, what they're really focused on is helping our customers win in their markets. So as their markets shift, if there's less going south, CN has an unparalleled port access, going off all 3 coasts. So if their markets shift and there's less oil going south, can we help them explore off the east and the west. The BC Northeast is a great story for us. We have 4 new unit train frac sand facilities. That business really grew from nothing 10 years ago. And we just can remember, there was trees going through some of the tracks there, and he was actually instrumental in part of that deal. That's all long-haul business going up with supporting the natural gas play in the Northeast BC. CN sits on top of the Montney Shale, which is one of the biggest unconventional gas deposits that's coming out, a lot of natural gas liquids coming there, propane, butanes. We move the sand up. We move a lot of natural gas liquids. The gas itself moves pipeline, but we move a lot of the byproducts through there.

We have a new fuel facility in Toronto. We had some surplus land right in downtown Toronto with refined fuels coming into that facility. So there's a number of these different self-help initiatives that are beyond the geopolitical space that we're quite bullish on.

So we've seen the network running fairly well, I think it's fair to say. And that's true across kind of the North American rail network. Pricing seems like it's been a little bit challenged or at least yields have not really grown substantially if we look at cents per RTM over the last couple of years. Give us some context to that. Ghislain, you mentioned the kind of mix headwind. How substantial has that been? And what's the prospect that we could start to see that move higher?

So when you look at cents per RTM, and we've cautioned investors on this. If you try to get the pricing and looking at cents per RTM, there's a lot of noise in there. There's the carbon tax, the removal of the carbon tax, and we still have this over the next quarter at $70 million. There is FX. There is fuel surcharge. I want to reassure everyone that we continue to price above rail inflation. So -- and our -- and if you were to ask me, Ari, what's your rail inflation. Our rail inflation is slightly below 3%. So we continue to price above rail inflation.

Now in some cases, and we look at this on a customer-by-customer basis, on a lane-by-lane basis, on a train-by-train basis. In some cases, when the train -- when I can put an additional 50 cars on that train, and that train has to move anyway, I can be quite aggressive on pricing, especially if it's just a spot move. But overall, the book of business, we're pricing above rail inflation.

So I did like how you -- you did preempt my next question, which is on cost inflation. Talk about the areas where it's most acute and what you're doing from kind of an efficiency standpoint to offset some of that?

So -- and again, Jamie can jump in here. When you look at labor is our biggest cost. So inflation on labor and we've signed contracts that are in the range of about 3%. In the U.S., it's more like 4%. And then, of course, we're pushing on purchase services and material and our suppliers to, again, have the best prices possible. And when you put that all in -- and then labor productivity, Jamie, last year, labor productivity, in terms of labor cost per GTM was improved by 6%.

Yes. And year-to-date, we're trending with 7%. So Pat and his team, I was part of that 2 weeks ago. Pat and his team are distinctly focused on how we drive labor productivity through the entire network.

The other -- so we're pushing on productivity as much as possible. As you know, we did some downsizing last year, looking at span of control. And therefore, we just didn't take a layer of lower management and let them go. I mean some of this stuff was -- like I said, we consolidated accounting and treasury. And we quoted that number to be about $75 million, 2/3 of which will be favorable for 2026.

We're continuing to look at this. We think that looking at span of control is just good hygiene when you do that every couple of years. We're going to push on productivity. Do you want to talk a little bit about the productivity you generated or your team generated in engineering?

Yes. So we took a holistic approach to engineering, looking at what we've in-sourced versus outsourced over the last number of years, asset utilization. And through last year, we were able to reduce our unit costs through the removal of contractors, bringing a little bit more work. We took out about $100 million worth of contractors. We had a little bit of labor, $20 million to $25 million of labor to draw that down, but it was really about how do we get the lowest unit cost for every piece of capital that goes into the ground.

So in October, CN consolidated the COO role under Pat Whitehead, you guys referenced Pat just a moment ago. That ended a period in which the COO role was effectively split between 2 people. Talk about that decision, what drove the change? And what do you expect Mr. Whitehead to be able to achieve as COO that he wasn't able to achieve previously or that was more difficult under that kind of split COO role?

So I can start, and then you can give your opinion. I mean you reported to Pat for 2 years. So the dual COO, we knew that it had a time-bound on it. And typically, the reason why it made a lot of sense is typically in rail, COOs, what they like to do is, they like to look at the network early in the morning and then they look for fires. And then when there's a fire, they put it out. They're the best of doing this, and it's exception management at a king, okay? But they don't spend a lot of time on the long-term stuff. They don't spend a lot of time on the long-term network capabilities. They don't spend a lot of time on engineering and mechanical.

So the dual COO, we had Derek Taylor, which by the way, I want to thank for all his contribution. I've known Derek for a long time. I want to thank him for all the contributions he's made at CN. So Derek was looking to extinguish fires. And when there's not a fire, they make one, so they can put it out. And then Pat was pushing on engineering, mechanical and some of the opportunities we -- that Jamie just talked about engineering is partly because Pat was overseeing engineering and mechanical.

When I look at mechanical, I haven't talked about it, like our locomotive reliability is the highest I've ever seen in my 30 years. I mean it's close to 92%. It's 91% something. So we did this. Now that we've delivered and we know we delivered these savings in engineering and so on and so forth, we thought that consolidating the role into one made a lot of sense for speed of decision and so on.

And Pat got the position. I'm very pleased with him. I want to congratulate him on the promotion, and he fits extremely well with the team. And as you see, our operations are running very, very well. Our car velocity is right where it needs to be. Our locomotive utilization is right where it needs to be.

So I think like -- I like the team. I think we've got a great team. Like I said, Janet. Jamie now in his new role. Pat Whitehead. We have a new CIO that comes from Enbridge as well, Bhushan. He is doing great. And then, of course, our CEO, Tracy is doing outstanding.

And we had a couple of tough years, some of which, as you know, was a little bit out of our control with the labor disruptions that we've had in '23, '24. But I think we demonstrated in '25 that we're pretty resilient. I mean deliver 7% EPS growth and 1% RTM growth for high-cost type of fixed business like we are is pretty good. And I think this year will be very challenging again. It will have ups and downs, I'm sure. But I'm confident that this team will deliver what it needs to deliver. Do you want to talk a little bit about...

Yes. I think overall, the strategy hasn't changed. We're still, make the plan and run the plan scheduled railroad. Having worked for Pat, I can say that he's probably one of the strongest scheduled railroading operators that I've had the pleasure to work with in 20 years, and it's really about reinforcing the discipline. We've had the success in mechanical, as Ghislain talked about where our locomotive reliability and where the fleet is. We've had the success in engineering and now it's about pulling it all together with all of the pieces. So excited to see with the fast tracking that's going on, where we're looking at our crew cost down, as I mentioned, 7% year-over-year, 6% last year. So I think we see that accelerate under Pat.

So I think it's entirely fair to say that CN has faced a number of challenges that have been outside of your control in the last couple of years. For a long time, those of us who have been following the rail industry for some time, we're used to thinking of CN as one of the best networks in North America, having -- being one of the leaders in the industry. How do you think about the prospects for what CN could get to from an earnings growth standpoint or from an OR standpoint if we remove some of these headwinds, if we remove some of these challenges? Can we get back to a sub-60 OR, for instance?

Under a supportive economy, absolutely. I'm very bullish. I think that we're using these -- 2025 will continue 2026 to be fit. Like we lost a lot of weight, like I lost myself, 15 pounds, believe it or not. So we -- and that -- and when volumes come back up, we're not going to gain that weight back.

So I'm very bullish. I mean we were hoping, if you remember, and you were at the Investor Day in 2023, Ari, we were hoping that we would get a supportive economy. And we were calling a supportive economy to be industrial production to be 2% plus. Unfortunately, the industry has been in a freight recession for the last 4 years. Eventually, this is going to turn. Eventually, housing starts is going to get to the $2 million range instead of the $1.2 million that currently is. Essentially, industrial production will get to 1.5%, 2% versus the flattish that we've seen in the last couple of years. And the fact that we've lost a lot of weight, we're not going to gain it back. I'm -- the operating leverage that this company will deliver will be, in my view, outstanding.

Like I think that under a supportive economy -- I mean, we've done it. There's no reason why we cannot deliver an OR that starts with a 5. I mean we did it. Like when Tracy joined in 2022, we had 59.9. I remember, Jamie, in 2016, if you adjust for the pension reclass, because the real number -- the number was 56, but if you adjust for the pension reclass, it was 58. So we delivered 58.

But we're not just focused on OR. I mean OR is the result of everything we do. Like I say sometimes to investors, I'd rather be a $20 billion with a 60 OR than be a $15 billion with the 59.5. I mean just do the math. But I know that people look at OR as a sense of productivity.

I think under a supportive economy, there's no reason why this company cannot deliver at least low double-digit EPS growth. Listen, I mean, we delivered 7%, so high single-digit EPS growth with a very weak economy and weak volumes of 1%. You put mid-single-digit volume growth and especially the fact that we got very, very fit in 2025, and this thing is going to fly. And by the way, as you know, we're quite cheap right now. Our stock price is quite cheap. So we've taken the opportunity, as you know, to increase our leverage from 2.5x to 2.7x temporarily. And we've said publicly that we would go back to 2.5x in 2027, because we want to take advantage when you compare our share price currently with our intrinsic value, and I know that this is very sensitive to assumptions that you use, like this is a good investment.

So I hope shareholders see that as well and take the opportunity to either get into stock or increase their position because we're cheap right now. And we're going to -- if the economy -- give us a little bit of visibility on tariffs and the economy, and I tell you that this thing is going to fly.

I like that framing. And I want to loop back to some of those points that you made there. Let's talk about the target for EPS to be slightly in excess of the kind of flattish volume growth. Given the upside that you just spoke to, should we understand that EPS target as somewhat conservative if we get -- is outperforming that target really a function of more supportive macro environment?

If volumes do a little bit better than what we have out there, then EPS will do better, for sure. I think that we've learned. I think the way -- the reason we went directional on guidance is when you look at railroads and we were one of them, we gave ranges on EPS and all the railroads that gave ranges on EPS either missed it or had to reduce it.

And we've heard shareholders loud and clear that we need to meet our guidance. So we've put it -- this is our best foot forward, but we put it at a place that hell or high water, we need to meet our guidance.

And now if we get invaded by aliens, then maybe -- or Canada gets invaded by aliens and not the U.S., maybe that will have an impact on us. But other than that, everything staying around the way it is today, we need to meet that guidance. So I wouldn't say it's conservative. I wouldn't say it's optimistic. I would say we need to meet it, and we will meet it.

Ghislain, you mentioned lowering the CapEx target for this year. What drove that decision? I understand, obviously, the growth has not quite been there. But what does that open up in terms of the free cash flow potential?

Yes. It's going to be great for free cash flow. Listen, I think if you remember, when we did Investor Day in 2023, we said we will invest -- even if volumes are up and down, we will invest to get ahead of the game, especially in Western Canada because our growth has been concentrated in Western Canada. And if volumes are not showing up, then it will be time value of money because eventually we'll need that capacity.

So we are in a great spot on capacity right now. Our network -- and Jamie, you are in Edmonton, our network has -- like on the Western Canada, we have capacity, like on the Edson Sub. And the Edson Sub is probably the subdivision that has the most density for CN. It's just west of Edmonton, east of Jasper. I drove trains there. I think as you know, I used to be a locomotive engineer, believe it or not, but -- and you go on the Edson and then when you get to Jasper, you either take a far right to go to Rupert or you take a far left to go to Vancouver. So all of our trains going to Western Canada use that subdivision. I'm happy to report that the Edson Sub will be close to 65%, 63% double track. So we're -- we've added like 7 trains -- 6, 7 trains capacity.

So we have capacity on our network. Our high-horsepower locomotives 4, 5 years ago used to be the oldest at 24 years on average. Now it's 19 right in the middle of the pack. And as I said, we've invested in cars, not only in grain cars that I've talked about, but also in the boxcars, and for gen UVs and so on.

So we're in a great place on capacity. And I know it was a pain point for shareholders to say, well, you're not growing volumes more than your peers in the U.S., but yet you're investing more. So we're in a great space now. So we said, yes, we don't need -- and we don't see the increase in CapEx to have to go higher in the next couple of years at least. And therefore, we decided to get back more in line with our U.S. peers, around 15%, 16% of revenues. And to your point, that will help and that will generate free cash flow that we intend to return to shareholders. And do you want to add anything?

Yes. No, I think you framed it well. We're coming to the end of a multiyear investment cycle. We have the capacity we need in all 3 regions, our locomotive fleet. Like you said, we went from oldest to mid-pack. So it's not constraining the growth capital. It's not growing into the capacity that we have onto the network. And we can unlock that next tranche of growth without being capital heavy. So we have a few years of growing into the capacity we have.

And this is Western Canada, like we've always had a great capacity and network capacity in Eastern Canada and in the Southern region. So I think the capital is a good new story. And really, we're trying to do more with less by being more productive, especially on the basic track maintenance to your point on the unit cost that you referred to and so on and so forth. And you could expect for us to continue this in 2026, 2027 and going forward.

It sounds like a lot of potential. I want to talk or shift in the time we have left, maybe some strategic considerations. I'd like the way that Tracy framed the conversation on the most recent earnings call where she talked about CN as the railroad of the north, talked about the tremendous asset-based resource base that you guys sit under.

How do you think about the moat that CN has? And particularly in the context of, look, we have the M&A discussion coming up, I think a lot of people are concerned about CN maybe being left at a competitive disadvantage. How do you think about the defensibility of CN's business and where you have a structural advantage?

I think -- and of course, I'm biased. I mean I've been with the company for 30 years. I think we have a great network. I think we are the railroad of the north. And therefore, we have better access to Canada's natural resources than our Canadian competitor.

You look at Rupert, Rupert is the gift that keeps on giving. We have a tendency, and I had a tendency wrongfully to talk of Rupert more from an intermodal standpoint, but now we're putting Rupert more as a multi-commodity port. So there's growth that will continue on Rupert. And there's not a lot of U.S. coast ports that can expand at low cost. And Rupert has the land to build another terminal, another intermodal terminal. So this is going to feed the network for years.

Then we have access to Halifax. Halifax, again, we're the only railroad that have access to Halifax. It's a deep seaport. It has capacity of 1.1 million TEUs. And then, of course, we're the only railroad when we go down to Chicago that can go around Chicago on our own tracks. All the other rails have to go through another railroad through trackage rights to go around Chicago, which is not productive and not efficient and not reliable.

So we love our network. We love our business. And I think that this company is going to continue to grow. When you look -- you talked a little bit about the merger, we don't think this is good for the -- and you heard -- if you listened to Tracy yesterday, you'd hear say that we don't think this is good for the industry.

We're going to protect our franchise. That's what we need to do. And we have a small team looking into this to make sure that we are going to do the right thing for the company, but also for shareholders. We believe that if ever this is approved, we are going to be impacted, but we believe we'll be the least impacted because remember that we are north-south and that merger would be east-west. And we do originate 85% of our traffic and terminate on our own network, 65% of our traffic.

So we think we're in a good space, but it would impact us. I purely believe, my own opinion, not talking on behalf of CN, but talking on behalf of me that if the regulator looks at this merger purely from a pure regulatory standpoint, I think it will be very difficult to be approved. I mean the merge -- the 2 railroads will own 45%, 50% of the rail market share in the U.S. and make the point that with this, you're enhancing competition. So you can't just maintain competition. You've got to enhance competition. I think that's going to be a very hard hurdle to make.

But this is -- I must commend my friend, Jim Vena. This is a bold move. I've known Jim for a long time. He's a good guy, and that's a bold move, and we'll see. We'll see what happens. But we'll do what we need to do at CN to protect our franchise and do what's best for our shareholders.

So how do you think about the options that are available to CN as this merger debate unfolds? So obviously it's going to unfold in a very public way. Talk about how CN is trying to position itself and what are the different scenarios like where are the vulnerabilities and how do you ensure that CN isn't...

Without going into too much detail, I mean, we'll be very aggressive in looking at the application. I mean their first application was refused. And now they have to submit. I think the date is end of April.

End of April, yes.

So we'll be -- we'll study this very, very hard. We'll be very as aggressive as we can be on asking for remedies and concessions. And we'll see how it's going to pan out.

But as I said, I think our network is well positioned. And as I said, we will protect our franchise as the way that we need to protect our franchise for the value of our shareholders.

Can you give a sense for what are the types of concessions that you might be looking for?

No. I think let us study.

Too early.

Let us study the application in detail, and we have a team of experts that are looking into it. And as shareholders have seen, we have spent a bit of money to -- so far on this. And we have experts to look at this. We are -- we have a very small team of CN's management to get involved in this because we want our management to be involved in delivering value and delivering the day to day. We don't want them to be distracted by this initiative. I think we've got a couple of minutes left.

Let me see if there are questions in the audience, if folks have anything. In the meantime, while the mic makes its way over, Ghislain maybe talk about what's available from a partnership standpoint, right? We've seen CN come out with a number of partnerships. What does that open up? How much does that help in terms of positioning the railroad for potentially -- potential future?

I think -- as you know, there's 3 ways to grow your volumes as a railroad. The first is to grow with your customers. And this is -- you can say, well, this is growing with the economy.

The second way to grow your volumes is to convince somebody to build a facility on your rail line, and then you've got them committed for the next 30 years. And as I said, we are fortunate to be the railroad of the north, that there's a reason why the BC Northeast is happening is because that's where the Montney and the Shale opportunities are, and we happen to be there. So that's the second way.

The third way is to extend your network reach. And you do this either through a merger or you do this through a partnership. And the partnership has to be made in a way that you operationalize that partnership so that you can compete against trucks. And remember, not compete against trucks in the 500 to 700-mile radius, but long-haul trucking. That's where the railroads in the 1950s lost their market share is to the trucking industry. And there's no reason why in today's environment, long-haul trucking should not be on the railroad. And when you look at the partnership we have on the Falcon with FXE and with UP, we're now moving boxes from Mexico, Monterrey to Toronto in 5 days. That's highly truck competitive.

If we can have more of these partnerships -- and because the last way to grow your volumes is through network reach. Like railroads go to where they go, they don't go to where they don't go. So you can't replicate a railroad, which is a strength, but the limitation is, if you don't go to Texas, then you don't go to Texas. The only way that you can do that is through a partnership or through another railroad. So I think let alone this merger, but if this merger is not approved, I think the rail industry going forward in the next 5, 10, 15 years, will grow their network reach through partnerships, and these partnerships will become more and more solid.

It's very helpful, Ghislain. Let's go to the other questions...

Great. Two-parter, if that's okay. The first is with the labor disruption now a couple of years behind us and a lot of the rails have been making agreements with unions over the past couple of years, any risks that you might see in the labor front for '26 and '27, whether it's your unions or the ports or any others?

And the second is, you mentioned Rupert versus the other West Coast ports expansion. What are the risks to Rupert, the outlook for Rupert, given ports like Vancouver expanding? Is it because they have less expansion opportunity whereas Rupert is more?

That's right. So I'll take -- maybe you take the labor and I'll take the Rupert. So when you look at expanding in Vancouver, because they have a big city wrapped around the port, it's very expensive to expand. If you go to Rupert, I mean, and it's a hell of a way to get there, and it rains all the time out of 365 days, you're in the middle of nowhere. So it's not expensive. You can actually expand in land and the cost of expansion is way more reasonable than expanding either in L.A. Long Beach or in Vancouver. And to me, that's the value.

And remember that Rupert is 2 days earlier, 2 days less sailing time to Asia than any other West Coast port. So -- I mean, it had a little bit of a blip because of the labor disruptions in the last few years. So the Canadian supply chain has got hit a little bit, and we were bragging about how stable it was. So now we need to regain that confidence. We are regaining slowly but surely that confidence. And I think Rupert in the mid- to long term will be, like I said, the gift that keeps on giving. Do you want to talk about labor?

Yes. The union contracts that come up all of the time. Labor stability is important. Canada is an exporting country, obviously. It's a focus not only of us, but of the ports and of the government to make sure as Canada looks to diversify its trade that we have a stable supply chain. So can we predict what's going to happen on labor? We never really can. But all of the players making sure that Canada's supply chain is stable, not only into the U.S., but as an export gateway to the world is really crucial for us.

Maybe, Ari, just to -- I know we're getting out of time. Just a quick conclusion. Listen, I think there's turbulent times for our company, but not only for our company, for the industry and for a lot of companies in the world actually.

I'm very pleased with our performance that we did in 2025. I think that the future is quite bright for CN, at least in the mid- to long term. We'll see what happens in 2026.

But you can rest assured that this management team is pushing on everything we can control. And I think that's what we heard from our shareholders. Our shareholders have told me, and I meet a lot of them, just, we know you don't control the macroeconomic environment, you don't control the tariffs, you will not control what happens with the USMCA, but we want to see you guys pushing and doing everything you can do on what you can control. And I think we've demonstrated that in 2025, and we'll continue to demonstrate that in 2026.

Well, it sounds like a lot of opportunity ahead, and we'll be hoping for a better macro environment and hopefully, some supportive volumes. Thank you. Ghislain and Jamie, thank you both for joining us.

Thanks for having us. Thank you.

Thanks, everyone.

All right. Good morning, everyone. Welcome to day 1 of Barclays 43rd Annual Industrial Select Conference down in warm South Beach Miami. Thank you for joining us. I'm Brandon Oglenski, airline and transport analyst. And first up today on the transport and freight side. Very pleased to have Tracy Robinson attending here from Canadian National. So I know we have a lot to talk about with railroading here. But very quickly throughout the fireside presentations for the next 3 days, we're going to have audience response questions.

If you look at that old school, clicker there, kind of it's like a BlackBerry, if you remember what those were. We're going to ask you 6 questions of each presentation. So if we can go ahead and queue up question #1, we share all these results post conference. Do you currently own Canadian National, Yes, overweight to market weight; 3, underweight; 4, no. We'll give everyone a few seconds here to vote.

Are we live on voting.

You have to tell them to hit send.

Okay. Did we do a question 1 back there. Okay. Question #2, I think you could convince some folks here to bias.

Yeah. It looks like...

What's your general bias towards Canadian National right now, positive, negative or neutral. Go ahead, and you have the votes, please. Okay. And then question #3. In your opinion, through cycle EPS growth for Canadian National will be above peers, in line with peers or below peers. You can hit the vote button, sir. Well, Tracy while we wait for these responses here. Really appreciate you coming down to Miami with us. I know you had a couple of prepared remarks. I think you wanted to walk through here first.

Why don't I just start us off, Brandon, if that makes sense. And thanks for the invite down here. It's always a pleasure to be in Miami Beach early in the morning on any day. But as we come through 2025, it was a very strong year. We made some impactful decisions in 2025, starting part of the year and throughout the year, we leaned in heavily into productivity improvement. We intensified our commercial presence, particularly with the boots on the ground program. We reset our capital program. And we continued what has been a multiyear journey on operating performance in our scheduled operating plan. So the railroad is now running the best as it has in a decade or more. And those paid off. We ended up with 14% EPS growth on Q4, the best in the industry, 7% on the year on 1% volume growth. We're happy with that.

We drove 8% free cash growth and a 250 basis point operating ratio improvement in the fourth quarter, 120 basis points on the year. So it was a very strong year, really pleased with what the team has produced there. As we turn into 2026 it's going to be an interesting year, as you and I were talking earlier, not a lot -- not very strong macroeconomic growth. There's going to be a year of the reset or the renewal of the USMCA. So not a lot of clarity on where trade flows are going to end up this year. But we're focused on what we can control. Janet is out with her commercial team, leveraging the sectors where we have considerable growth and strength mitigating the impact or attempting to mitigate the impact of those sectors that have been hit by tariffs. Pat's going to the next level with the operating plan. We'll have a strong push again on productivity. We do have some non-reoccurring headwinds this year as we do a reset on the capital program.

We've got the impact of the unfavorable traffic mix. We've got the capital credit impact of tax. We're watching the currency, which is moving against us right now, but we'll work as hard as we can on the productivity side to offset those things. We will generate free cash flow growth this year, and our plan is to return that to shareholders. Over the longer-term, we're set up very well. We were building considerable operating leverage. We're getting very fit. We've got the capital work done. We're getting leaner and more productive every year. We've got a great network that sits on top of North America's natural resource base no matter where the trade flows kind of end up, we're really well positioned both in North America and to deliver for our customers globally. So -- and we'll continue to deliver with discipline on capital, on execution on free cash flow.

Tracy, I appreciate that. And definitely want to talk long-term here today. But I guess, can you give us any update maybe on the first quarter, I think your volumes are slightly up right now, but we've had pretty difficult operating conditions, I think, across North America start to off the year. So anything you can comment on the trends that you're seeing early on in 2026?

Yes. We had foreshadowed that of the contour of the year, the first quarter was going to be the most difficult. But the guys have done a great job in what are some extreme winter operating conditions to keep the railroad running velocity up in a reasonable level of customer service where it needs to be. And so our volumes are up a little bit versus last year, which is good news. We are now starting to lap what was the period in February last year, late February where it was pretty tough operating conditions as well. So you'll see us kind of show up very positively over the next few weeks relative to last year. But the Q1 should come in solid, I would say. And then you'll see as we go through the year, the contour, it's more back-end loaded.

Okay. And buyback in, is that just because you have customer expectations that growth can accelerate? Or what's driving that?

Well, if you think about it, right now, we're moving a really strong grain crop, which is great. And the guys are doing a great job. We hit records on moving grain in September through December of last year, almost records for the history of the company. We hit a -- I think we're second from the history of the company in January from a volume perspective on green. So grain is moving very well. We're being surprised a little bit on the upside of potash, which is good for us. But from a contour perspective, we're not expecting the international intermodal volume to be strong across anywhere in North America through the first half of the year. So we'll see that start to come only towards the second half. Our energy volumes are strong. That will continue to strengthen through the year. Our coal volumes will continue to strengthen through the year.

So we'll see a contour that is a little bit stronger as the year progresses. What we can't see right now is what the impact of the tariffs are going to be. Right now, in Q1, Q2 wasn't until, I think, Q3 of last year that the tariffs were increased on steel, aluminum and forest products up into roughly the area of 50%. And so we are seeing now we're kind of cycling through that impact in the first half of this year as well. So that's the negative that we're trying to offset.

And in your plan, what expectations do you have for tariffs, especially with USMCA being renegotiated this year potentially?

Yes, it is under renew. And I wish I could tell you. So it's a little blurry out there. Do you know what's going to happen on the negotiation? So what we've done in our plan because we think that's the only thing we can do is we've assumed the same tariffs as we have now. There is opportunity if in the negotiations that the tariffs on lumber, on steel, aluminum and automotive are moderated somewhat. But we do think that we face the prospect of tariffs in other sectors, we'll see how it goes. The good news is, is that we're focusing right now on what we can control, bringing our cost base down. It's going to be lower this year than it was last year. It was lower last year than the year before. The network is very fluid. We have capacity in every part of our network. And we're lean, and that makes us nimble.

We're working very closely with our customers as they contemplate all of their plans and either investment plans or just getting products to new markets in the face of an ever-evolving tariff environment.

Well, I appreciate all this in the last few years have definitely been difficult, I think, not just for CN, but a lot of freight transportation companies because we just haven't had a lot of core industrial growth across North America. But I guess, can we go back to -- I think it was the October conference call, your third quarter 2025, where you guys effectively came out and said, "Hey, our prior view on where we could take top line and earnings maybe it was a little bit too aggressive. And maybe we need to dial back our capital investments as well. I think that was pretty well received by the market. But I guess at the end of the day, is that the right message as well that like, hey, there's just not a lot of growth right now. So...

Listen, we're in the fourth year of a freight recession. I don't think there's ever been a 4-year freight recession before. And at the beginning of every year, we all look at it and say, perhaps by the end of this year, we'll be turning. I can tell you, we're not counting on that, but we're ready for when it happens. And that's going to be -- that's going to lift considerably. Separate from the general -- the impact of the general economy, we continue to have some very significant and unique growth opportunities given where our network lies. So with the railroad of the North, we sit on top of most of the significant natural resource base, either in Canada and in the Midwest through the United States.

If you think about where the energy sector is going, the NGLs that are producing, we're exporting more and more globally, but also it's also a North American market. If you think about refined fuels, think about the plastics development that's coming. If you look at mining, the frac sand franchise that continues to strengthen, the potash development that's taking place in Saskatchewan. You look at the metallurgical coal mines, Quintette came back on last year, on coal. And if you look at the domestic intermodal program, if you look at the investments that are going in at Rupert on the -- to make the international volume stickier, I think there's tremendous prospects, the Iowa Northern acquisition that we made that has solidified kind of our customers access to new markets down there.

The natural resource base offers us significant growth uniquely for as we go in no matter whether it's the global markets or whether it's to North American markets. And so as the economy turns, and that starts to -- the trade flows start to stabilize and the tariff question kind of gets resolved imagine putting that kind of growth. So let's imagine a mid-single-digit volume growth on top of a much leaner, more nimble cost structure where we've got capacity everywhere now, so it doesn't require capital. And that will generate kind of outsized EPS growth relative to revenue and create value generation through a cycle. So we're pretty excited about where we sit and what the future holds once you get past the murkiness of what may happen on tariffs this year.

Okay. I guess along those lines, though, there's been a bit of turnover in the executive leadership of the company, especially in the marketing position, but even operations as well. I guess do you feel you have the right team in place now?

I really like this team. I got to tell you, if you look across all the functions in the railroad, we've got very strong leadership in place that understands the business. And I think most importantly, is aligned around our plan. We're running the plan, we're taking our cost base down. We're serving our customers. And so we have had some change. But when I came in, we had a lot of work to do. We need a new operating model. We had to do some capital work to debottleneck the system. We had to make some big changes to how we plan and execute our capital program. We need to work on our locomotive fleet. We need work in our grain car fleet and so there was a lot -- that requires different capabilities, and that evolves over time. I like the team that we have now. Pat is one of the best scheduled railroading operators in the industry. He did a lot of that work and now he's turned to taking the operating plan to the next level.

Janet did me if it worked and reconfigured our whole stakeholder and communications kind of plan and now moved over into commercial. She knows our business extremely well, and she's intensified that boots on the ground approach. So we are in a great place. Turnover is very natural, and we're being proactive about planning for it. And in the meantime, this team delivered a fantastic year last year, and we'll do the same this year.

Okay. And if there's questions, by the way, we try to keep this open format. So there's a mic running around, just raise your hand, we'll get to you. I guess, Tracy, another issue facing the industry. I want to talk about AI, too, because I think you guys are doing some unique things there. But on the M&A front, with UP Norfolk Southern pending another application, which I think they're going to submit soon. I think Canadian National has come out pretty negative on this transaction. Can you speak to your views on this?

Yes. Look, we are -- and I think we're aligned with many in the industry. We're very positive on competition. And we're very much aligned with the industry on wanting a lighter touch on regulation to make us more nimble and able to invest properly. And this merger application works against both of those things. So if you imagine these 2 railroads coming together. And 1 railroad will have -- I don't know what the number is, they'll come out with it, say, 50% of the nation's freight. And no matter it's not an end to end. There's areas on the 2 networks where you will, in effect, see a reduction in competition. And they've done some work on how to address that but not nearly enough. And of course, the standard in today's regulations in the new rules, is that the merger would have to increase competition and increase it in a way that you couldn't do and in any other way but a merger.

So it's difficult to imagine how bringing together those 2 railroads and having 1 railroad that large is going to reach that hurdle. However, if this is approved, I mean, we know there will be an impact to us. We've done our work. I think we'll have the smallest impact. We're a bit ring-fenced. We originate 85% of our volume, and we originate and terminate 65% of our volume. I think we're unique in the industry that way. So the impact is likely to be less on us than anyone else, but there will be an impact. But as we think about it, there are ways that our network can be used to help not only make sure that the customers we serve don't suffer from reduced competition but that we can use our network to increase the broader competition. So we'll be working very hard to make sure that happens.

I mean are there specific things that you would be looking for if the deal were to get approved?

There are certain areas, yes. I mean, there's obviously -- there are certain areas on the continent where we would look for the ability to get into new markets, the ability to serve customers that we don't serve right now and enhance that through the ability to increase competition. And there's various mechanisms to pricing, trackage rights, those kinds of things that I think you'll see come out as the revised merger application comes forward.

Okay. And I think you guys have announced some new agreements and interline agreements and new offerings, especially in intermodal. Is that correct?

Yes. We are all, as an industry looking for ways to use our network. The beautiful thing about railroads, if you open up a map of the railroad industry in North America, you can get from wherever you want to go to wherever you want to go on existing network. The railroads need to find ways is what we're all working on to work closer together such that we can be seamless as though we were 1 railroad. So as we've worked with, say, like the UP and the FXE on the Falcon service, that's 3 railroads. And what we imagine is if we were all owned, we're one company, how would this operate and that becomes the guiding principles. It's not an easy thing to do over time. But it is an important part of bringing the next level of service to the customers across our -- across the markets.

Okay. We can queue up question 4, please. In your opinion, what should CN do with excess cash, bolt-on M&A, larger M&A, share repurchases, dividends, debt paydown or internal investment?

We can go ahead and vote.

Do I get to vote?

We always say we're going to put 1 up here. In the back, we can vote. And Tracy, I thought maybe this is a good time to talk about CapEx because you did take down your relative spending levels a bit just given...

We did.

The slower growth profile in the near-term. I guess, what are the priorities on the capital budget?

Priorities haven't changed. When I came in, we had a lot of work to do. We had the oldest locomotive fleet in the industry, it wasn't operating well. We had a number of pinch points, particularly in the West, where we saw a lot of the growth. And so we've gone through an investment cycle. And we're now at a place where we've got -- we've taken care of that. Our locomotive fleet is in the middle of the pack. It's operating better than it has in the history of the company. And we have capacity across the network. And so we've readjusted the capital program to reflect that. But the first use of our cash will always be to ensure that we've got into the business to ensure that we've got the right capacity and the right fleets in order to serve our customers.

After that, we want a consistent dividend growth, right? And that's -- we've done that since we've been a public company, and we're going to continue to do that. And as particularly now -- continues to grow, we'll redirect that back to shareholders.

Okay. Maybe on that point there. Question #5 for the audience. In your opinion, what multiple of 2026 earnings should CN trade. You see the multiple ranges there. We can go ahead and vote, please in the back? We've been asking these questions for 20 years. So multiples have come higher in that time frame. Okay. And then question #6, please. What do you see as the most significant share price headwind facing CN core growth, margin performance, capital deployment or execution and strategy? We can vote, please. Okay. Core growth. Tracy, interesting results here, but you spoke many times about lowering the cost base of the company. And actually, you guys did have a pretty good fourth quarter. Can you talk to some of the cost initiatives that you have underway this year.

So the basis, the foundation of everything that we do is scheduled plan, whether you're running trains, whether you're in mechanical, whether you're on the engineering side, whether you're in finance, it's how do we run the plan and how do we execute it with increasing levels of excellence. We did a great job of that last year. And so we are running faster with less dwell, fewer locomotives. Our locomotives are working harder. Our trains are longer and heavier than they were before. So that's making good use of our assets.

We're continuing that this year and leaning in even harder. And so Pat right now in the operations side is going into the terminal. That's where something like 50% of our operating labor is. And he's going through every terminal they're calling it fast tracking to redo the process as we look at to make sure we're fluid. We got the right resources, but we're not over resource, whether it's facilities or locomotives or people and that create that next level of solidity in there. We're -- so that is the big push on the operations side. We're going to continue in engineering, big gains over the last 2 years. And Jamie was there, who's now Head of our Investor Relations, was for the last 2 years, the Vice President of Engineering, leaning really heavily in with Pat on how do we plan and execute our capital in a scheduled operating environment. And we've seen tremendous productivity improvements in that, but we're not done on that either.

And then as we look at some -- all the rest of us in the head office and in the other offices, we're continuing to focus on that. We're leaning a little bit into AI and what we can produce where we can change the way that we do business on that. So it's a relentless drumbeat in our organization of how we can get better and better. We're creating kind of a lean, we call it getting fit. Now is the time to get really fit and that creates operating and earnings leverage as we go forward and the right platform for that growth when the volumes come back.

Well, you hit on AI. And I think there's a question here, so we'll get that in 1 second. But how are you guys using AI? And I think earlier, you said there's a lot to come here. So can you share your thoughts on that and how you guys are deploying that?

Well, listen, it's been a long-standing kind of as you think about technology and AI in its various forms. We've been at this for a long time, largely on the operations side. So it's around how we run our trains most particularly how we inspect the infrastructure and how we inspect the rolling stock. And so you'd be familiar with a lot of the wayside detection that's out there, our ATIP cars. And what we can do with that data. If you think forward on that, the predictive capability as we enhance our capabilities to grab that data and use it is significant.

Separately, as I said, we're looking at where we work everywhere as I get more informed and educated on AI and the capabilities. This is amazing. And I do think that in the next 5 years, much of the work that each of us does will be very different. And we're going to be able to use our human resources in a very different way, but we'll be able to automate and even use some of the predictive capabilities even on just the day-to-day work we do in the office. So we are engaged with that. I can't tell you for sure exactly where it's going to go, but we are -- it's going to be very interesting times.

Okay. David?

Quick question. You have different access rules in Canada for competitor railroads. Just speak to your experience there and contrast there is a proposal that's going through on the STB now and how that could affect the railroad.

You're talking about the interchange, the interswitch road, right? The interchange. Yes. So in Canada, it is very different than what they've been proposed in the U.S. In Canada, there's long-standing regulations that have different distances. So what you can do if you're a customer that wants access to a railroad that's in serve you within there are certain rules that you automatically have access where if I'm a serving railroad, I must deliver that car then to the interchange under prescribed rules and under prescribed rates. What has been -- it's long-standing, it's not used very often, but it's long-standing. And if you look at what's being proposed in it's very different. It's not a standard kind of approach. It's a kind of -- it's a one-off. It's a case-by-case kind of basis.

And instead of the serving carrier delivering to the other carrier, it would be -- you would give access to the second carrier, which is very different. So in any case, we're not too worried about this. I think if you provide good service, you don't deal with a lot of these issues, and we are at the levels in a decade. I think the industry is largely running very, very well. And so it's -- we'll see how this one plays out, but it's not something that we're very worried about.

Okay. You spoke to mix headwinds this year. Can we dig a little bit deeper into that?

Yes. The biggest impact that we've had over the last year has been the impact of the tariffs and in fairness, some pretty muted housing starts that just aren't responding yet on lumber and forest products. And that's some of our highest-margin business. So we've seen that business fall quite considerably. Same with steel and aluminum, when those tariffs got to 50% at 25%, we were still moving volumes across border. When they hit 50%, we're not. So Jan and team have been working very hard to get that steel into domestic markets. Aluminum has been going into -- more into export markets. Aluminum is now moving again, even at a 50% tariff rate across the border. But so the impact of these, so we get a reduction of the high-margin business, we backfilled it, but not always with the same level of margin business.

And so we said tariffs cost us about $350 million last year. But separate from that, it's the margin impact of it, just the mix impact of it. So those tariffs went on forest products, the highest tariffs went on, I think, Q3 last year. And so we continue to see the impact of that until we lap it fully into Q3.

Okay. I think on the positive side, though, you mentioned grain, but also domestic Intermodal, is that right?

Domestic Intermodal continues to grow, and this is largely on the backs of some really good service. We continue to pick up share. And it has grown, I think, in every quarter through last year. And as I looked at it this morning, it's continuing to grow. So that's really positive. The international intermodal volume grew last year. We are still seeing strength. I mean, the Gemini service up at Rupert has been a very strong outcome for us, and we're expecting that to continue. I like our network on international intermodal. The big question is where the tariffs go, how healthy is the underlying consumer and what that market looks like this year.

Okay. And on the pricing side, what's the environment like right now? Because I think with that mix, obviously, you backfill track maybe lower margin, but still getting positive traction on price?

We are. I mean I think we've got a strong track record on pricing outcomes. And Janet is out there, we stay very close to our customers. We want them to be successful. Pat and Jan work very closely together. We know exactly where our capacity is. We have opportunities to just put more business, more cars on the existing trains. We've got corridor capacity in every corridor. And so -- but our objective is, and we hit it every year, is that we will price stronger than inflation or rail cost inflation. So we work pretty hard to keep inflation down. This year, it will kind of fall under 3%, and we'll price above that. It's hard for it when you look at the rails particularly us to see exactly where the pricing lands. You've got the impact of fuel and FX -- you've got the carbon surcharge that's coming off, the carbon tax surcharge in Canada.

We've got 1 more quarter of that. We've got the mix issue, and you've got kind of one of the headwinds this year is VRCPI, which is the price change for the regulated grain in Canada came in a lot lower than it has in previous years. So there's a lot going on. But at the end of the day, we're going to pull more contribution home this year than we did last year.

Okay. And then longer-term, if the growth comes back, how do you think about the incremental earnings power of the company?

Oh, man, we're poised, right? So if you think about -- we've come through our big investment program, which means that we have capacity across the network. We've now got the Edson Sub, which is a pinch point between Jasper and between Edmonton and Jasper, we've got that 63% double-tracked. That was our big pinch point. We've got 6 or 7 more trains of idle capacity there that we can sell. So we've got capacity across the network. We're not finished investing. We're continuing to do that. We're getting leaner and more productive every year. So we got a lot of operating leverage. And we're nimble. We've got locomotives tucked away. We've got 800 or 900 people furloughed that we're staying very close to. We showed a great kind of ability to get those guys back on the property.

And so we're poised. And if I look at where our network is, the growth in energy that's coming, whether it's in NGLs, whether it's in refined fuels, the growth in the mining sectors, the potash, the coal, the metallurgical coal, the frac sand, the domestic intermodal growing. We've got the big growth story in egg. When it comes we'll have considerable operating leverage. You'll see that fall directly to the bottom line.

I mean without a lot of incremental variable cost then is the idea?

Yes, we will have -- we'll get the next tranche of volume with no incremental capital which is good because that was one of our issues is we had to build for the growth. And we've got operating capacity out there now. Our trains are longer than they were last year, but our merchandise trains still have capacity on them. And we've got the ability to start up new trains in every one of our corridors across the system. So we can turn very, very quickly.

Well, Tracy, we only have about a minute left here. I guess outside of us ending tariffs and [ kumbaya ], like what can CN drive this year?

We are really focused on controlling what we can control. So there is growth out there unrelated to tariffs. In energy and ag and some of the mining sector. Janet and her team have been very successful in both shifting share but also getting even the small wins, but they're leveraging all the prospects that we have out there. We are going to reduce our cost structure again this year, and we're going to use as much -- we're going to offset those headwinds that we discussed to the greatest extent possible. And you're going to see us do a bit of a reset this year, but we'll be talking to you next year as the volumes come back on considerable earnings leverage.

Great. Tracy, Well, thank you very much.

Thanks.

Good morning. My name is Krista, and I will be your operator today.

[Operator Instructions]

At this time, I would like to turn the call over to Stacy Alderson, Senior CN's Assistant Vice President of Investor Relations.

Ladies and gentlemen, Ms. Alderson.

Thank you, Krista. Welcome, everyone. Thank you for joining us for CN's Fourth Quarter and Full Year 2025 Financial and Operating Results Conference Call. Joining us on the call today are Tracy Robinson, our President and CEO; Pat Whitehead, our Chief Operations Officer; Janet Drysdale, our Chief Commercial Officer; and Ghislain Houle, our Chief Financial Officer.

You can turn to Page 2 of the presentation, which includes our forward-looking statements and non-GAAP definitions for your reference. These forward-looking statements reflect our current information and educated assumptions and include estimates, goals and expectations about the future. These involve risks and uncertainties, and actual results may differ from what we expect. As a reminder, forward-looking statements are not guarantees and factors such as economic conditions, competition, fuel prices and regulatory changes could impact actual outcomes.

It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Thanks, Stacy, and thank you all for joining us today. I'm pleased this morning to share our Q4 and full year results. 2025 was a year in which this team delivered strong performance against the backdrop of significant volatility in a challenging macro. The actions we took over the past year were proactive and exactly what the environment demanded. We've been disciplined. We've completed an important investment cycle. We've maintained a relentless focus on productivity improvement and increasingly on commercial intensity. And these actions drove our 2025 results. They helped us navigate a tough year and have set us up well for when volumes start to grow across the industry again.

Now on our last call, we made 3 commitments to ensure we deliver the type of returns we know CN is capable of. First was on performance. As Q4 demonstrates, we continue to intensify our commercial execution while maintaining strong disciplined network performance. Our focus is simple: concentrate on areas we can control and deliver through execution regardless of the macro backdrop. Our results today reflect this focus with improvement across all key operating measures.

Second, on financial discipline. We reset our capital program to reflect today's environment with concrete actions to reduce costs and improve productivity. These actions are strengthening free cash flow, and we remain committed to returning excess capital to shareholders while maintaining a strong balance sheet. And third, on guidance. Now given the elevated level of macro and policy uncertainty and limited visibility, we think it's appropriate to provide directional guidance tied closely to volume trends rather than precise targets that can change quickly or become outdated.

So let's turn to the fourth quarter. We closed the year with solid momentum, reflecting strong execution, reliable service and continued discipline on costs and assets. In the fourth quarter, we delivered 14% EPS growth and 7% for the full year, in line with our mid- to high single-digit guidance. I'm also pleased with our efficiency. In Q4, our operating ratio came in at 60.1%, our best quarterly operating ratio of the year and a 250 basis point improvement over last year.

For the full year, we posted a 61.7% operating ratio, improving 120 basis points versus 2024. On cash flow, we generated $3.3 billion, up 8%, driven by cash from operations. And we remain disciplined on capital spending continuing to tighten throughout the year. Cash flow remains a top priority and the actions we've taken continue to support a strong trajectory. Now volumes held up well through year-end, led by Grain and Intermodal. We set a number of records on Grain. And on Intermodal, we benefited from an easier comparison as we lap the ILWU strike in 2024. We saw notable strength in segments where our service and commercial execution have helped us drive share gains. Janet will walk you through the key revenue puts and takes in just a few minutes.

Across the network, we continue to make meaningful progress on operating performance and efficiency. In the fourth quarter, we saw improvement across all of our key operating measures. Car velocity improved, terminal dwell reduced, train and locomotive productivity increased, labor productivity strengthened materially, and we achieved a fourth quarter record in fuel efficiency. Now these gains reinforce my confidence in our ability to perform consistently even in a challenging demand environment. Pat will take you through the initiatives he and his team are driving to build on this momentum.

So to sum it up, despite tariff pressures that intensified in the second half of the year and ongoing trade uncertainty, we executed, we stayed disciplined and we delivered. Now looking to 2026, our focus will continue to be on disciplined execution. We'll prioritize the levers we control, stay close to our customers and stay grounded amid a volatile macro environment. As we look ahead, uncertainty remains high and visibility limited. Economic growth looks muted, and it's hard to call where the tariff situation will land or what it means for trade flows. The outcome of the USMCA review could influence trade and freight demand in ways that are tough to size up today. So against that backdrop, we believe a more directional framework for guidance tied to volume trends makes sense.

Given what we see today, our base case expectation is that volumes will be flattish with 2025. It's important to note that at this time, the most reasonable approach is to assume that current tariff levels stay where they are. So our base case expectations do not build in any upside or downside from further tariff actions. As the year unfolds and hopefully, visibility improves, we'll keep updating our view. And we're going to continue to pull every lever on productivity across the organization, and we will see incremental gains, although not as significant as those we achieved in 2025. We have some headwinds to work through in 2026 on mix and in some expense categories that Ghislain will take you through.

So on relatively flat volumes, we expect EPS growth to slightly exceed volume growth. Free cash flow will continue to grow in 2026, and we remain firmly committed to returning that cash back to our shareholders. We're also taking a deliberate temporary step-up in leverage to drive share repurchases, reflecting our confidence in the underlying earnings power of this business when volumes return. And as a team, we're staying locked in on delivering for shareholders in any environment.

Now we're building an engine with strong operating leverage, strong cash generation with resilience and with flexibility, one that will accelerate earnings and margins as volumes improve, whether through a better economic backdrop, clarity on a reasonable tariff arrangement or continued progress on Canadian trade diversification. And importantly, the muscles we have activated over the last 18 months around cost and productivity are now firing across CN. That gives us meaningful leverage as volumes return without requiring a significant step-up in capital, and our teams will continue to push hard for efficiency.

Now just a few words on the proposed industry consolidation. We know this is top of mind for many of you, and it certainly kept us busy as we work through the details. UP and NS filed their application and the STB, as we expected, deemed the filing incomplete. The industry still has a long road ahead in evaluating this transaction. It is not at all clear that the transaction as proposed addresses many of the questions around the negative impact on competition as well as the bigger issue of increasing rail competition. The concessions required to achieve this will be significant. This should be the focus as UP and NS prepare their refiling, and we're eager to see how they'll address these issues in their revised application. I'd say they've got a long way to go.

Now while this process plays out, the majority of our team remains focused exactly where they should be on running our business and driving value to our shareholders. The team is fully aligned on executing day-to-day, winning every carload, delivering safe and reliable service for our customers and continuing to convert strong execution into growing free cash flow. I am impressed with how decisively our team has stepped up, and you'll see this continue.

Longer term, our opportunity set as the railroad of the North is compelling. We sit at top an incredible natural resource base with enviable access to North American markets and an unparalleled port network that provides a path to every global market. This uniquely positions us to support customers in both our current markets and as trade flows evolve. And we're seeing to start this play out in some sectors now. The decisions we've made over the last 12 to 18 months, we will continue to refine, positions us with strong operating and earnings leverage as these volumes lift. And throughout, we'll stay disciplined on capital and focus on execution and free cash flow.

Pat, you're up.

Thanks, Tracy. I'll be speaking to Slide 6 first. The team delivered a strong fourth quarter, and I'm pleased that the 3 areas we are laser-focused on are paying off. These are: one, ensure our people are at their safest and most productive; two, delivering our promise to our customers; and three, to maximize margin by controlling unit costs and asset utilization. It starts where it always does for us, safety on the ground.

In Q4 and for the full year, we achieved the best injury frequency ratio in our history. That reflects consistent execution and is core to our performance this quarter and going forward. I want to first recognize our frontline teams who approach their craft as true professional railroaders. While this record is meaningful, our focus remains on every one of our CN family members going home safely every day. We want this for the families and the communities that count on us. That foundation allowed us to take on more work and deliver for our customers.

Our workload increased 5% year-over-year, above partly supported by our Grain customers. We carried record-setting Grain tonnage for Western Canada for 4 consecutive months while maintaining reliable service to our merchandise customers with local service commitment performance well above 90%.

From a network standpoint, Q4 tested resilience, particularly in December when winter operating conditions required shorter train lengths for the entire month. Despite this, car velocity improved 2% and dwell declined 1% year-over-year in the quarter. That tells us we're not trading service or velocity to manage disruptions. We're improving both. The takeaway from the quarter is straightforward. We handled more volume with discipline even under a full month of winter constraints.

Turning to the next slide. This is where the operating model shows up in the bottom line. On labor, T&E productivity improved 14% versus Q4 last year. We entered the quarter with approximately 800 furloughs and exited with about 650, selectively adding resources to support the Grain program and winter readiness. On a full year basis, we improved our T&E labor cost per GTM by 6% with GTMs up by 1%. That's more output with a smaller cost base. That same rigor shows up in how we manage our assets.

On locomotives, productivity improved 5% year-over-year in the quarter with roughly 10% of the fleet stored on average. Looking under the hood, locomotive availability reached an all-time high, nudging up 1% over 2024 to 92.5%, creating a knock-on effect that cleans up our balance sheet. The result was a $20 million reduction in our mechanical inventory or 14% fully year-over-year. We also achieved a record level of fuel efficiency in Q4, improving nearly 1% year-over-year with full year results just shy of our best performance on record.

On infrastructure, we completed all 8 capacity projects we committed to at the start of 2025 on time. Our engineering team maintained its tight control over installation costs, totaling nearly $40 million of productivity gains from 2024 while materially reducing reliance on contractors. Where conditions allowed, including an earlier onset of winter in some regions, we advanced productive capital work deeper into the season rather than defer it, improving asset readiness while reducing contractor spend significantly.

As we look to 2026, we're well positioned. The network, locomotive fleet and car fleet are in good shape, and we're not satisfied stopping there. To move from good to great, our focus is on precision. That means reducing yard dwell, eliminating non-value-added costs and ensuring cars spend less time waiting and more time earning. Yards are the anchors to the whole network. 3/4 of our traffic hit our major terminals and more than half of our staff work in these locations.

In engineering, we're continuing to strengthen in-house capabilities, control unit costs and remove engineering-related delays. Reducing yard dwell only matters if cars move over the road without disruption. Together, these levers expand margins, strengthen cash flow and allow the railroad to perform through any cycle. We see an opportunity to lower our operating expense in 2026 through our cross-functional terminal reviews and continued operating discipline with additional margin upside as volume growth.

With that, I'll turn it over to Janet.

Thanks, Pat, and good morning, everyone. Happy Friday. I am really pleased with the way the fourth quarter came together. We delivered 4% more RTMs and 3% more carloads, performance that reflects how hard the commercial team has been pushing on every opportunity, delivering 2% revenue growth in what remains a challenging market.

What stands out for me this quarter is not just the growth itself, but how we achieved it. The team has been out in the market every day, winning share, capturing singles and doubles and staying relentlessly focused on what it takes for our customers to win. And while we did benefit from a relatively easier year-over-year comp, that tailwind was partly offset by continued softness in key markets like forest products and metals, which remain pressured by weak fundamentals and tariffs. So yes, we expected to outperform last year, but we also had real gaps to backfill. I'm really proud of the results the team has delivered.

Turning to Slide 9. I'll provide a few highlights on the quarter before moving to the 2026 outlook. Within Intermodal, both international and domestic revenues were up 13% and 6%, respectively. International was notably strong at Vancouver and Rupert, aided by a favorable comparison against last year's port labor disruption. Prince Rupert also benefited from gains related to the new Gemini service. On the domestic side, we continue to realize service-related gains.

Turning to Grain. We had very strong demand in the quarter, and our operating team did a great job in getting the Grain from the elevators to the terminals. So not only did we set an all-time annual record in 2025 for Western Canadian Grain shipments, we had monthly records in October, November and December. Within Petroleum & Chemicals, we saw growth in all segments, led by a 9% increase in natural gas liquids volumes, driven by strong domestic demand and continued export strength through Prince Rupert. Forest products remained under pressure due to weak demand and increased tariffs and duties.

Within Metals and Minerals, we saw lower iron ore shipments driven by weak fundamentals, the mine closure in late Q1 of last year and some unplanned outages. With persistently high natural gas inventories in Canada, we also had a slowdown in drilling, which impacted frac sand. We continue to generate same-store price ahead of our rail cost inflation. However, our overall results reflected negative mix and a roughly $70 million headwind related to the repeal of the Canadian carbon tax. We had a fuel tailwind and an FX headwind that combined were a net impact of less than 1%. Tariffs, trade uncertainty and volatility impacted our full year 2025 revenues by over $350 million.

Turning to the 2026 outlook on Slide 10. In terms of the macro environment, it doesn't look like it's going to be any better than last year. And recall that 2025 growth was helped by a favorable year-over-year comp. So we know we've got real work ahead of us, but we are leaning in hard.

So starting with Petroleum & Chemicals, we expect to see positive momentum continue across multiple segments. We will benefit from a number of CN-specific projects, including Phase 2 of the Greater Toronto Area fuel terminal, new fractionators and crude oil expansion projects. Additionally, we expect a year-over-year comp benefit given last year's extended refinery turnarounds, which we don't expect to reoccur. We anticipate Canadian U.S. Grain to remain strong, particularly with the record Canadian crop as well as the recently announced improving trade conditions for Canadian canola.

In terms of potash, we expect some pressure in the domestic market as farmers balance input costs against lower Grain prices. With respect to export markets, we handled some spot moves in Q2 and Q3 last year, which we generally don't expect to be reoccurring. So we have a bit of a tougher comp there.

Turning to Intermodal. In domestic, we're continuing to leverage our strong service to drive growth. For international, it's pretty slow right now, and we expect that to continue into the second quarter. We continue to be very pleased with the growth in volumes related to the Gemini service through Prince Rupert.

Within Metals & Minerals, we have some pluses and minuses. Weak fundamentals for iron ore are expected to continue, and we're still dealing with the tariffs on steel and aluminum. On steel, we are continuing to hustle hard on mitigating the transborder headwinds with opportunities in for Canada. Frac sand demand is unusually weak so far in Q1, but we have new terminals coming online and capacity for NGL exports is increasing, so we do expect improvement as the year progresses. The auto segment is expected to be flat.

Forest products will continue to be challenged as U.S. housing starts are forecast to be flat and Canadian producers manage with the full year impact of the higher tariffs and duties that were applied in August and October of 2025. We expect persistent weak demand for U.S. exports of thermal coal. For Canadian coal, positive metallurgical coal prices are driving increased production. All in, we expect 2026 volumes to be more or less flat versus last year. Q1 will be the toughest quarter on a year-over-year comparable, and you're seeing that in our January volumes. We continue to price ahead of our rail cost inflation. Unfortunately, we do expect those mix headwinds to persist, driven by the ongoing weakness in forest products and metals.

So let me wrap up. We are open eyed about the difficult environment in which we're operating, but we have a commercial team that is highly energized and moving with urgency and agility. We have available capacity, and most importantly, we're providing the service that our customers need to win.

Ghislain, over to you.

[Foreign Language] Starting on Slide 12, we closed the year on a strong note. Thanks to the dedication of our commercial and operations team, we delivered solid performance across the board. Our financial results were further boosted by our continued focus on managing costs and driving productivity, and we remain active on share buybacks as part of our commitment to creating shareholder value, especially since we see our shares as undervalued relative to intrinsic value and an efficient way to return capital to shareholders.

During the quarter, reported diluted EPS grew 12% year-over-year, while adjusted EPS was up 14%. These results reflect 2 notable adjustments: a $34 million pretax charge tied to the workforce reduction program we discussed on our Q3 call and a $15 million in adviser fees related to industry consolidation.

We're very proud of the progress on efficiency this quarter. Operating ratio improved by 140 basis points to 61.2%. And on an adjusted basis, it even was stronger at 60.1%, a 250 basis point improvement. This reflects the hard work and discipline across the organization in managing expenses and driving productivity. Revenues were up 2% year-over-year, adding to the solid finish for the year.

On Slide 13, let me walk you through a few key operating expense categories for the quarter on an exchange-adjusted basis. Labor costs were up 4% versus last year due to the workforce reduction charge and wage inflation, partly offset by 4% lower average headcount and higher capital credits from an extended construction season. Fuel expense was down 9% compared to last year, driven by 2 factors: the removal of the Canadian federal carbon tax and a 1% improvement in fuel efficiency. Overall, the impact of fuel prices on Q4 earnings and operating ratio was negligible, essentially flat for earnings and 20 basis points unfavorable to OR.

Depreciation was down 7%, mainly due to 2 items: the benefit of a favorable depreciation study, which we do on a regular basis and the impact from certain assets recognized through purchase price allocations that became fully depreciated during the year. Other expenses rose 27%, mainly due to higher legal provisions, including a nonrecurring $34 million accrual related to an unfavorable court ruling in the fourth quarter of 2025, which we are in the process of appealing. The increase in legal provision is essentially offset by a $36 million gain on the sale of a portion of a branch line reported below the line in other income. The effective tax rate for the quarter was around 25%.

Turning to Slide 14. Given the strong close to the year with earnings supported by strong cost management across the business, we delivered full year adjusted diluted EPS of $7.63, up 7% from 2024 and at the high end of our guidance range. Our adjusted operating ratio came in at 61.7%, an improvement of 120 basis points compared to last year, a clear reflection of disciplined execution across the business. Finally, we remain focused on free cash flow generation, ending the year at over $3.3 billion, up 8% from last year. We also finished the year $50 million below our Q3 capital projection, thanks to stronger capital discipline and real efficiency gains in engineering.

We continue to lean into our share buyback program in Q4, repurchasing nearly 15 million shares in 2025 for around $2 billion, reinforcing our commitment to creating long-term shareholder value. I'm also pleased to report our Board of Directors has approved a 3% increase in CN's dividend, marking the 30th consecutive year of dividend growth, an important milestone and a reflection of our confidence in the durability of our cash generation profile. In addition, the Board has authorized a new share buyback program allowing the repurchase of up to 24 million common shares from February 4, 2026 to February 3, 2027.

Looking ahead, we expect our debt leverage to increase temporarily to roughly 2.7x and then come back to 2.5x in 2027 as we take advantage of what we view as an attractive share price. The modest increase is intentional and fully aligned with our disciplined balance sheet strategy.

Now let me turn to our 2026 financial outlook on Slide 15. As Tracy mentioned, given the uncertainty in the environment, we think a more directional approach is the right way to frame the year. For planning purposes, we're assuming revenue ton miles will be flattish with 2025 and importantly, that tariffs stay at their current levels throughout the year. On that basis, we expect EPS to grow at a rate slightly ahead of volumes. Pricing should continue to outpace rail cost inflation, and we're carrying a good momentum on the productivity side, recognizing that much of the heavy lifting on efficiency was done in 2025.

That said, we do have some notable headwinds this year, which will weigh on margins, a continued unfavorable mix with less forest products and metal traffic, lower capital credits related to fixed overhead costs as a result of smaller capital program, a higher effective tax rate in the range of 25% to 26% and the fact that we're lapping last year's other income gains. In our modeling and guidance, we've neutralized foreign exchange, assuming the 2025 average rate of $0.715. Our FX sensitivity is unchanged at roughly $0.05 of EPS for every penny move. At current spot levels, that would represent about a $0.10 EPS headwind. With CapEx set at $2.8 billion for 2026, a $500 million reduction versus last year, we expect to see continued improvement in our cash conversion rate.

In conclusion, let me reiterate a few points. We're very pleased with our Q4 and full year 2025 results, having delivered on our EPS guidance and build strong momentum heading into 2026. While the demand environment remains uncertain, our guidance approach is grounded in discipline and realism. At the same time, the fundamentals of our business remain solid. Our focus on pricing discipline, productivity and cost control, combined with the inherent operating leverage in our model positions us well to generate attractive returns when volumes return. As conditions evolve, the framework gives investors greater transparency into the sensitivity of earnings while underscoring our confidence in the durability of our cash generation and long-term value creation.

With that, let me turn it back to Tracy.

Thanks, Ghis. Krista, we'll go to questions.

[Operator Instructions] The first question comes from Cherilyn Radbourne with TD Cowen.

Janet, I wanted to turn to you to just ask you if you could give some additional color on where your team is beating the bushes and whether there's any update on the incremental revenue target that was given in Q3. I think you generated $35 million in Q3 and we're approaching $100 million in Q4.

Yes, for sure. Thanks, Cherilyn, for the question. So we did kind of close with $100 million. Of course, that pipeline continues to develop, and we probably have another $100 million so far kind of in our scorecard that we're keeping track of in January. What I will say is that this is what's helping us to close the gaps in some of the weaker markets. So we do have seen forest products continue to deteriorate even since last quarter with some additional mill closures or curtailments, and we see the continued weakness in the metals and minerals side.

So we are out there beating the bushes everywhere, I would say, across the board and even in the markets that are a little bit more pressured by the tariffs. For example, we are finding some stickiness and some new moves to ship metals from Central Canada to Western Canada. We actually have some optimism more recently around aluminum and the potential to move some of that back into the U.S. now that inventories are depleted, that's helping us there. I would say the service is an important one I want to call out that's been helping us win on the domestic Intermodal side. And we're leveraging the strength of our franchise in Western Canada around the NGLs and the frac sand, a little weak right now, but we do see that coming back. So hopefully, that answers your question.

Your next question comes from the line of Scott Group with Wolfe Research.

Ghislain, can you just clarify first if the depreciation is a onetime thing or if that's a new run rate? And then, Tracy, I just have a bigger picture question. If I think over a long period of time, the beauty of rails was the ability for earnings to decouple from volume and right, rails could grow earnings even with negative volume, right, because they have pricing and productivity and buyback. And I'm guessing you'd say you slow pricing and productivity and buyback, but I'm guessing I'm hearing a message of like volumes aren't growing, so earnings aren't really growing. Like is the historical sort of algorithm sort of broken? Or is this sort of -- we've got some unique headwinds? I just want to sort of really understand like the big picture message here.

Yes. Thanks, Scott, for the question. Let me answer the depreciation question first, and then we'll turn it over to Tracy. So when you look at the total variance of depreciation, it's composed of 2 things. One, the favorable result of depreciation study. And as you know, we do these on a regular basis, and we try to push the use of our assets and the life of our assets as far as we can. So that is about 1/4 of the variance. And then 3/4 of it is, in fact, we overdepreciated the purchase price allocation of some of the acquisitions that we've done in the past, and we discovered this in Q4, and we corrected it. That's about 3/4 of the variance.

Maybe to you, Tracy, on the second piece.

Scott, so interesting question. So I would say that it's not decoupling. There's some unique things that are going on right now. If you think about the unusual impact of the tariff situation, particularly the tariff situation between Canada and the United States and the outsized impact that's had on a couple of our sectors, Janet has gone through them on forest products and on metals. That could correct itself over time. But right now, we're looking at pretty significant mix headwinds, which wouldn't be normally something you'd see.

The other thing is as we look at how the economies are moving, we're getting some extraordinary movements in things like FX and the underlying assumptions. So that's something that we deal with, of course, more than most of our peers. And so those are moving around. So here's what we are doing. We're using this time of a quieter macro and while the tariff situation gets worked out to get pretty fit. We're getting leaner. We're focusing on structural cost reduction. This creates that operating leverage that you're talking about, and it will be considerable, but it will be operating leverage on -- and earnings leverage. And so as I look at our network and our opportunities going forward, it's pretty compelling. We sit on top, as I said, of a pretty strong natural resource base, continuing to develop. It's across ag, it's across mining, it's across the energy sectors across some of the industrial sector. And these are commodities that the world needs.

We've got a pretty privileged position in the routes into the North American markets. We've got an unparalleled path to ports that access all of the global markets. And so we're positioned pretty well, whether it's at the exports or whether it's the import of consumer goods to North America. So these opportunities, we've seen them start, and we expect them to continue to accelerate. We've got capacity. We've done the investments in our network. So we're getting really fit. We've got considerable leverage. And as you see the tariff situation normalize, hopefully, that will happen this year, we'll see. You're going to see us -- you're going to see that leverage start to manifest. So we're pretty excited about that.

Your next question comes from the line of Fadi Chamoun with BMO Capital Markets.

Janet, is mix in '26 kind of flat versus last year, worse or slightly better? Just want some clarification on that. And the question I have is, so when you look at the outlook over the next, whatever, year or 2 or even 3, where do you see CN having differentiated opportunities to grow volume, to grow the business? What segment or what market do you feel that you have an opportunity to be differentiated versus the economy and kind of compared to the market?

Thanks, Fadi, for the question. So let me start with mix. And I want to take a minute to remind everyone, there's kind of 2 aspects to mix. There's the enterprise level where you see volumes move around, let's say, between Forest products, Intermodal, Metals and Minerals, but there's also mix within each segment. So for example, if we look at forest products and we think about lumber, even within that segment, we may be skewing more to shorter haul moves than longer haul moves just as some of the geography changes occur related to the tariff impact.

So in terms of thinking about the '26 versus '25 and '25 versus '24, right now, it's looking to be about the same level of impact. I think that's how I would quantify it. But again, we're kind of forecasting on a forecast and at a more detailed level. So you're going to see some of that come through as you follow the weekly volumes and where they show up. In terms of where I think we have a great opportunity to differentiate ourselves going forward is really the northern nature of our franchise, the exposure that we have to Canada's natural resource base and the overall Canadian focus on diversifying trade and getting our products to new markets.

I would call out, in particular, the BC North, which is just a tremendous region for us, including the Montney Shale, which has one of the largest unconventional reserves. So that's great for us from 2 perspectives. It's the natural gas liquids exports and it's the frac sand as an input. I would call out on a longer-term trend, our exposure to Canadian Grain and the yields that we're seeing improve there in the canola crushers, and I would particularly do that now in the context of some of the trade resolutions that we've seen with China.

As we think about 2027, I like our exposure as well to potash. And I would say the -- just natural resources as these progress, things like critical minerals, I think that Canada has a lot of in just finding new markets. So there's a lot to be optimistic, Fadi, I would say, as we start to think about how we get into '27 and beyond.

Your next question comes from the line of Chris Wetherbee with Wells Fargo.

Maybe a question on the guidance as we sort of understand it. It seems like volumes may be a little bit more back half weighted. It seems like FX is maybe a little bit more of a headwind in the first half. So it's kind of the way to think about it, maybe down earnings in the first half, potentially higher earnings in the second half kind of gets you that little bit of a premium. I guess maybe the buyback could be something that we need to consider in there, too, but just maybe a little bit of help with the shape of 2026.

Chris, I think you've got the contour of the year pretty good. It will be a softer front end given the compare last year and what we're seeing with Janet went over on some of the volumes. We did have some onetime benefits from our cost reduction efforts last year in the first quarter. So you're going to see that lighter and it will continue to improve over the course of the year.

Ghis, anything to add?

Yes. On buyback, Chris, absolutely. As you know, we're temporarily going to increase our leverage from 2.5x to 2.7x. We want to take advantage of the cheap share price. We're going to try to front-load that as much as we can. And then we plan on going back to 2.5x leverage in 2027.

Your next question comes from the line of Walter Spracklin with RBC Capital Markets.

Back to you, Janet, on volume. When I look at your 2026 outlook slide, I'm seeing petroleum and chemicals up. You've got U.S. Grain up, you've got Canadian Grain up, you've got domestic Intermodal up. Those are big segments. The ones you have down is just forestry and fertilizers, so not quite as big. So when I eyeball that slide, it feels like 2026 volumes are more up-ish rather than flattish. So just curious if you could -- is there something I'm missing there and maybe flag some of your strongest upside, downside declines?

And you could also -- is Prince Rupert, would you say that's still -- is that running at the 10% run rate that you were hoping for there when you had us up the last time?

Okay. So I mean, there is some art involved in the slide, obviously, Walter, but I appreciate your question. We see the greatest strength in ag and energy. So these are the 2 that I would call out. And on the energy side, it's really the petroleum and chemicals, and going kind of one level deeper, it's the NGLs, the refined petroleum products. And hopefully, towards the end of the year, we see some incremental crude come on as well. Now some of that growth depends, of course, on our customers and some of them are ramping up. And so you always want to be a little bit careful about how aggressively you forecast somebody else's ramp-up. So I would say that about the business.

In terms of where things are expected to be weaker, I'm going to still call out the forest products as well as the metals and Intermodal. I think this one is a bit tough to call right now, and it really depends on the health of the consumer. I am pleased with the resiliency of the consumer, particularly on the U.S. side that we've seen so far. But the tariff situation has made that segment a little hard to predict, and we've kind of gone through these boom and bust cycles. So about some question marks around that.

Really pleased with Prince Rupert. And really pleased with the growth that we're seeing there in terms of the Gemini volumes, in terms of the overall performance. And I'm really excited as well now that I have the mic, I'll take a few more minutes just to talk about a few other things that we see on the horizon, especially for those that had the chance to visit Prince Rupert last year.

The can export facility is continuing to ramp up. So you'll remember that, that's really an innovative large-scale export transloading facility where we have the opportunity to do different types of commodities, be it Grain, be it plastics. And that expansion is really expected to take hold late this year, maybe a little bit into 2027.

We didn't get time to spend while we were up at Rupert around IntermodeX, but I want to call that one out as well. So that's really import transloading, and that gives shippers the ability to consolidate and mix ocean containers into 53-foot domestic units. So both of these are examples of how we're continuing to invest in the end-to-end supply chain and our Intermodal ecosystem at Prince Rupert. So again, I see a lot of optimism on the horizon around that if we can get past some of the near-term macro issues.

Your next question comes from the line of Brian Ossenbeck with JPMorgan.

Tracy, in terms of looking at the last couple of years, you highlighted a bunch of the headwinds that the business has experienced, but we've still gone from double-digit earnings growth to mid-single, now flattish, clearly excluding the headwind on FX, which will be volatile. So just wanted to understand maybe a little bit more in terms of what you think has changed or maybe not changed from the underlying earnings power in the business. And also wondering, is this a time where you need to spend a little bit more on CapEx through the cycle? I know it's coming down this year, but I think most of that's on equipment and other things like that. So maybe just some comments on the earnings power and the underlying investment you think you need to be there.

Thanks for the question. So as we look at what we've been doing over the last year and the last couple of years, you've seen us invest in the network. We had some really kind of important pinch points. If we think about what our portfolio base, what our commodity base is going to look like going forward. We've got the Edson Sub now 63% double track. We've added considerable capacity to the Vancouver corridor. We've got work going on at the Prince Rupert. We did a very high-return project around the EJ&E. So we've got our network set up now for the -- what we see happening and what Janet has laid out over time. That's been an important part of us getting set up for the future.

And as you mentioned, we've done a lot of work on the locomotive fleet. We've gone from the oldest locomotive fleet in the industry to middle of the pack pad. And we'll continue to work a little bit on that over the time, and we've got most of our railcar fleets where we need them. So we're poised. Part 2 of that has been really taking a look at structural costs. And over the past 18 months, we have run really hard at structural cost reduction. And we've found along the way one-offs and just in-year cost reduction. We're always looking for those as well.

And so the engine -- our underlying margin engine is healthier this year than it was last year, and it's going to be healthier next year. So we are right now under the weight of a pretty substantial mix impact and the tariff impact, which I'm hoping will normalize a little bit as we get through the USMCA review over the course of what I hope will be the next year.

So I think we're poised. We're exactly where we want to be. We have a Western network that is very attractive from the perspective of exports in the global markets and imports out of Asia. We've got an ag sector that's incredibly strong and growing. The mining that Janet talked about is set to continue to grow as we go forward. So I like where we are. We sit at top an incredible resource base that's going to continue to develop. Thanks for your question.

Your next question comes from the line of Konark Gupta with Scotiabank.

Just a quick clarification before I ask my question. On the EPS, I don't think you guys touched upon the pension, if there's any nuance there? And just are you expecting the buybacks to be net accretive to EPS or not? And my question on free cash, actually, you talked about conversion being higher. If you look at the '25, I think the conversion on net income was about 70%. And if you just add on the $500 million CapEx reduction, that gets you to 80%. Is there anything else we should be thinking about on free cash conversion in '26?

So thanks, Konark. On pension, just in 2025, pension was -- versus 2024 was a tailwind of about $60 million. If discount rates and interest rates remain where they are, pension will be a tailwind of $40 million in 2026 versus 2025. On share buyback, if you look at it versus after financing costs and where interest rates are, it's very slightly accretive to earnings, not a whole lot.

On the free cash flow conversion, we expect it with the reduction of capital, obviously, to improve. If you look at free cash flow conversion in 2025, it was 70%, so we'll improve on that. You've got to take into consideration when you look at cash that we have a sizable cash tax payment on a year-over-year basis in '26 versus 2025 because -- and this is the reason why our effective tax rate is actually increasing is because in our modeling, we expect more profits to be taxed in Canada at a slightly higher tax rate than it is in the U.S. So when you put all of this together, it reconciles to the numbers that you're coming up with.

Your next question comes from the line of Ken Hoexter with Bank of America.

Great job on the OR for the quarter, looking for more next year. I guess, Tracy, let me get you back on your soapbox on the merger, right? You mentioned you're spending millions into the process. You target significant concessions you said. Can you talk about what that means? Like is that protecting sustained access? Is it a dollar amount? I just want to understand when you say significant, what does that mean? And then same thing for USMCA. Just big picture, if you're going to go in negotiations, what is the risk here? Or what is the benefits that you see come out of this? Or is the base case that it's just renewed and things stay the same?

Thanks, Ken. That's a couple of big questions. So first on the merger, listen, we are a very strong proponent of competition. And as we look at this application, we have great concerns and a lot of questions around how it does what it's supposed to do, including when it comes to the standard of increasing rail competition, which is a pretty big bar. And in our view, falls considerably short. It portrays the merger as a complete end-to-end in spite of obvious areas of overlap. They didn't use all the data. They didn't give us the projected market share of the new entity and therefore, how big it would be and the potential harm that would come from market power. So these are only examples that they suggest the gap in assessment of harm.

And as importantly, I think it failed to propose conditions that would adequately preserve competition and it said nothing on how it was going to enhance competition, save an open gateway model that I think has been proven not to work and a gateway commitment that applies to, by our assessment, just a very small fraction of the impacted traffic and not at all the Canadian railways. And it expires with the merged entity. And of course, its impacts are permanent.

So should this proceed, I think there needs to be a lot more data and information. There's a lot more we all need to know. And that will lead us to more information on the impact to the shippers across the network. And what I believe is a much more substantive portfolio of concessions to mitigate those impacts if we are held to the STB new rules. So as we look at it from a CN perspective, and we've run a number of scenarios, as you would expect. And based on the information that we have and what we think their intent is, which we need a lot more on that, there will be an impact to competitive access for our customers and for our business.

Now our assessment would suggest that the impact on CN will be less than that of the other roads, but it won't be 0. And so if this merger is to proceed, we intend to rigorously pursue concessions that will protect and improve competition. And that means protecting the interest of our customers and our network and the competitive integrity of our network as we think about it. And we believe that there's opportunities if this is done properly for us -- for our network, for our operations to play a bigger role, an extended role in providing options to our customers in the regions that are going to have that negatively be impacted by the merger. So we think our network can be very helpful there. So they've got a lot of work to do.

I'm interested in seeing what they come forward with and how they will step into this question of how they will not only offset the competitive impact, but also increase competition. It's going to be really interesting. We're ready. Our response will be informed by their next reveal and which I understand we will expect before too very long, but we're not getting ahead of them. In the meantime, the rest of the organization is focused on running the day-to-day business, which is equally important.

The second question around the USMCA. This is -- right now, as you know, we've seen the impact. There are certain sectors that have been impacted. And some of them like Forest Products, quite significantly impacted. And we're continuing to work. Janet and team are working very closely with all of our customers in those sectors to try to get their goods into alternative markets. We've had some success on that.

As we look forward, it's very difficult to say. Maybe you have a better view, but it's very difficult to say how this will work out. As I read the papers every day, I expect it's going to be bumpy. And there is a prescribed time line. July is an important month on the review of the USMCA. At the end of the day, as saner heads kind of prevail, we know the -- I think we all understand the importance of the relationship between these 3 countries and how much we depend upon each other. And I'm hopeful for a productive agreement.

And now what that means is, I mean, the most important -- the biggest risk around the USMCA is uncertainty. There's investment that's sitting on the sidelines and our customers included, wondering under what rules they'll be investing in the future and whether they should do that. And I think that as we get an agreement, if it brings the kind of uncertainty that we all need, then that is an important first step. There is an opportunity for some mitigation on those sectors, so a reduction of impact on those sectors that have been impacted, forest products, steel and others. And then, of course, there's always the risk that there are certain other sectors that will have to deal with the level of tariffs.

And depending on what those levels are and which sectors they are, we are working with all of our industries, all of our customers to understand the range of options that they look at. And so it's going to be a busy year from that perspective. I'm not equipped to tell you what to expect on where it will land. I think the good news is, is that we'll have folks at the table this year and hopefully come up with an agreement.

Your next question comes from the line of David Vernon with Bernstein.

So Janet, maybe I wonder if you can help us kind of how big of an impact this tariff stuff has had on overall RTM. It sounds like the Western Canadian stuff has been growing. It's just been offset by the tariff losses. I'm just trying to figure out like if you were to look at '24 to the end of your year plan at '26, like how much of your business has kind of come off purely because of tariffs? I think it would be helpful to just understand kind of what the relative weight of the changes in the trade regime has had on your business.

Thanks, David, for the question. So I don't have the volume numbers at my fingertips, but what I did say in the remarks is that for 2025, the tariff impact was in excess of $350 million. And the IR team can kind of help you with that after the quarter just to kind of translate that back to volumes. Obviously, it's been most impactful, as we've said, in Forest Products and Metals and Minerals.

Feeling very popular today with the questions. I think the next question should go to Pat for anyone who's listening out there.

And hopefully, it's going to be a tough one.

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Maybe this is for Janet or Ghislain. I know you've changed your guiding philosophy, like you said last quarter. But when you look at the delta between your guide and your peers, particularly your direct peer, based on what you can see so far, kind of is that all down to your new approach to guiding? Or is there something idiosyncratically different with your end market approach or your comps relative to others this year?

I'm going to start off with that, Ravi. Listen, we did a lot of thinking around guidance, and we've seen over the last number of years in what is a very volatile kind of environment, a number of peers and including us that have had to change guidance, withdraw guidance or just miss guidance. And so that's not a very productive way to engage with you guys or a way to engage with our business. So we think that this is the right model for right now with this level of uncertainty. Next year, if we're in a different position, we will look at maybe something more precise.

But as we look forward, we think that this is -- given the unique volatility that we're facing around the tariffs, the tariff impact that Janet has gone through, the currency and how it's moving this year in particular, we think this is the right way to go. If we look -- if you're talking about us and our Canadian peer, I would say that over time, as our networks and our business have evolved, we would have more exposure to Canada than I expect they would. They'll suffer, I'm sure, as we have, and I think they mentioned it on their call as well, the impact on tariffs.

Ghis, do you have anything to add?

Yes. Maybe gave a little bit of visibility on some of the one-timers that I talked about in my prepared remarks. So obviously, having a smaller capital envelope, it impacts capital credits. And I would -- it's sizable. I would quantify it to be in the range of about $100 million. That will be mostly in labor and fringe benefits and a little bit in P&SM as well.

When you look at other income, we have about close to $100 million in 2025. Now we always have some other income, but we don't believe that it will be probably as high in 2026 that it is in 2025. And as I said, our effective tax rate is increasing. We finished in 2025 at 24.7%. We're giving a range of 25% to 26%. To quantify this, I think it's close to $100 million. So these are sizable headwinds that we have to work to try to offset as much as possible in being more productive and being more efficient, which we have been tremendously in 2025. We did a heavy load over there, and we're still going to be -- we're still going to turn all the rocks in 2026 to try to offset as much of these headwinds that we had in 2026.

Your next question comes from the line of Stephanie Moore with Jefferies.

I wanted to maybe go back to the consolidation in the space. You did mention about $15 million in advisory fees associated with the industry consolidation. Can you provide a bit more color on maybe what drove the decision to bring in external advisers and what areas are helping you to evaluate, including the evaluation of potential further consolidation options?

Listen, yes, thank you for that question. Listen, this is a big deal. It's an industry-changing deal, and I think it inherent upon all of us who are going to participate that we understand the detail and there is a great level of detail that we're going to be looking at on how this is going to impact the industry. So I think where I would expect most or all of us to bring in experts let's make sure that we do that, and we do that in a way that isn't disrupting how we run the day-to-day business, right? Most, if not nearly all of this organization needs to be focused on delivering for our customers every day. On Pat, there he goes delivering the next level of cost reduction, Janet on growth. And so we have important and trusted advisers that we bring to bear on this.

And I would say that this is clearly nonrecurring, and it's not reflective of our operating performance, and this is why we have non-GAAP the amount. We're being very conservative on this stuff and very intentional. And this is the reason why we have non-GAAP it.

Your next question comes from the line of Benoit Poirier with Desjardins.

I understand 2026 will be impacted by mix, tax, other income and FX. Ghislain, you provided great granularity for 2026. But looking beyond 2026, let's say, 2027 under a normal environment with stabilized mix FX environment, what kind of volume growth would you need in order to generate double-digit EPS growth? And I'm sure you already ran lots of scenario, but I would be curious to see what kind of volume growth you need in order to generate double-digit EPS growth under a more stabilized environment.

Benoit, listen, here's maybe the way to think about it. We are continuing to build a more efficient and lean engine, which is very good. That gives us great operating leverage. And as we go forward, the real catalyst for realizing that leverage is volume growth, as you know. And it always depends on which volume growth and where in the network it is. But in general, I would suggest that if you think about mid-single-digit volume growth with the cost structure that we've built and are continuing to build, you can see us generate double-digit EPS.

Your next question comes from the line of Steve Hansen with Raymond James.

I just want to come back to the contour aspect of your guidance, if I might. Is it possible that the belly of the year might not be stronger than the back half specifically? I'm just cognizant of the fact that I think petchem, coal, met min all got beat up last year through 2Q, 3Q on some onetime issues, either at the customer at the mine site level. And then we've got a record Grain carrier, harvest carry over here that should benefit those same quarters, all while we're looking at a comp in Q4 that's the record Grain movers, I think you articulated in your comments. I'm just trying to understand that contour side a little bit better and whether or not we have a better opportunity in the middle part of the year.

Yes. I think that's probably a great way to think about it. There's 2 pieces of it, of course. One is how the volume showed up last year, and I think you've got that right. We did also have the refinery shutdowns and what was it Q2, Q3, Janet. The other side of it, of course, is the cost and our efforts on cost and when some of those appeared over the course of the year, and that is a little lumpier, although a bunch of that was early on in the year. So I would say that the way you've constructed that is pretty good. So we'll go with that.

Your next question comes from the line of Kevin Chiang with CIBC.

Maybe I will throw this one to Pat there. Janet laid out some of these unique opportunities. We talked about these Canadian nation building projects. It seems like a lot of it hits your Western network. And when I think back to the Investor Day a few years ago, it felt like a focus was creating a more balanced network, but this growth pipeline might actually exacerbate that imbalance. Just wondering how you think about the long-term capacity investments you might need to make on that part of your network? Or do you feel you have excess capacity now to absorb this growth?

Kevin, I think Janet coerced you into the question by way, great question. Thank you for that.

I would say this, the investments that we made in 2025 in the West, particularly, as Tracy pointed out, the Edson Sub being now 63% double track previously at around 40% has created about, we would call it, 6 trains of capacity in that corridor. So we have plenty of room to grow. We have locomotives that are stored. We have -- today, we're almost at 800 furloughed employees. So we have levers to pull as volume shows up. And I would say that as it relates to balancing, we do a lot of work around balancing each of the corridors. So I feel good about our ability to grow. The capacity is there. The locomotive fleet is more reliable than ever, and we feel very good about our ability to grow in that corridor.

And I would just add, we're going to take the growth where it comes, and we're going to figure out how to handle it. I think you have to appreciate as well that some of the weakness in forest products will actually help create some capacity in the Western region for other commodities as well. So Pat and I stay very closely connected on thinking about where the volumes are going to come online and how we're going to handle them.

Your final question today comes from the line of Jonathan Chappell with Evercore ISI.

Ghislain, further to Scott's question, you gave a good explanation to what happened to D&A in the fourth quarter. But as we think about that going forward, if we took the fourth quarter run rate, annualize that, put 4% inflation on it, you'd be looking at a D&A number that's down $40 million year-over-year. So I want to make sure we're thinking about that from the right starting point. And then also just overall inflation, you mentioned that $100 million potentially in the comp and ben line with some purchase services. What's the comp per employee look like under that scenario?

Okay. Well, depreciation, Jonathan, depreciation on a year-over-year basis, if you look in the past, it's always been about a headwind of about $100 million. It's still going to be a headwind between 2026 and 2025, but it's going to be smaller, call it, half of it going forward because we'll have the full year effect of the depreciation study impacting 2026. So that's going to help a little bit. That's your first piece of the question. In terms of inflation, when you put the all-in rail inflation, I think that it's smaller, it's lower -- slightly lower than 3%. And then comp per employee is -- when you look at comp per employee in Q4, it was about 7%, and it's going to be in the mid-single-digit range for 2026. I hope that answers your question.

This concludes the question-and-answer session. I would now like to turn the call back over to Tracy Robinson.

Thanks, Christian. Now just before we conclude today, I've got one more piece of important news. Today was the last call for our Head of Investor Relations, Stacy Alderson. Stacy has elected to retire on May 1. So as you all know her, she's had an exceptional 30-year career here at CN, defined by leadership, integrity, lasting impact, and she's touched many parts of our business over those years, strategic planning, acquisitions, network development, financial planning. She's done it all, Stacy. And of course, our relationships with all of you. We see your fingerprints on this organization everywhere. Stacy, we're going to miss you, but we're very happy for you and happy for your family on the next chapter. Thank you.

So we're not leaving the job open. I'm pleased to announce the appointment of Jamie Lockwood as Vice President, Investor Relations and Special Projects. Now Jamie is back in Montreal. He brings about 18 years of deep railroad experience. He's got a strong perspective. He's spanned finance, internal audit, supply chain and most recently, a big kind of job in engineering where with Pat, he's been leading the transformation of our engineering strategy and execution. Jamie, we're happy to have you back here in Montreal, and I know all of you will enjoy working with them. So Stacy and Jamie will work closely together over the next month or so just to ensure a smooth transition. I know you'll join me in congratulating both of them.

And then just finally, I want to take the opportunity to thank the entire CN team for all of your contributions, your focus, your resilience all over the last year and in the year coming. Railroading isn't an easy business, but you all do it very well, and it's an honor to work alongside all of you. Thank you for joining us today, and we'll talk to you soon.

Ladies and gentlemen, the conference call has now ended. Thank you for your participation, and you may disconnect your lines.

Thank you very much, François, and good morning, everyone. So our first presenter is a cornerstone of the economy, those who've been a big supporter. They started with us 10 years ago. And I think Ghislain said that he was presenting 10 years ago with us. So he hasn't changed.

I think I did. I'm more gray.

But thank you very much. So they just came out with the third quarter results. So the results were very well received. They took some action given the challenging freight environment. So today with us, Ghislain, Executive Vice President and CFO. We have Stacy Alderson, also EVP, Investor Relations. And François -- also François Bélanger, Senior Director of Sustainability. So this is our first time. So thank you very much for joining us this morning. First question, stronger-than-expected third quarter...