CNI

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, Krista. [Non-English content] 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 two 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, 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.

[Non-English content]. 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. The 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 CAD 275 million. We repurchased 6 million shares and increased leverage to 2.7 times.

This reflects our confidence in the underlying earnings power of this business. Expect this focus to continue. Third, we committed to providing directional guidance tied closely to volume trends rather than precise targets. 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. If volumes come in stronger, we're confident we will deliver earnings leverage in the business. 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. 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, that matters because it positions us to convert growth more effectively and improve financial performance as the year unfolds. 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 movement, 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. Now productivity is a key focus for us, 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. The quarter came in largely as we expected. 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 CAD 0.07 drag on the earnings in the quarter. The engine is running well, 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.

In Q1, we fell short of our expectations. We remain fully committed to continue improving our safety outcomes, and we're already seeing improvements in both accident and injury rates in April. Pat will speak to our safety performance in more detail. 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 advantage 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. As we go forward, we'll remain disciplined, as our focus on execution is working. Q1 has delivered to plans 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 have 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 is 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 us 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 investment has 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 train service. The key point is that 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 rail cars 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.

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 a third of the way complete of the major terminals on our network and remain on track to complete the work through the summer. 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 landslide 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. 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. 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. On pricing, our strategy remains consistent. Price to 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. 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 CAD 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 through 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 two 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 is difficult to foresee improvement in the near term given muted housing activity in addition to the dampening effects of tariffs and duties. 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.

[Non-English content] 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 CAD 1.87, up 1% from last year, while adjusted diluted EPS was CAD 1.80, down 3% from last year or CAD 1.83, 1% lower on an exchange-adjusted basis. These results reflect two notable adjustments. A CAD 66 million pre-tax gain tied to the sale of our Newmarket Subdivision. A CAD 17 million in advisor 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 CAD 0.06. As Tracy mentioned, fuel and FX were an additional CAD 0.07 of drag in the quarter. As Tracy said, the story of the quarter is free cash flow. We generated around CAD 900 million in Q1, approximately CAD 275 million or 44% higher than last year. This was mainly driven by lower capital expenditures, the proceeds from the disposal of our Newmarket 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 CAD 870 million in the first three months of the year. Our leverage ratio increased to around 2.7 times 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 2.5 times 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 CAD 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. With a sharp increase in oil prices in March, fuel negatively impacted EPS by CAD 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 CAD 50 million, with over CAD 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 $60-$70 per barrel to $80-$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%-26%. With that context, we are maintaining our directional guidance of flattish volumes with earnings slightly exceeding volume growth for 2026. 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.

Thanks, Ghis. Krista, we will go to questions.

Thank you. We will now begin the question and answer session. As previously mentioned, we ask that you kindly limit yourself to one question. The first question comes from Walter Spracklin with RBC Capital Markets. Please go ahead.

Thanks very much. Good morning, everyone. I think you touched very nicely on the operating leverage, which was the key question here, Tracy. 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 am curious, you have 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? Really my question is if when those are completed in 2027, are you expecting to see a nice pickup in service and fluidity there?

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 would likely fill in that CapEx envelope?

Good morning, Walter. Thanks. Yeah, I am very happy with the operating leverage that this team is producing. You know, you saw us do it through last year. We had a great quarter in the fourth quarter. 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? At two-thirds double track. We have seven incremental train loads of capacity there that we can sell into. What remains, as you say, is the Zanardi Bridge in Rupert and a siding just outside of Vancouver.

As we complete those at the end of 2027, what the benefit that we'll gain is largely in Rupert. It's gonna facilitate the ongoing volume expansion that Janet is driving, for the volumes Janet is driving into Rupert. It's gonna be critical for us in that last mile at Rupert. It's gonna allow the volume growth. In Vancouver, this is an investment that's gonna 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. You know, 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. We do have. You know, we will be spending a little bit on technology. There's some great opportunities there on the next generation of productivity. 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 wanna?

Your next...

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. I would say what you can see in our performance is the work we've 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 Thornton Yard to get around the yard and kinda 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, 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. Very excited about those projects. No, not creating a pinch point. 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. Please go ahead.

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

Hey, Cherilyn. I'm gonna 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. You see that in share, you see that in some of the opportunities that Janet will talk to you about. They're also creating their own opportunities. That presence in front of our customers, you know, the boots on the ground, you heard her talk about what we're accomplishing on that is creating opportunities. Janet, do you wanna?

Yeah, happy to. Thanks for the question, Cherilyn. We are seeing some near-term benefits across a number of segments related to the higher prices. You know, 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 application, 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, you know, how long higher prices are gonna last and what, you know, 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. Please go ahead.

Hey, good morning. It sounds like Tracy had a bunch of safety call-outs. Not used to hearing that much from CN. You've averaged about a 330 basis point improvement in the operating ratio from first quarter to second quarter last few years. 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 carry forward costs or anything else that you wanna walk through. Just give us an idea of kinda what we can expect to go forward on the cost side.

Good morning, Ken. Let me say this, I'm going to ask Janet to comment on the numbers. The engine and the underlying business model performed really well in Q1, right? We did know that it would 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. The underlying engine is performing well. In Q2, the year-over-year comparable is less of an issue. What we expect for the balance of the year is an acceleration in driving the bottom line results.

Ghis, do you want to comment on?

Yeah

On Q2?

Yeah. Thanks, Tracy. Hi, Ken. Listen, you're right. Typically, on the 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 CAD 0.02. That's the cloud that I can see, and obviously we don't control fuel prices. 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, it would be a tailwind in the second half of the year. We'll see.

That's the dark cloud. You're right. From an engine standpoint, you know, we're quite confident in the way we're gonna deliver in Q2. Thanks for the question.

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

Yeah. Thank you. Good morning. Four months into the year, and your RTMs are up, like, in that 3% range, which is a pretty good outcome from a gross perspective, you know, obviously. It, it sounds that you sound more positive on the volume picture today. Correct me if I'm wrong reading you on that. Is there still a path to improve operating ratio this year if we continue to see this volume trajectory? 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. 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?

I'll start with that, Fadi. Good morning. We are really happy with how the year started. As we sit here, we have officially one quarter. We're coming up to four 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. You know, 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, and that, I think, on the back of service, and that is on volume and on price. The entire organization is leaning into driving value to the bottom line. 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 wanna make some comments on what you're doing differently?

Yeah, I'm happy to. Thanks for the question, Fadi. I think, you know, commercial intensity, what we really mean by that is speed of decision-making. What we've done is we've tried to really drive down decision-making to the front line so that, you know, 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. That has been extremely helpful. We have implemented a new sales incentive plan for our regional sales team that is, you know, 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, you know, I think there's a couple things I wanna point to in terms of the quarter. We had some really big benefits from the strong quality of our service. Okay. We had big wins, and those are some of the things that we talked about in the context of grain, and I'm gonna take a little minute to brag on grain. My team sent me a note this morning to let me know that April, even though we still have two 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 2nd-best, so that's a hell of a performance. I gotta credit Pat and his team.

I mentioned it in my formal remarks that the grain car cycle times were 15% better than last year. The crop is the crop. Do I think that some of this is maybe pull forward? Possibly. We also had some resolution around the Chinese tariffs on canola, that's helping. I gotta say, when you service performs that well, you know, 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. All of that performed very well.

Some of it was, you know, related to that, you know, service benefit in Q1. Where I'm really, really pleased is just, you know, those base hits, and it's the team out there, you know, every carload count, getting a hit, getting a hit here or there. I gave you, I think, six examples, you know, in my remarks. I had a list of about 12, the IR team told me that was maybe too long of a list. 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.

We're being really smart about selling into that capacity, getting those, you know, 5, 10 extra cars on the merchandise trains that we're moving business at a low incremental cost. Even on the intermodal side, we've been really strategic about filling out the trains that are moving on non-peak days. We know where we have capacity, and we can sell into that, both in intermodal and carload at a low cost. 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 wanna make sure that maybe Pat will give you some capacity pinch points in the future. With that, Did we wanna address the OR part of Fadi's question?

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

Thanks, Fadi.

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

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

Yeah. Thanks, Konark. On fuel, as we said in my opening remarks, there was a headwind of about CAD 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 points negative impact. As I said, in the second half of the year, if the prices stay where they are, it'll be a tailwind. I would tell you it's about CAD 0.15 of tailwind in the second half of the year. When you put that all together, it could be a tailwind of about CAD 0.10 of EPS, but it would be negative to the OR by about 20 basis points.

As you know, fuel surcharge and expenses, you're adding it at a 100% OR. Even if it's a tailwind on EPS, it could be a headwind on OR. That's the impact. Now, as you know, fuel is extremely volatile. Like, I mean, a couple of days ago, WTI was in the $90 range. Today, it's up over $100. It's moving. 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 gonna go. We're assuming 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?

Yeah. I would say, touché, 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. Let me say this, the heavy investment cycle we had 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 the projects that we've outlined, both going into Vancouver and Prince Rupert, that we will complete over the next couple of years. We're, we're ready for the growth. We, we wanna see it come on.

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

Hey, thanks. Good morning. You know, I guess we're about a third of the way through the year. RTMs are still positive. I know you're talking about flattish for the full year. Maybe Janet Drysdale, 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 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. Maybe that's one area. I know there obviously is some trade and other dynamics playing out. You know, 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. Just some thoughts on volume and yield going forward.

Yeah. Thanks, Chris, for the question. There are a lot of moving pieces here. You know, 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 two, there are a couple headwinds that we're watching in the second quarter. 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 out of the West Coast that kind of impacted drilling. 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, you know, 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 wanna make some comments on that. You know, if you can give me, you know, a high confidence level about how long the Middle East situation is gonna last and how long oil prices are gonna be high, I might be able to give you a better sense of volume. That's where we're still kind of being mindful is that macro environment. I'm pleased, really pleased, with the way the volumes have come in so far. 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.

We had pull forward of the tariff. We actually had record shipments in the second quarter last year to Toronto. That'll be another segment where the year-over-year comp is a little bit tougher. 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 gotta 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. It's a lot of moving pieces. I've been, you know, I've been in this business 30 years, I don't think I've ever seen so many moving pieces.

Tracy, maybe you wanna comment on the trade.

Yeah. I would say, Chris, you know, when 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, you know, outlook will land. 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. I would tell you this. Over the last year in conversations with the administrations on both sides of the well, in Canada and the United States, it is clear to me that in both administrations, this agreement is important, and that it, you know, a constructive path forward would be positive for all.

You can see some of the jockeying in the press as we go forward. I think that, you know, although the timeline isn't yet clear, you know, those conversations will take place. We're gonna remain close both to the process and to 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. 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. Please go ahead.

Hey, good morning, thanks for taking the question. Janet, I think last year you called out about, you know, CAD 350 million of revenue hit from tariffs. I'm just wondering if there's a way you could help us think about, you know, what that tariff impact is gonna be on a 2026 basis year-over-year. Is it getting better? Is it getting worse? Then in the metal side, you know, this offer the Trump administration has made to exchange, you know, tariff relief for commitments to move production. If you could comment at all on how that's resonating with customer base and kinda what that could mean going forward, I'd appreciate it. Thanks.

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. I think, you know, you should think about it in that context. I would also say that I'm particularly pleased with the way the commercial team has worked so closely with our customers to mitigate, you know, the impacts and to find new trade flows. We found new business, steel, for example, moving within Canada. We've got more business of scrap U.S. to U.S. We're finding a way. You know, water finds its way, and the team has been able to work with customers to help them mitigate a lot of that.

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, you know, the latest commentary around trade negotiations and, you know, trade-off of tariff relief and production, you know, 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 J.P. Morgan. Please go ahead.

Hey, good morning. Thanks for taking the question. Obviously we'll have the updated merger application from UP and NS tomorrow. Hey, Tracy, can you 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've found with that? Do you think that's gonna get more or less resolved here when we get an updated document with perhaps some new information? 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? Any thoughts there would be helpful. Thank you.

Yeah, Brian, it's interesting topic, isn't it? We are eager to see the application when it comes out tomorrow, and I think Jim recently confirmed that it would be tomorrow. You know, our position on the concept of the merger hasn't really changed. We believe strongly in competition. The merger proposal, you know, to be accepted needs to demonstrate, as you know, it's in the public interest and that it enhances rail competition. It's a high bar. Granted, it's as yet undefined, but it's a pretty high bar. The first application, in our view, fell really far short of demonstrating that the merger would achieve this.

You know, 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 used, but just in the quality of the data, which can impact things like, you know, the sufficiency of the operating plan and the environmental assessment, those types of things. You know, we're looking forward to seeing the revised application. You know, 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.

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, you know, the global economy, our customers, and our business. 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, you know, 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.

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

Hey, thanks. Good morning. 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. Janet, I just wondered, like, you keep saying, like, 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, you know, while yes, you know the comment OR follows volume, I would think OR even more so follows price. Yeah, just thoughts on those two things. Thank you.

Okay. Scott, thanks. I'll start, and then Janet, you know, you can take the second half of the question. Listen, I think we've got a long path to go. A negotiated outcome requires two interested parties and two parties that are willing to negotiate. So far, I don't think that that has happened, but we'll see how that unfolds. It is a very long putt 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. With that, I have full confidence in the STB and the rigor of their assessment. I do think that there's gonna 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. For me, what counts the most is contribution dollars. There's a way to get contribution dollars from pricing, and there's a way to get it from volume. 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. Please go ahead.

Great, thanks. Morning, everyone. Tracy, just to 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. 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. What we've also come to understand is how important the trade between the three countries involved in the USMCA is to each of those countries. As we increasingly get into a world where the geopolitics are more uncertain and higher tension, 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 gonna be. I spend a lot of time with the administrations. 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, that North America and the globe needs. 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. 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. 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. There is, without a doubt, some risk there. There is also, I would say, significant opportunity, 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 unlocking our pinch point so that we have capacity, no matter where our customers need to adjust. We've made that a priority the last few years, and we're capitalizing on that now. We're excited as we look forward. Thanks for the question.

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

Good morning. Wanted to ask, I think probably for Ghislain, two questions on the cost side. The casualty and other was pretty elevated in 1Q. I know there tends to be volatility related to weather and accidents and things, how should we think about that line going forward? Is that kind of a run rate that we should continue, or is that something where you'd say, "Hey, that's kind of unusual, it's gonna come down"? I guess the second on the cost one is just like, there was some commentary about, you know, terminal work and, you know, a third of it's done now, two-thirds over the summer, the remaining two-thirds.

How do we think about, you know, framing the potential cost benefit from that? Is that like a, hey, that's always doing good things, that's CAD 5 million-CAD 10 million benefit, or is it like a bigger impact? Thank you.

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

Oh, just, yeah, on casualty and then.

Oh, casualty. Yep.

Casualty costs in the quarter in 1Q was elevated. How do we think about that line going forward?

I mean, as you know, the, I called out in the prepared remarks that incident costs were higher by over CAD 30 million. The overall variance is over CAD 50 million. In there's also some IT costs as we continue to migrate into cloud computing. Those are the big, the big variances. As we move forward, as you heard Pat, and I'll transfer it to him so he can talk about Fast Track, you know, 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, 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. I would assume that I'm very confident that this will come down going forward in Q2 and the rest of the year. Pat, I'll turn it over to you for Fast Tracking.

Let me start and just address the accident cost and say this: safety is our number one priority. It is the foundation that we build our entire operation on. I wanna make that clear. Further, I would say this: I was raised in this business over the past three-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. Let me say that first and foremost. Our safety-critical maintenance remains fully funded. We're fully resourced from a people perspective. In fact, we continue to insource more of our capital work with CN people. 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 CAD 40 million in run rate savings. We're about a third complete. Let me say that, you know, 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. 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. Please go ahead.

Yeah, thank you very much. Good morning, everyone. My question is for Janet. You've been successful with CAD 100 million of revenue conversion this quarter. Could you talk maybe about your bidding pipeline? What do you foresee this year? 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 haul at CN versus some of your U.S. peer, but just curious to get your perspective on this. Thank you very much.

[Non-English content] Thank you for the question. Couple things. On the visibility around, you know, this kinda 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 CAD 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. We're pleased to see that. Thanks for the question.

Let me just make a couple of comments as we close today. We are very happy with the quarter that we've just delivered. We are delivering on plan. I wanna thank every member of this team for continuing to lean in. Our railroad's 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.

This engine is running well, and it's, and we are poised to capitalize on a stronger demand environment and some considerable operating leverage, you know, 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.

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.