Kevin Chiang

Kevin Chiang asked Pat Whitehead about the long-term capacity investments needed for CN's Western network, given unique growth opportunities that might exacerbate network imbalance. He questioned if CN currently possesses excess capacity to absorb this anticipated growth.

Answer

Patrick Whitehead, COO, stated that 2025 investments in the West, particularly the Edson Sub (now 63% double track), created approximately six trains of capacity, providing 'plenty of room to grow.' He also mentioned stored locomotives and furloughed employees as available levers. Tracy Robinson, CEO, added that CN will pursue growth wherever it arises and adapt, noting that current weakness in forest products also helps create capacity in the Western region for other commodities.

Kevin Chiang asked Patrick Whitehead about the potential for nation-building projects in the Western network to exacerbate network imbalance, and what long-term capacity investments might be needed, or if current excess capacity can absorb this growth.

Answer

Patrick Whitehead, Chief Operations Officer, stated that investments made in 2025, particularly the Edson Sub double track, created significant capacity (approximately 6 trains) in that corridor. He noted that stored locomotives and furloughed employees provide levers for growth, indicating ample room. Tracy Robinson, President and CEO, added that weakness in forest products also helps create capacity in the Western region for other commodities.

Kevin Chiang asked for thoughts and insights on potential changes to the EPA's renewable fuel blending rules, expected to be finalized in Q1, specifically regarding volume obligations from their original proposal.

Answer

Executive Advisor Devina Rankin expressed hope for a Q1 issuance, noting the market has largely priced in the current RVO. She is cautiously optimistic for constructive changes around the edges but does not anticipate anything dramatic, emphasizing the importance of stability in RIN pricing for the business.

Kevin Chiang, Director at CIBC, asked for WM's thoughts and insights regarding the EPA's anticipated finalization of renewable fuel blending rules in Q1 2026, specifically on potential changes to the volume obligations from their original proposal.

Answer

Executive Advisor Devina Rankin stated that WM is hoping for the EPA's issuance in Q1 2026, noting that the market has largely priced in the current Renewable Volume Obligation (RVO). She expressed cautious optimism for potentially constructive changes around the edges but does not anticipate anything dramatic, emphasizing the importance of stability in RIN pricing, which WM's team has effectively managed.

Kevin Chiang asked for an update on the Renewable Natural Gas (RNG) fixed versus variable volume ratio for 2026, given that 30% was fixed at Investor Day and RIN prices have moved up. He also inquired about the price elasticity of the healthcare business after almost a year of ownership, comparing its pricing and demand dynamics to solid waste.

Answer

Chief Sustainability Officer Tara Hemmer updated that approximately 45% of 2026 RNG offtake is pre-sold, with less than half in the transportation market and over 50% in the voluntary market, and 2026 RIN prices are seen in the $2.20-$2.30 range. CEO Jim Fish and EVP and CFO Devina Rankin explained that while a slower, deliberate approach to price increases is being taken in healthcare due to ERP-related customer frustrations, the long-term vision of 5.5-6% growth is supported by secular trends, strong customer service, and WM's data-driven execution, making them more confident in the long-term price outlook than a year ago.

Kevin Chiang asked about the fixed versus variable ratio for RNG volume sales in 2026, given that 30% was previously secured at a fixed price, and if that ratio has changed. He also inquired about the price elasticity of the WM Healthcare Solutions business, comparing its pricing and demand dynamics to solid waste after almost a year of ownership.

Answer

Tara Hemmer (Chief Sustainability Officer) stated that for 2026, 45% of RNG offtake has been pre-sold, up from the last update, with less than half in the transportation market and over 50% in the voluntary market. WM's fleet will be fully allocated to WM's RNG production in 2026, with RIN prices for 2026 in the $2.20-$2.30 range. Jim Fish (CEO) and Devina Rankin (EVP and CFO) explained that while the long-term aspiration for WM Healthcare Solutions is 5.5%-6% growth, a slower, more deliberate approach to price increases was taken due to ERP frustrations, but they are confident in achieving entitled price increases, citing $200 million in renewals at low double-digit PIs.

Kevin Chiang followed up on yield, asking why commercial yield held up better sequentially compared to residential and industrial yields. He also questioned the year-over-year revenue decline in the WM Healthcare Solutions (formerly Stericycle) business, asking about underlying volume and pricing trends and whether any business was purposefully shed.

Answer

EVP and CFO Devina Rankin explained the yield variance was due to business mix, particularly weather-related weakness in temporary industrial roll-off, though trends improved in March and April. Executive Rafael Carrasco clarified that the healthcare revenue decline was primarily from the divestiture of Spain and Portugal operations, noting the core regulated medical waste business volumes were actually up slightly.

Kevin Chiang of CIBC asked if management could quantify the Stericycle cross-selling opportunity by disclosing customer overlap and questioned if the Q4 step-down in residential volume was due to an acceleration of intentional contract shedding.

Answer

Rafael Carrasco, head of WM Healthcare Solutions, stated they are still assessing the customer overlap but see a large opportunity, similar to their successful National Accounts business. EVP and COO John Morris clarified that residential shedding can be lumpy but the 3-3.5% annual rate is expected to continue. President and CEO Jim Fish added that this is achieved by re-bidding unprofitable contracts at acceptable margins upon renewal, not by terminating them.

Kevin Chiang requested an update on the Canadian Competition Bureau's review of the Stericycle acquisition and asked about the potential for improvement in the maintenance and repairs cost line.

Answer

EVP & CFO Devina Rankin described the Canadian review as a typical process and expressed confidence in receiving clearance in Q4. EVP & COO John Morris addressed maintenance costs, explaining that while new automated trucks are individually more complex, they drive down the total cost of operation per unit, which is the key metric. He noted a 40 basis point improvement in M&R costs in the quarter, aided by more consistent truck deliveries.

Kevin Chiang asked for directional insights into GFL's 2026 EBITDA, considering the strong Q3 performance and investor day targets, suggesting a potential runway EBITDA of $2.3 billion. Chiang also inquired about SG&A trends and the realization of cost absorption benefits over the medium term.

Answer

Luke Pelosi, CFO of GFL, clarified that the current run rate EBITDA is skewed by EPR contracts, projecting double-digit EBITDA growth for 2026 from the current year's $1.975 billion, before incremental M&A or economic recovery. Pelosi noted significant improvements across SG&A, labor, and R&M costs, attributing this to improved labor turnover and leveraging existing infrastructure, expecting corporate segment costs to continue trending down.

Kevin Chiang asked for directional insights into 2026 EBITDA, considering the strong Q3 performance, investor day targets, and the potential to reach $2.3 billion. Chiang also inquired about SG&A trends, specifically the 80 basis point improvement in SG&A intensity, and whether the company is realizing cost absorption benefits as discussed at the investor day.

Answer

Luke Pelosi (CFO, GFL) clarified that the current run-rate EBITDA is influenced by EPR contracts. He suggested anticipating double-digit EBITDA growth (around 10%) from the current $1.975 billion, driven by over 50 basis points of margin expansion on a revenue number starting with a seven, before accounting for incremental M&A or commodity/volume recovery. Pelosi confirmed improvements across SG&A (80 bps), labor and benefits (40 bps), and R&M (50 bps), attributing it to better labor turnover and leveraging existing infrastructure, with the corporate segment trending towards 4% of total revenue.

Kevin Chiang from CIBC World Markets asked if the strong performance of the EPR business is tracking ahead of base case expectations and if there is potential for further EBITDA upside. He also inquired about the impact of M&A on the corporate cost line and the outlook for operating leverage.

Answer

Executive VP & CFO Luke Pelosi explained that current EPR outperformance is due to transitional volumes, allowing a faster ramp to the target EBITDA, while Founder, Chairman, President & CEO Patrick Dovigi noted future upside opportunities remain. Pelosi also confirmed that the corporate function is built out, and the company expects to drive meaningful operating leverage on that cost line as revenue grows.

Kevin Chiang asked if the 5.5% volume tailwind from EPR in Q1 is a sustainable run rate and used historical seasonality to question if full-year EBITDA could reach the $1.95 billion to $2 billion range.

Answer

Executive Luke Pelosi clarified that the EPR volume benefit will not be perfectly ratable but will provide tailwinds throughout the year. While declining to update full-year guidance until Q2, he acknowledged the strong start positions the company to potentially exceed its previous guidance range, though he cautioned that FX remains a headwind.

Kevin Chiang questioned the 2025 margin guidance cadence, asking why Q1 margin expansion is guided to be as strong as the full year despite seasonal headwinds, and inquired about the drivers of the Q4 step-up in U.S. organic growth.

Answer

Executive Luke Pelosi explained that H1 2025 margins benefit significantly from the Michigan divestiture, which adds about 65 basis points in Q1, offsetting seasonal weakness. He also noted that commodity price comps are actually a slight lift in Q1 year-over-year. Regarding U.S. growth, Pelosi highlighted that U.S. volumes increased 360 basis points sequentially from Q3 to Q4, driven by the anniversary of volume shedding initiatives and strong participation in hurricane cleanup efforts.

Kevin Chiang questioned the reasons for the divergence in organic growth between GFL's Canadian and U.S. solid waste businesses. He also asked if a potential divestiture of the Environmental Services (ES) segment would be for the entire portfolio or could be done in parts.

Answer

CFO Luke Pelosi explained that the Canadian solid waste business had more room for price improvement and is benefiting from new recycling and EPR investments. In contrast, the U.S. business has seen more intentional volume shedding from acquired contracts. CEO Patrick Dovigi clarified that a sale of the ES segment would be for the entire portfolio 'on block,' with the minor potential exception of the soil remediation business.

Kevin Chiang of CIBC World Markets asked if transient headwinds in the Civil segment could lead to deferred CapEx, and also questioned whether working capital would be a tailwind for the full fiscal year as it was in the prior two years.

Answer

Interim CFO Constantino Malatesta confirmed that CAE still expects total CapEx to be modestly lower year-over-year, reflecting a disciplined approach to spending. Regarding working capital, he stated that while Q1 saw a typical seasonal investment, the company is aiming for a more neutral working capital impact for the full year and remains on track for its 150% free cash flow conversion target.

Kevin Chiang asked for details on the drivers of CAE's Civil segment outlook, questioning the demand differences between commercial and business aviation, and the factors influencing the margin forecast given fewer simulator sales and the full-year benefit of the SIMCOM joint venture.

Answer

President and CEO Marc Parent stated that the company is taking a measured approach due to a cautious tone from airlines and some recent softness, expecting a stronger second half. He confirmed training demand remains resilient but simulator deliveries will be lower in H1. COO Nick Leontidis added that while pilot hiring is improving, it hasn't returned to prior year levels, and lopsided aircraft deliveries from OEMs have created temporary slack in the training system.

Kevin Chiang from CIBC asked about the opportunity for CAE following Flexjet's large aircraft order, including any required investments. He also inquired about potential risks to CAE's defense business from changes in U.S. defense spending priorities.

Answer

CEO Marc Parent and COO Nick Leontidis characterized the Flexjet order as 'extremely positive,' confirming it will necessitate investment in new simulator capacity which is justified by a newly reset 15-year exclusive training agreement. Regarding defense spending, Mr. Parent stated that CAE's business is driven by military readiness needs, not overall budget levels, and that long-term contracts provide significant stability against short-term political shifts.

Kevin Chiang of CIBC asked if current restructuring efforts alter the long-term margin targets for the Civil and Defense segments. He also requested the revenue contribution from legacy Defense contracts and clarification on the margin profile of the new Canadian FAcT contract.

Answer

CEO Marc Parent stated that while cost savings will benefit the bottom line, he would not update long-term guidance at this time. CFO Sonya Branco clarified that legacy contract revenue is not disclosed but their dilutive impact was 0.2% in the quarter. She confirmed the FAcT program is 'highly accretive' and aligns with the company's target margin profile for new Defense business.

Kevin Chiang of CIBC inquired about the sustainability of the significant year-over-year OpEx reduction in the U.S. LTL segment and sought clarification on whether the Q3 guidance assumes any incremental benefit from self-help initiatives.

Answer

CFO David Saperstein confirmed that while costs are being taken out, the company is also strategically investing in service, such as staffing appropriately to reduce missed pickups. He clarified that the Q3 guidance assumes normal seasonality applied to the current operational run-rate, meaning any further gains from self-help initiatives would be additive to that forecast.

Kevin Chiang asked about the timeline to achieve the $7.00-$7.25 EPS target that management cited as possible through self-help levers, questioning if this could be a realistic goal for 2026.

Answer

Executive Alain Bedard responded that reaching that EPS level will take time, as TForce Freight remains a significant drag on performance due to persistently low volumes. He highlighted the TForce Freight segment's $30 million year-over-year decline in Q4 operating income as an example of the scale of the challenge, indicating that a substantial amount of work is still required before that earnings level can be achieved.

Kevin Chiang asked for color on the improving trends in the P&C segment and questioned if a change in sales compensation structure is needed to achieve the goal of increasing shipment density in the U.S. LTL business.

Answer

CEO Alain Bedard attributed the P&C improvement to new leadership correcting earlier missteps, with a focus on cost control in a competitive market. He strongly agreed that the compensation structure for the U.S. LTL sales team and terminal managers will likely be reviewed and updated in 2025 to better align incentives with the critical mission of increasing freight per stop and improving service metrics.

Kevin Chiang of CIBC World Markets asked about the progress on the margin opportunity tied to improved employee turnover and safety, and sought details on why the EPA's increased involvement at the Chiquita Canyon landfill is considered a positive development.

Answer

CFO Mary Whitney stated that WCN has realized 60-70 basis points of the 100+ basis point margin opportunity from improved labor trends, with more to come. CEO Ronald Mittelstaedt explained that EPA involvement is favorable as it streamlines oversight from numerous uncoordinated local agencies, bringing deep expertise in managing ETLF events which should lead to a more efficient and less costly process.

Kevin Chiang inquired about employee retention trends within recently acquired businesses, the contribution of R360 Canada to the 2025 margin outlook, and the potential role of share buybacks in capital allocation.

Answer

Executive Ronald Mittelstaedt stated that while turnover is initially higher in acquired companies (30-35%) due to rigorous safety standards, the overall company turnover is at a multiyear low. CFO Mary Anne Whitney clarified that the 50-80 basis points of margin expansion is driven by the underlying business, not a significant rollover contribution from acquisitions like Secure. She also affirmed that with low leverage and high liquidity, opportunistic share buybacks are a key part of their capital allocation strategy.

Kevin Chiang of CIBC Capital Markets asked about the drivers of special waste pull-forward from Q4 to Q3, the implications of the Royal Waste acquisition on New York City's commercial zone caps, and the potential risk to RIN pricing in 2025.

Answer

CFO Mary Anne Whitney stated the special waste timing was project-specific and not related to the election. She also noted that the company's hybrid and hedging strategy for RNG mitigates RIN price uncertainty. Executive Ronald Mittelstaedt clarified that after the Royal Waste deal and accounting for overlaps, the company is at the 15-zone cap, not exceeding it.

Kevin Chiang of CIBC asked about discussions with automotive customers regarding the potential reshoring of U.S. auto production and how CPKC can assist in reshaping those supply chains.

Answer

EVP & CMO John Brooks stated that CPKC's auto franchise is in a good position with production facilities running and low inventories supporting volumes. He highlighted the 6,000 acres of available land across the network for development and co-location, which the company is actively marketing to OEMs and supportive industries to facilitate potential supply chain shifts.

Kevin Chiang asked how potential tariffs and a widening of Canadian crude differentials could impact the company's crude-by-rail business.

Answer

EVP and CMO John Brooks noted that, counterintuitively, the recent tariff uncertainty has caused a narrowing of differentials as U.S. customers explore alternatives. He also mentioned that this environment has spurred new opportunities for rail movements from Canada directly to Mexico. He concluded that the market has been slightly hurt by the uncertainty, and the company will adapt its strategy once the final tariff structures are clear.

Kevin Chiang asked about the expected seasonal margin progression from Q1 to Q2, particularly if delayed work could boost it, and inquired about the potential impact of tariffs on the company's capital plans.

Answer

CFO Brian DelGhiaccio reiterated the long-term annual margin expansion target for Environmental Solutions of 75-100 basis points. CEO Jon Vander Ark stated that tariffs would have a minimal impact in 2025, with 2026 being 'TBD.' He noted they are proactively working with suppliers to specify and mitigate any potential tariff-related surcharges.

Kevin Chiang inquired if recent regulatory changes in California affect the company's EV fleet strategy and if changes in U.S. immigration policy are creating any downstream labor impacts.

Answer

CEO Jon Vander Ark stated the California regulatory changes have not slowed their EV deployment, which is driven by customer demand and incentives. He also noted no direct impact from immigration policy on their workforce and sees mortgage rates, not labor supply, as the primary driver for the construction market.

Kevin Chiang of CIBC inquired about the status of the M&A pipeline mentioned in the previous quarter and asked for an update on the company's electric vehicle (EV) adoption strategy and its confidence in meeting its 2028 targets.

Answer

CEO Jon Vander Ark explained that while the M&A commitment is strong, the timing has an ebb and flow, with the full-year total likely closer to $300 million versus the initial $500 million outlook. He expressed confidence in the EV strategy, highlighting the importance of system-wide planning (infrastructure, incentives) and the game-changing nature of the new Oshkosh vehicle that meets productivity requirements without sacrificing payload.

Chiang inquired about Lion's sales strategy to overcome dependency on the timing of government programs and whether political uncertainty, such as a potential Trump administration, is causing customers to delay orders.

Answer

The company stated that school bus demand is intrinsically linked to subsidy program timing, which they are now actively working to convert into orders. They acknowledged that political uncertainty creates a 'wait-and-see' approach for truck customers but has less impact on school bus customers due to already approved, long-term federal funding.

Inquired about the sales strategy to grow the order book, the impact of the freight recession on truck sales, and asked for clarification on whether the targeted $50-$75 million inventory reduction is a net or gross figure.

Answer

Management explained that the order book's short-term volatility is caused by the timing of government subsidy programs like the EPA and ZETF, but the long-term outlook is strong. The freight recession is a challenge, but dialogue with large truck operators is active. The projected inventory reduction of $50-$75 million was confirmed to be a net number.