Canadian National Railway Company (NYSE:CNI) Q1 2024 Earnings Call Transcript

Canadian National Railway Company (NYSE:CNI) Q1 2024 Earnings Call Transcript April 23, 2024

Canadian National Railway Company beats earnings expectations. Reported EPS is $1.28, expectations were $1.27. Canadian National Railway Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. My name is Julianne, and I will be your operator today. All participants are now in a listen-only mode. At this time, I would like to turn the call over to Tracy Robinson, CN’s President and Chief Executive Officer. Ladies and gentlemen, Ms. Robinson.

Tracy Robinson: Thank you, Julianne, and good afternoon, everyone. We’re here in Memphis today. We’ve had our Board meetings over the past two days and have had an opportunity to spend some time visiting our local facilities. Now we did a pre-recording of our prepared remarks over the weekend. But before we play those remarks, we received some very sad news today about the loss of one of our engineering employees. Early this morning, there was a motor vehicle accident in British Columbia. A semi-truck collated with the CN engineering vehicle with two employees on board. We are deeply saddened that one of our CN family. [indiscernible] suffered fatal injuries as a result of the accident and died at the scene. The other employee traveling in the truck was taken to the hospital with critical injuries.

I understand he’s now in critical, but stable condition. Our prayers are with him and his family. The second group of CN employees is traveling behind the first vehicle was the first on the scene to respond. They showed a tremendous courage and compassion in a critical situation, a very tragic and painful loss for all of us at CN and our hearts go out to [indiscernible] family. Before we move on to the business today, I want to remind all CN employees and everyone listening in today to take care of yourself and those around you, stay safe. So operator, could you please start the pre-recording with Stacy Alderson, our Head of Investor Relations.

Stacy Alderson: [Foreign Language] Good afternoon, everyone, and thank you for joining us on CN’s first quarter 2024 financial and operating results conference call. Before we begin, I’d like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today’s conference call contains certain projections and other forward-looking statements within the meaning of the 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. They are more fully described in our cautionary statement regarding forward-looking statements in our presentation.

After the prepared remarks, we will conduct a Q&A session. I would ask that you please limit yourself to one question. The IR team will be available after the call for any follow-up questions. Now joining us on the call today are Tracy Robinson, our President and CEO; Pat Whitehead, our Chief Network Operations Officer; Derek Taylor, our Chief Field Operations Officer; Doug MacDonald, our Chief Marketing Officer; and Ghislain Houle, our Chief Financial Officer. It is now my pleasure to turn the call over to CN’s President and Chief Executive Officer, Tracy Robinson.

Tracy Robinson: [Foreign Language] Thanks, everyone for joining our call today. Q1 was a solid quarter. It played out as we expected and has set us up well for the growth that we see ahead of us. I’d like to start today with a few words related to last week’s press release on Remi and Doug’s transition. And firstly, I want to thank Doug not only for his many years of service to CN, but especially for his leadership and his wisdom over the last two years. You’ve done a great job, Doug. The recrafting of our book of business as we move back to the scheduled operating model and setting the commercial team up for continued success, and I want to personally wish you health and happiness in your retirement. And we’ve been intentional about Remi’s transition, starting with some pretty intense field exposure since he joined in January, followed by a deep dive into the commercial organization.

He’s a great fit with our team, and he’s going to bring a new perspective to his Chief Commercial Officer role, especially having been in a customer’s shoes. He’s in the room with us today, but he’s not mic-ed (ph) up. He’ll be in the seat next quarter and spending some time with the investment community in the coming months. Now before we get into the details of the quarter, I know that TCRC negotiations in Canada have been on the minds of our customers and our employees and some other stakeholders. And I want to provide a little context to what’s happening. Now it’s important to us that we have an agreement that ensures the availability of our crews to run trains on time, in support of our customer service commitments and to support the growth of the industries we serve.

It’s also important that we can offer to our employees a predictable schedule with guaranteed data that supports safe operations and allows them to plan and to live their lives. And that improves the attractiveness of our work as we engage the next generation of conductors and engineers. Now the introduction of the new Canadian duty and rest rule last year stacked on top of the provisions already in our collective agreements, has had a negative impact, both on the availability of crews to run trains and on scheduling for our people. So in this round of bargaining, we’re endeavoring to improve the predictability of when our train crews will work and when they’ll be off. It’s an important part of improving safety, providing more predictability to employees on when they’ll work, giving them better work-life balance and improving crew availability to support a consistent service for our customers and supporting the growth of the Canadian economy.

We have this kind of agreement in the U.S., so we know how effective it is. We’re continuing our constructive discussions with the TCRC leadership, and we remain focused on reaching a negotiated agreement. [Technical Difficulty] I hope that gives you a good sense of where we’re at. Turning now to the quarter. As I said, it has come in as we expected. And safety continues to be an area of intense focus, that’s going to speak to our performance on the quarter here. We are committed to improving our safety performance and advancing towards our goal of zero harm. On the operations, velocity and speed were solid this quarter despite some colder temperatures in Western Canada this year, some congestion in Vancouver and a dip in crew availability related to the new Canadian regulations.

It is high on proud of how we’ve performed and how we’ve adapted to the plan to align with what’s coming at us. Customer service remains a top priority, and I want to call out local service commitment performance. Now this is a key customer facing metric and at 92%, it improved 6% versus last year. Volumes are firming up. We’re seeing momentum building. Doug will speak to end market performance and the outlook for the balance of the year, including updates on our CN-specific initiatives. These projects are lining up quite nicely, giving us increasing confidence in our volume outlook. And as we know, we’re up against a very strong performance last year, which included $0.10 of favorable fuel surcharge lag. So I’m pleased with our solid EPS of $1.72.

This is right where we thought we’d be after three months. I’ll leave it to Ghislain to walk us through the first quarter financial highlights in just a few minutes. But we are right where we want to be. The team is gelling, the operation is performing and volumes are on the upswing. Putting it all together, I’m very happy with the direction we’re headed and want to reaffirm the guidance we issued in January. I’ll now hand it over to the team. Pat, you’re up.

Patrick Whitehead: [Foreign Language] Injury and accident rates increased in Q1, despite our best efforts, intense winter weather poses increased safety exposures. We have seen improvement in April and are now tracking in line year-to-date with CN’s lowest ever frequency ratio in 2023. One area I want to highlight in our safety performance is slips, trips and falls, which increased in the quarter. So what are we doing about it? We’re addressing slips, trips and falls with several actions. The first I’ll cover is our recently deployed walking simulators at our training centers. We’ve seen 30% fewer walking injuries with employees who have been trained with this tool. We’re going to be deploying a mobile version of this simulator out to our workforce in the field.

We’ve also rolled out our Enable OnGo (ph) app to the entire workforce, which is our hazard and near-miss reporting system. We’ve received and corrected over 3,300 hazards utilizing this system since its deployment in 2023. Now before I discuss the network, I want to address some of the comments that have been made recently regarding CN removing safety critical rest in our current negotiations with TCRC. This is just not true. To be very clear, we successfully implemented the duty and rest period rules that were mandated in Canada in May of 2023 and have been in full compliance with these rules. We have managed operations accordingly. What we are doing is working to simplify the complexity of the stacking effect we experienced beginning in 2023 of the additional paid sick and personal leave days under the Canada Labor code, the duty and rest period rules and the unavailable time provided by the legacy collective marketing agreement.

We are fully committed to providing sufficient rest for our employees, and we will continue to work with our union partners to find solutions that benefit our employees and our customers. Now turning to the network. We remained largely fluid this quarter despite more impactful winter weather this year. While our scheduled operation gives us improved resiliency, we were challenged in certain pockets as the newly mandated work rest rules impacted labor availability. As for volume, we are currently seeing what we believe is a sustained increase in demand for intermodal volumes on the West Coast, which has increased existing train size to the point that we have added a combined additional eight trains per week out of Vancouver and Prince Rupert in April.

To support the growth we see coming our way, we will continue to invest in network capacity in key corridors, what we call no regret capital. In 2024, we are on track to complete additional double track along our Vancouver to Chicago corridor, and we will finish a siding extension project, West of Kamloops, British Columbia. This will increase our capacity in this busy corridor and help alleviate some of the congestion we see from time-to-time in and out of Vancouver. I’ll now ask Derek to speak about field execution in the first quarter.

Derek Taylor: Thanks, Pat, and good afternoon, everyone. Time and again, we’ve seen that our make the plan, run the plan, sell the plan model is the right one for our network. As you heard from Pat, Q1 had a number of ups and downs. January brought an extended cold snap in Western Canada that we recovered from in short order. Interestingly, in February, we had some ideal operating conditions and demand started to pick up. Then in March, Mother Nature reminded us that winter wasn’t over yet on the northern part of our network. During that March time period, we also had a combination of continued strengthening demand, along with the beginning of work block season, particularly in the Edmonton to Vancouver corridor. In fact, daily train counts in that corridor are now approaching our 2018, 2019 high watermark years.

These work blocks are critical for us to comply with and complete as they will support growth and fluidity going forward. However, they did cause some additional pressure in and out of Vancouver gateway. Importantly, we’ve kept our yards fluid, which has enabled us to maintain a high level of service for our customers. In fact, our local service commitment performance or LSCP improved 6% versus last year to 92% for the quarter. Running the plan as the team is focused, and I’m really pleased that a few weeks into April, speed and velocity are back in line where we need them to be. We’ve got good operational momentum. So as volumes continue to ramp up through the year, we expect to deliver incremental operating leverage, particularly in terms of our manifest trains, which have room for growth at low incremental cost.

To wrap it up, I’m convinced that continued strong alignment between the operations, marketing, and finance teams is key for us to grow profitably. This is a team effort. We’re making sure there’s tight coordination across the entire organization so that we have the capacity and service in place to keep delivering for our customers. Now, I will turn it over to Doug.

Doug MacDonald: Thanks Derek and thanks, Tracy, for the kind words. I’ve been fortunate to spend my entire career at CN and has been a gratifying 35 year journey. I am thankful to all of you around the table, as well as the many others in and outside of CN for their support and help. I leave knowing that the team is well set up for the future. Looking at Slide 11, First quarter revenues were down 1% versus last year due to lower applicable fuel surcharge. We had solid pricing ahead of CN’s cost of inflation. RTMs, our standard measure of volume were flat in the quarter as higher shipments of potash, refined petroleum products, frac sand, international intermodal and natural gas liquids were offset by lower shipments of coal, grain, forest products and crude oil.

Petroleum and chemicals led the way in Q1 at 6% RTM growth, with record volumes in refined products and natural gas liquids. Q1 crude volumes were down year-over-year, but we expect them to move higher sequentially for the rest of 2024 from new business to the Gulf Coast. Our strategic investments in Northeast BC are paying off with stronger frac sand volumes, which drove a 4% increase in metals and minerals RTMs in Q1. Aluminum volumes also increased in the quarter due to market share gains from truck given our consistent car supply and service. We also had new raw lithium interline shipments with the UP to Texas for battery production. Forest products RTMs decreased 5% in the quarter, but center beam orders for lumber have increased sequentially since Q4 last year.

Our bus car fleet remains nearly sold out, indicating solid demand in multiple segments. In the bulk sector, Canadian coal was down 20% from production problems at several mines, while U.S. coal was down 23% from softer export demand for thermal coal. Grain and fertilizer RTMs were flat overall as strong potash growth in Q1 fully offset softer grain volumes. Canadian grain demand was strong all quarter. We moved record grain tonnage in February, and there’s pent-up demand heading into Q2. U.S. corn volumes decreased versus last year due to muted domestic and export demand. Automotive RTMs were up 6% on stronger Vancouver imports despite a slow start in Q1 from delayed new product launches. All plants are running normally now. Turning to intermodal.

International was up 5% for the quarter, continuing the steady upward trend we’ve seen since Q4. Import RTMs via the ports of Vanover and Prince Rupert are up 12%, as U.S. destined traffic returned after last summer’s West Coast Canada strike. Port of Halifax volume was down due to Red Sea impacts. In Q1, we lapped the remaining comparable container storage revenues, roughly a $35 million impact this quarter, which negatively impacted revenue per RTM. Domestic volume was down 3% on ample truck capacity. Let’s move to the outlook on Slide 12. The North American economy continues to be supportive. International intermodal continues to strengthen with strong service and dwell times at our ports. The can export development at Rupert is well underway as well as land clearing for the Ridley Island Energy Export Facility.

We are also expecting to see a gradual recovery in the domestic intermodal markets as capacity exits the over the road segment. Automotive demand remains strong with some OEMs pushing back the time line for retooling their plants for EV production. In bulk, Canadian met coal mines should return to full production. In addition, Conuma’s Quintette mine will start this summer, and the new Valerie mine is delayed until 2025 due to permitting. U.S. export thermal coal volumes will be challenged with low global demand and a surplus of natural gas. In terms of grain, we expect more oil and meal production from new and expanding crush plants on CN in the second half. Our IANR acquisition, which remains subject to SCB approval will create further volume growth for U.S. grain.

Potash demand remains firm, but we expect lower volume in the balance of 2024 as we lap last year’s Portland terminal outage. Our CN specific growth projects are advancing as expected. In Northeast BC, our growing frac sand market for natural gas drilling also produces propane for export via Prince Rupert. New frac sand terminals are expected to be announced in the coming months to grow the market even more. Partnership initiatives like the EMP program, Falcon Premium and Crowley service in the Mexico and access to Gulfport will deliver intermodal growth in the second half and beyond. CN’s new fuel terminal at our yard in Toronto has received its first cars and ramp-up is commencing in May. Construction took a little longer since some Phase 2 construction was advanced to minimize downtime later in the year.

Both Phase 1 and 2 are now sold out. We also moved our first steel cars into our new transload in Flat Rock, Michigan, which is all truck to rail conversion. We’ve come through the first quarter of 2024 in great shape with excellent service for our customers and a strong pipeline of significant growth opportunities that are starting to deliver. I want to recognize Remi, who has spent the last few months getting up to speed with the great CN people across our network. He’ll be ready, more than ready for our next quarterly call. Over to you, Ghislain.

Ghislain Houle: [Foreign Language] Turning to Slide 14. In the first quarter, we executed and delivered a financial performance in line with or maybe even a bit better than planned. Volumes in terms of RTMs were flat on a year-over-year basis, while our revenues were down roughly 1%. We delivered operating income of around $1.5 billion, 7% lower than last year, with a more winter like operating ratio of 63.6% versus 61.5% last year, up 210 basis points. The first quarter EPS was $1.72 versus $1.82 for the first quarter last year, down $0.10 or 5%. Recall that last year, we had a favorable fuel lag tailwind of around $0.10 of EPS. We are monitoring fuel prices very closely. OHD which drives fuel surcharge revenue decreased by 17% versus last year, while our fuel prices driving our expense decreased only 6% year-over-year in Q1.

In terms of expenses, labor was 10% higher versus last year, driven by 3% higher average headcount and general wage increases. Fuel expense was more than $40 million lower than in the same period last year, mostly due to a 6% decrease in fuel prices that I just mentioned. Our effective tax rate in the quarter was 24%, which is a bit lower than the guidance we provided in January. This was mostly due to the excess tax benefit on incentive compensation booked in the first quarter. We had anticipated this benefit in the quarter, so we will expect our effective tax rate for the full year to be around 25%. We generated around $530 million of free cash flow in Q1, about $65 million lower than last year, mainly due to higher capital expenditures, partly offset by higher net cash from operating activities.

Under our current share repurchase program, which runs from February 1, 2024, to January 31, 2025, we have repurchased close to 3.5 million shares for almost $600 million as at the end of March. Our leverage ratio increased to around 2.4 times at the end of the first quarter. This increase is largely due to timing and reflects the atypical quarterly earnings trend in 2023. We expect the leverage ratio to decrease as we move through 2024 and earnings increased sequentially. Moving to Slide 15, let me provide some visibility to 2024. With economists’ sentiment on the macro environment improving sequentially, we continue to believe that the broad economy in 2024 will be more constructive than last year, with slightly positive industrial production growth and interest rates stabilizing.

However, the environment remains quite volatile with continued monetary policy and geopolitical risks. Weak sectors particularly intermodal international and forest products continue to improve sequentially. We continue to assume that Canadian grain will come back to a three year average in the second half of the year. We have good visibility on our CN specific growth initiatives that account for half of our mid-single digit volume growth assumption in terms of RTMs, and these initiatives are diversified both from a commodity and geographic standpoint, and they are advancing per plan. Foreign exchange for the year continues to be around $0.75. Our WTI assumption is now in the range of $80 to $90 per barrel versus the previous range of $70 to $80 per barrel.

With this in mind, we are confident that we will deliver 10% EPS growth in 2024 versus 2023. So in conclusion, let me reiterate a few points. We continue to deliver strong operating and financial performance. Our customers continue to benefit from our excellent service. We are encouraged by the positive direction of the macro environment. End market demand in most of our segments, importantly, intermodal international and forest products continue to show sequential growth. Our CN specific growth initiatives are advancing and delivering per plan. We are committed to delivering operating leverage. We are confident in our EPS growth of around 10% this year versus 2023. Let me pass it back to Tracy.

Tracy Robinson: Thanks, Ghis. We’re ready to take questions now.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.

Steven Hansen: Yes. Good afternoon. Thank you for the time. Look, I was hoping you could provide some additional color here on the international intermodal segment of late, seen some really good outsized growth there, but also seeing an increase in shipping length that looks like a distance halt. Just based upon your discussions with customers, what kind of visibility do you have on that sustaining through summer into the back half of the year?

Doug MacDonald: Thanks, Steve. It’s Doug. So we’re seeing some great growth on the West Coast. Customers have really come back there after the strike last summer. We’re seeing lots of growth in Vancouver, but we’re also seeing it start to push up to Rupert. So that’s working really well, and I think you can see that in the numbers. The customers are very confident that that’s going to continue moving forward. They really like the service and the dwell time they’re seeing from us. Now when you shift over to the East Coast, it’s a little bit different story. They have more of an impact because of the Suez Canal, they’re routing, the boats around south of Africa and they come back up, which doesn’t impact the Canadian business, but it does impact the U.S. business because they’re going to buy a bunch of U.S. ports where they can offload that business there.

So we’re seeing a little bit down at Halifax, a little bit down at Montreal because of all that. And we’re just hoping that, that will come back once that issue in the world gets cleared up. Thank you for your question.

Steven Hansen: Appreciate the color.

Operator: Our next question comes from Fadi Chamoun from BMO Capital Markets. Please go ahead. Your line is open.

Fadi Chamoun: Okay. Thank you. Doug, congratulations on your retirement and thanks for all the insights and help over the years. My question is on pricing. You mentioned pricing ahead of inflation, what is inflation first, just to kind of help us benchmark what the pricing environment is like? And also, given kind of the strong demand we’re seeing both on your network and your competitor network, is the pricing firming up? Do you expect that we could start to see some firming up in the pricing as we move through the year?

Doug MacDonald: Okay. Well, thanks, Fadi. So overall, what we’re seeing in pricing is we’re still able to price above rail inflation, and I’ll get to the second part of your question there. The only part we’re starting to see obviously is some pressure is in — within the domestic intermodal section, which I think everyone would understand what the truck capacity issues that are out there today. There’s a lot of surplus capacity. We’re expecting that overall within North America to decline as more and more shops, I’ll say, go bankrupt and some of that capacity comes out of the market. So that is where the only area is I think we’re seeing some pressure. So with respect to that, when it comes to what we gauge, we still use the all-inclusive index less fuel for the AR is our major benchmark that we tell people for what our rail costs are. Thanks for your question.

Operator: Our next question comes from Ken Hexter from Bank of America. Please go ahead. Your line is open.

Kenneth Hoexter: Hey, great. Good afternoon. I just want to — I guess you’re coming up against a comp against maybe the strikes and want to understand the CN specific initiatives. So I think you said there’s minimal economic growth in there in that mid-single digits. It sounded like maybe some of the CN specific issues were delayed. You mentioned a coal field, Doug. I think somebody mentioned the auto field was delayed, but Phase 1 and 2 were sold out. Just want to understand, does that impact the outlook on growth or are those coming back online? I just want to understand the CN-specific growth initiatives to meet that target. Thanks.

Doug MacDonald: Thanks, Ken. So everything is kind of running, I’ll say, as per plan is the easiest way to say it. So we have seen a delay just in the one, I’ll say, projects that we have ongoing for this year, right? So with respect to that, that’s the facility we have in our Mac Yard for our Eastern fuels. And we pushed that back so we could actually add some construction and sell out Phase 2. So if we didn’t do that, we would have to take more outage in Phase 2 later this year and into next year. We didn’t want to do that. It was made more prudent economic sense to do it at the beginning. But with that, we actually got additional commitment from the customer. So that project is moving full steam ahead, and we will recoup those volumes.

With respect to the Valerie coal mine, we had very limited number of volumes into this year, really was in the next couple of years. So what we’re looking at is when does that permitting get done that gets done in the next couple of months, then they’ll be getting that moving forward. So we’ll be able to give you — or Remi will be able to give you a great update that on the next call, actually. So everything else seems to be running really well. I don’t think we’re going to see any other issues. And so the projects will deliver where we’ve said they will and the economy is doing okay. And I think just wanted to talk to the community quite a bit about that. Thanks for your question.

Operator: [Technical Difficulty] TD Cowen. Please go ahead. Your line is open.

Cherilyn Radbourne: Thanks very much. Good afternoon. And Doug, all our best to you in your retirement. I wonder, if there’s a way that you could help us frame how much the CN specific growth opportunities added either volume or revenue in the quarter? And in terms of the relative importance of each that you’re expecting for the year, are they basically listed in rank order of importance, the way that they’re listed on Slide 11?

Doug MacDonald: Thanks, Cherilyn. They’re not listed in any order. We just kind of go through them. We don’t really give like guidance per specific projects out there. We have given some specific updates as to where we expect them to be on the list that we gave at Investor Day last year. So I’m sure the team can probably help you out with that after the call and say, here’s where we’re on each single one, but it’s a little much to go into right here. Thanks for your question.

Operator: Next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.

Ravi Shanker: Thanks. Good afternoon, everyone. So I think the tone of this call is surprisingly bullish in this environment, especially, given what you’ve seen from other transportation companies that we’ve heard so far. Do you guys have like evidence or more confidence in the cycle inflection in the back half of the year that’s giving you that confidence? Obviously, you spoke of the idiosyncratic catalyst as well. But obviously, you need a macro backdrop to be supportive as well. So just trying to get a sense of how confident you are kind of in that full year number and the environment that’s going to power it? Thank you.

Tracy Robinson: Ravi, thanks for the question. Listen, we’re mapping out a year — when we put the three year guidance in front of you, we looked at industrial production that was about in the 2% range. Industrial production is turning more positive. It’s not 2% yet. But we are following a number of those indicators that Ghislain spoke about. And it does give us some confidence in a lift in the underlying economy, that’s 50% of our growth. The other 50% is the CN specific growth initiatives that Doug has taken you through. We’re watching it all pretty closely. And Ghis, do you have any other comments?

Ghislain Houle: Yeah. I think, Ravi, what makes us confident as well is that these CN specific growth initiatives are very diversified from a commodity and from a geographic standpoint. So it’s not a one home run type of thing. It’s a lot of different singles. So if we’re wrong on one of them on the negative side, we’ll be more right on the positive for something else. So it’s the law of compensating errors. So the fact that it’s a bunch of different projects, and we have great visibility on these as Doug just talked about, I think, makes us very confident that our volume – we will deliver on our volumes. Thank you for the question.

Operator: Our next question comes from Benoit Poirier from Desjardins Bank. Please go ahead. Your line is open.

Benoit Poirier: Yes. [Foreign Language] Thank you very much and Doug, happy retirement and all the best. So one question, obviously, you made some comments about the softness for domestic intermodal, but I was wondering if you could talk about whether there’s a different dynamic at play in Canada, given the longer average length of all. And also, just in terms of head counts going through the remainder of the year, could you talk about your expectation in terms of headcount given the ramp-up in volume in the second half? Thank you very much.

Doug MacDonald: Okay. Thanks a lot, Benoit. So I’ll address the intermodal specific numbers. So listen, within Canada, you’re correct. We have a much longer length of haul than in the U.S. So there’s a little bit added protection there, where we don’t — we do face pressure because if there’s excess capacity, you can see the truckers are dropping the rates and they put pressure on our pricing. But so far, because of that length of haul, we’ve been able to hold our own pretty well. And there will be cases where we’ll let go some market share. There will be cases where we’re going to gain some market share and that happens all the time. So not too worried about that, and we feel it’s also the business is going to come back right away that we’ve lost because as the trucking capacity diminishes across North America and in Canada, that will shift back. I’ll say from the headcount perspective, I guess the team will be able to.

Tracy Robinson: Pat, why don’t you take the headcount question?

Patrick Whitehead: Yeah. I can take that one. So as we look at – keep in mind that as we train T&E employees to take six months to nine months to have those folks ready in advance of the volume. So we will see our head count increase, but it will not be a 1:1 increase. We’ll ramp up for the volume, but be a busy quarter at the training centers, but not a one-to-one increase. Thank you for the question.

Benoit Poirier: Thank you very much.

Doug MacDonald: Yeah. Thank you.

Operator: Our next question comes from Konark Gupta from Scotiabank. Please go ahead. Your line is open.

Konark Gupta: Thanks and good afternoon and I echo the congratulations Doug. Maybe just one question on one of the projects you guys highlighted last year at the Investor Day. The Milton project, I think, it seems like the court overturn the federal government’s decision to approve that project. Any thoughts on what are you expecting from that? Will that be delayed or will that be cancel them back to the drawing board? Any thoughts would be appreciated. Thanks.

Doug MacDonald: Thanks, Konark. So yeah, it’s a complicated issue, obviously. We have filed our appeal and we are — we expect to have a decision on the stay that we’ve appealed for in the next couple of months. So at that point, we’re not going to comment too much. We’re going to wait for that to come back. And then if we’re successful there, we will continue building. If we are not successful there, then we will have to decide how we move forward with that project, we are very dedicated to moving this project forward. If we’re going to grow the economy in Canada as well as in Southwestern Ontario, this project is critical. So we are – we will have this run forward. Thanks for your question.

Konark Gupta: Thank you.

Operator: Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open.

David Vernon: Hey, good afternoon. Thanks and Doug, congratulations. I just wanted to figure out or just ask you if you could kind of help us understand coming out of 1Q, we’re flat RTMs, we’re still looking at mid-singles for the back half of the year, which is obviously going to have quite a bit of mix in it. Can you just help us understand from where you’re looking at the numbers? Like, where is the strength in the RTM is going to come, I know you’ve got a lot more detail on the CS specific growth initiatives and the impact of mix here. But I’m just getting a lot of questions about whether that mid-single digit RTM number remains realistic. So if you could help us kind of understand that walk, that would be great.

Doug MacDonald: Yeah. So hey, great question, David. So first of all, you are right. We were flat for the Q1, but our whole project and list was geared towards April and on. So as a good example, in April, we’re 7% up in RTM so far this month. So we knew that was really going to start the pop. We have the comparables that are there from last year. So we’re easily going to be able to top some of them, so we’re all set. We know there’s going to be good growth in intermodal overseas, and that’s what we’ve been seeing. It’s a little bit lighter on domestic. We’re seeing some other things pop in other areas. All of these are really just part of the economy as well as part of the projects, combine them all up, we’re pretty confident that we are still going to be able to maintain our guidance.

David Vernon: Okay. And then — and just maybe just as a quick follow-up. Cost ex-fuel up 5% in the quarter. How much of that is because last winter, there wasn’t much of a winter. And how much of that is resourcing ahead of this expected volume growth and how much of that is just natural cost creep in a weaker revenue quarter.

Ghislain Houle: Yeah. When you look at fuel, as I said, we’re comping, I talked about the fuel lag, positive lag last year versus no lag this year. When you look at the overall fuel situation in the first quarter, and you can look at it in the MD&A, it’s all disclosed, but our fuel surcharge, as Doug mentioned it was down on a year-over-year basis by about $170 million while our fuel expense related just the price was down $30 million. So the fuel issue in the quarter was about $140 million of headwind or call it, $0.15 of EPS or 180 basis point of OR, so that’s the fuel. And yes, we did consume David, more fuel this year versus last year due to a harsher winter specifically in January. Thanks for the question.

Operator: Our next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead. Your line is open.

Walter Spracklin: Yeah. Thanks very much, operator. So when I look back at your guidance that you issued when you reported your fourth quarter, I know there was some trepidation that perhaps it was a little bit too robust, maybe too optimistic, especially around the 5% volume and very encouraging given that you’ve kind of reiterated that, there was a lot also mentioning about how with high-single digit revenue where you’re only achieving 10% earnings and I know Ghislain, since that you’ve been through your public remarks at various conferences, you’ve kind of hinted that perhaps there is some upside there if that volume growth does come in. So I guess my question is, as you’re now one quarter through the year or obviously a bit more than that here, how much — where has things changed relative to your original guide, even though you’re maintaining it.

Do you feel a bit more comfortable about volume? Are you feeling more comfortable about price? Is margin coming in better or worse? If there’s any indication as to the kind of comfort level you have around the guidance, I’d love to hear your thoughts on which areas are coming in a bit better or worse in each of those elements?

Ghislain Houle: Thanks, Walter. So I would tell you that Q1, we delivered exactly as per plan. Even in my opening remarks, I said we did probably a little bit better than planned. So I think that — and when you look — now the volumes are coming in, in April, as Doug mentioned, 7% up on a year-over-year basis. I think at the end of the day, as we said, to get to our 10%, we can’t just focus on one area. We need a little bit of price and Doug talked about that. We need that volume that we’ve talked about, and we need better operating, better operations from our guys here. And I call our guys to be a little bit here, sandbaggers, and that’s my own opinion. Share buyback is not that accretive for the current year, especially when you look at it from an active financing point of view, but it is helpful a little bit more in the out years because you get that compounding effect of having the shares out of circulation.

So when you put all of this in, and I’m happy because when you — we got out of the winter, Q1 is typically very noisy. As I said, we delivered per plan. So I think those growth opportunities are happening. I’m crossing my fingers that the economy holds up. We’re not banking, as Tracy said, on a 2% we’re banking on a slightly positive economy, call it, 0.5% I think that I’m getting — I’m very comfortable that we can deliver and we will deliver our 10% EPS growth.

Tracy Robinson: And let me just add to that, Walter, if I could. So as we look at volumes, you heard Derek and Pat talk about what we went through in the first quarter, but I think that we are more optimistic on the volume from an economic perspective. We are — as Doug has outlined pretty much on plan on our — and feeling very, very strongly about our CN specific growth alternatives, our plans. Derek keeps reminding us that if you look at Q1, it’s the best Q1, Derek, on operating metrics that we’ve had in the last…

Ghislain Houle: Seven years since 2017.

Tracy Robinson: The last seven years since 2017, with the exception of last year. So the railroad’s running, the volumes are coming. And as we look at our plan going forward, we’re feeling pretty good about our 10%.

Ghislain Houle: Thank you very much.

Operator: Our next question comes from Kevin Chiang from CIBC. Please go ahead. Your line is open.

Kevin Chiang: Good afternoon. Thanks for taking my question and best of luck in your retirement, Doug. Maybe just want to get your sense — on this morning, the Canadian Competition Bureau put out, I guess, a report on the Viterra-Bunge potential merger and potential anticompetitive effects. Just wondering how you’re viewing that, I guess, potential combination. Does that have an impact on how you view your grain franchise? Does that have an impact on some of the CN specific initiatives you’ve highlighted back at the Investor Day in terms of grain and fertilizer?

Doug MacDonald: Okay. Thanks, Kevin. It’s a great question. So we did participate within the — transport candidate ask us for our opinion. Listen, we don’t see much of a conflict from our standpoint between — if it happens. But with respect to that, Viterra is of our top customers, right? They are a top 10 customer. We move lots of grain for them, and we do it both to the — all over North America, primarily West Coast, Vancouver, but also to Rupert, to Montreal. So we’re very happy with that. We don’t see as much of a conflict with Bunge at all. Bunge, we have very little business with. We do have some, but they’re primarily moving other products with another carrier. So overall, when you look at that, we don’t have a problem with the competition bureau or the combination of these two companies.

So we’ll effectively, I’ll say, stay out of it. It won’t really have an issue on our markets today. Now what they are looking at doing is building some canola meal plants or some crush plants, so that will eventually bring more business online that we think they’re both in a good position to. One plant would be in the Regina market and they’re looking at some others that are both also on CN’s line. So it may delay these future plants, but none of these were currently in the plan today that we have for 2024 to 2026. So we shouldn’t see any issues there.