Canadian National Railway Company (CNR) Morgan Stanley‘s 12th Annual Laguna Conference 2024 summary

Recent operational and financial developments

• Labor uncertainty with conductors and engineers led to a work stoppage and network shutdown, impacting Q3 EPS by $0.20 and causing customer diversions, especially in intermodal.

• Forest fires in Jasper, a key corridor, further disrupted operations and contributed to the negative EPS impact.

• Guidance for 2024 EPS growth was reduced from 10% to mid- to high single digits, and ROIC was revised to 13-15% from 15%.

• Labor uncertainty is now resolved for the workforce, with binding arbitration in place, but potential longshoremen strikes at West Coast ports remain a risk.

• Macro weakness in lumber, metals, and minerals, along with ongoing port recovery, is factored into current guidance.

Operational recovery and network performance

• Network operations have rebounded, with improving car velocity, train speed, and dwell times, indicating fluidity and readiness for increased volumes.

• Customers are gradually returning, especially in intermodal, though full normalization is expected to take several months.

• Asset and resource adjustments include parking 100 locomotives, returning 1,000 Centerbeam cars, and reducing labor through attrition and furloughs.

• Creative labor solutions, such as a four-day workweek in the South, are being used to align costs with lower volumes.

Growth initiatives and long-term outlook

• CN-specific growth initiatives, such as new fuel distribution, frac sand, propane export, and grain crush facilities, are delivering expected results and are geographically and commodity diversified.

• Canadian grain volumes are forecasted to increase, supporting Q4 and future growth.

• Three-year CAGR guidance was revised from 10-15% to high single digits, mainly due to a lower 2024 base and weaker industrial production forecasts.

• Long-term growth depends on macroeconomic support, pricing above rail inflation, operational improvements, and successful execution of growth initiatives.