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

Labor and operational environment

• Labor uncertainty with conductors and engineers led to a work stoppage and network shutdown, impacting volumes and customer confidence.

• Binding arbitration has resolved immediate labor issues, but longshoremen strikes at ports remain a risk.

• Forest fires in Jasper disrupted a key corridor, compounding operational challenges.

• Combined disruptions negatively impacted Q3 EPS by $0.20.

• Arbitration process for labor contracts is ongoing, with no set timeline, but work stoppages are not expected during this period.

Financial guidance and outlook

• EPS growth guidance was reduced from 10% to mid- to high single digits, then to low single digits due to disruptions and macroeconomic weakness.

• ROIC guidance revised to 13-15% from 15% previously, reflecting lower earnings.

• Three-year CAGR outlook for 2024-2026 revised from 10-15% to high single digits, mainly due to a lower 2024 base and weaker industrial production forecasts.

• Guidance factors in some ongoing port disruptions and assumes gradual recovery in Q4.

• Pricing remains above rail inflation, and operational improvements are expected to support margin recovery.

Volume, demand, and growth initiatives

• Intermodal and lumber volumes were most affected by labor uncertainty and macro weakness, with some business diverted to U.S. West Coast and trucking.

• CN-specific growth initiatives, including new facilities and diversified commodity projects, are progressing as planned and expected to add significant carloads.

• Canadian grain outlook is strong, with a forecasted crop of 72 million metric tons, up from 69 million last year.

• Crude by rail volumes remain stable, with no significant increase expected.

• Capacity investments continue, especially in the west, with a disciplined approach to matching infrastructure and resources to demand.