Walter Spracklin

Walter Spracklen questioned if the 2026 volume outlook appeared more 'up-ish' than 'flat-ish' based on the presentation slide, asking for clarification on the strongest upside and downside drivers. He also inquired about Prince Rupert's performance, specifically if it was running at the previously hoped-for 10% run rate.

Answer

Janet Drysdale, Chief Commercial Officer, clarified the outlook, identifying the greatest strength in agriculture and energy (NGLs, refined petroleum products, and potential crude later in the year). She noted expected weakness in forest products, metals, and intermodal due to consumer health and tariffs. Drysdale expressed satisfaction with Prince Rupert's Gemini volumes and overall performance, highlighting the CanExport and Intermodex facilities as future growth drivers.

Walter Spracklin questioned if CN's 2026 volume outlook, which showed several segments up (petroleum/chemicals, US/Canadian grain, domestic intermodal) and fewer down (forestry, fertilizers), implied volumes would be more 'up-ish' rather than 'flat-ish.' He asked for clarification on the strongest upside/downside segments and if Prince Rupert was still running at the previously hoped-for 10% run rate.

Answer

Janet Drysdale, Chief Commercial Officer, acknowledged the 'art involved' in the slide, identifying the greatest strength in agriculture and energy, particularly NGLs and refined petroleum products, with potential for incremental crude later in the year. She cautioned on forecasting customer ramp-ups. Weaker areas include forest products, metals, and intermodal due to consumer health and tariffs. Drysdale expressed pleasure with Prince Rupert's growth, including Gemini volumes, and highlighted the ramping up of the CanExport facility and the Intermodex import transloading facility as examples of end-to-end supply chain investments.

Walter Spracklin inquired whether there have been any challenges or changes in optimism regarding the company-specific volume growth initiatives outlined at the 2023 Investor Day, given the recent guidance reduction.

Answer

CEO Tracy Robinson stated that optimism for the company's specific growth initiatives remains fully intact. She explained that the initiatives are based on fundamental network advantages in intermodal, energy, and agriculture. Robinson attributed the current slowdown to the uncertain tariff environment, describing it as a "timing issue" and affirming that the underlying growth fundamentals have not changed.

Walter Spracklin asked about the Gemini Alliance, questioning why both CN and its competitor are highlighting it as a win and whether it is driving volume to the more efficient, single-served Prince Rupert port.

Answer

Remi Lalonde, Chief Commercial Officer, explained that Gemini's focus on a higher service promise aligns perfectly with Prince Rupert's value proposition of reliability and lack of congestion. He confirmed that the alliance has successfully pulled volume into Rupert for both U.S. and Canadian destinations, exceeding CN's initial expectations.

Walter Spracklin asked about the share buyback plan, inquiring if a specific dollar amount is budgeted for 2025 and whether the company would consider increasing its 2.5x leverage target.

Answer

CFO Ghislain Houle stated that CN will continue to prudently manage its balance sheet to the 2.5x adjusted debt-to-EBITDA leverage target and did not provide a specific budget for the buyback, emphasizing its flexibility. He confirmed the use of the balance sheet is a topic of ongoing internal debate.

Walter Spracklin of RBC Capital Markets asked if congestion at West Coast ports like L.A./Long Beach is creating new service opportunities for CN through Prince Rupert and Vancouver.

Answer

Chief Network Operations Officer Patrick Whitehead responded that the immediate challenge is recovering the U.S. destination mix through its Western gateways, which shifted heavily toward Canadian destinations post-disruption. He noted that while recovery will take time, congestion at U.S. ports underscores the value proposition of Canadian gateways like Prince Rupert.

Walter Spracklin sought clarification on whether the $216 million in productivity gains included land sales and asked about the impact of reduced truck capacity and higher truck prices on Norfolk Southern's truck-to-rail conversion efforts.

Answer

CFO Jason Zampi confirmed that the $150 million in outsized land sales from Q3/Q4 were excluded from the $216 million productivity figure. Chief Commercial Officer Ed Elkins acknowledged that reduced truck capacity and higher prices could help over time but stressed that a market recovery must be demand-led, not supply-side led.

Walter Spracklin sought clarification on whether the $150 million in land sales were included in the reported $216 million productivity gains. He also asked if the observed capacity reduction and higher prices in the truck market were positively impacting Norfolk Southern's efforts toward truck-to-rail conversion.

Answer

CFO Jason Zampi clarified that the $150 million in land sales were excluded from the $216 million productivity figure. Chief Commercial Officer Ed Elkins stated that while factors like reduced driver pools and truck capacity could be helpful, he has 'never seen a recovery that was supply-side led,' emphasizing that a demand-led recovery is necessary for significant truck-to-rail conversion.

Walter Spracklin asked COO John Orr to identify a key weekly metric, such as velocity or car miles per day, that investors can monitor to feel confident that the network is running according to plan and achieving productivity gains.

Answer

COO John Orr explained that no single metric tells the whole story, emphasizing a balanced approach across a 'network asset and customer health index' of multiple metrics. He pointed to the zero-based plan's success in tightening standards and compressing the speed differential between the fastest and slowest trains. He stressed that the focus is on the combination of metrics and the actions being taken to improve them, rather than one specific number.

Walter Spracklin of RBC Capital Markets asked for a key weekly metric that investors could use to gauge if the network is running according to plan.

Answer

COO John Orr advised against focusing on a single metric, emphasizing a balanced view of network, asset, and customer health indices. He explained the focus is on overall system performance driven by the new zero-based plan, which improves service standards and moves the entire network more productively.

Walter Spracklin asked what might be holding back a faster pace of operating ratio improvement to close the gap with peers and whether the current pace was intended to protect customer service.

Answer

COO John Orr stated that they are aggressively pursuing all cost opportunities and nothing structural is holding them back. He emphasized a disciplined approach that will not compromise customer service for short-term gains. CEO Mark George characterized the strategy as a 'cerebral' PSR 2.0 approach that allows for simultaneous improvement and volume growth without service degradation.

Walter Spracklin from RBC Capital Markets asked about the market opportunity with Mexico, specifically via the CPKC network into the Southeast, and if this is viewed as a significant new source of business.

Answer

Ed Elkins, CMO, confirmed that near-shoring is a key trend and that Norfolk Southern is in active discussions with both Grupo Mexico and CPKC. He highlighted the Meridian Speedway as a prime opportunity and hinted at other exciting developments. John Orr, COO, added that Mexico is a growing part of supply chain conversations and that opportunities exist for both rail and short-sea routes.

Walter Spracklin with RBC Capital Markets inquired about CPKC's mid-single-digit volume growth guidance for 2026, seeking clarity on the specific sectors driving this confidence, the contribution from existing integration synergies versus new business wins, and the potential impact of recent Q1 weather events.

Answer

John Brooks, EVP and Chief Marketing Officer, acknowledged Q1 challenges due to tough comps and weather but expressed optimism for a strong rebound in Q2/Q3, driven by robust grain and potash exports, intermodal growth (MMX, new SMX with CSX, Americold expansion), and unique product offerings. Keith Creel, President and CEO, added that lapping the Q2/Q3 2025 IT system integration "schmozzle" would also benefit 2026 results.

Walter Spracklin asked about CPKC's mid-single-digit volume growth guidance, seeking clarity on the contributing sectors, the balance between carryover business and new wins, and the impact of recent weather events.

Answer

EVP and CMO John Brooks acknowledged Q1 challenges and weather impact but expressed optimism for momentum building in Q2/Q3, driven by strong bulk business (grain, potash) and self-help initiatives like intermodal growth (MMX, new SMX with CSX, Americold). President and CEO Keith Creel added that lapping the IT system cutover period from the previous year would also benefit 2026 results.

Walter Spracklin asked if CPKC is observing customer diversions from Norfolk Southern, potentially benefiting CSX, and if CPKC sees opportunities to capitalize on such trends into 2026.

Answer

EVP and CMO John Brooks confirmed active dialogue on partnerships to leverage other franchises, noting that these opportunities are becoming more prominent. He highlighted new growth on the Meridian Speedway route with CSX, particularly for freight from Mexico into the U.S. Southeast, which represents new business rather than diversions. President and CEO Keith Creel added that the M&B connection with CSX has energized operating teams.

Walter Spracklin asked if CPKC is seeing diversions in volume away from Norfolk Southern due to the proposed merger, similar to what NS flagged, and if there are opportunities to leverage this trend in contract negotiations for 2026.

Answer

EVP and CMO John Brooks confirmed ongoing dialogue and exploration of partnerships to leverage network strengths, noting opportunities shifting to the Meridian Speedway route with CSX. He emphasized that much of this is new growth, particularly freight from Mexico into the Southeast, rather than just diversions, and that customers are seeking optionality.

Walter Spracklin of RBC Capital Markets posed a hypothetical scenario where transcontinental mergers proceed, asking if CPKC's strategy would be limited to commercial actions or if it would consider participating in a 'round two' of consolidation.

Answer

CEO Keith Creel responded that CPKC's primary obligation is to maximize shareholder and stakeholder value. He stated that the company will be an active observer and participant as events unfold. He emphasized that the CPKC team and network represent 'industry unique value and strength,' suggesting that in any potential consolidation scenario (except one obvious combination), CPKC would be a compelling and valuable entity, and it is the management's job to ensure that value is realized.

Walter Spracklin of RBC Capital Markets questioned the rationale behind lowering the EPS growth guidance while maintaining the mid-single-digit RTM growth outlook, especially given the strong start to Q2 volumes.

Answer

EVP & CFO Nadeem Velani clarified that the primary driver for the lower EPS guidance was currency headwinds from a stronger Canadian dollar, which accounted for a two-percentage-point impact. He reaffirmed the company's expectation for mid-single-digit RTM growth for the year.

Walter Spracklin asked about the automotive business outlook amid potential tariffs and sought perspective on the Norfolk Southern purchase option at the Wylie, Texas terminal.

Answer

President and CEO Keith Creel clarified that the Norfolk Southern option pertains to a small 'island' intermodal terminal within CPKC's much larger Wylie facility. He stated that an exercise of the option would not be material, as CPKC would be compensated and the true value lies in the integrated auto compound that CPKC controls. EVP and CMO John Brooks added that automotive growth is driven by superior service, and since U.S. vehicle demand necessitates imports, CPKC is positioned to provide solutions regardless of the specific trade environment.

Walter Spracklin inquired about the drivers of strong volume growth in a weak macro environment and whether this performance could lead to an upward revision of long-term revenue synergy targets.

Answer

EVP and CMO John Brooks attributed near-term strength to the bulk franchise, citing strong Canadian and U.S. grain crops, record potash demand, and a coal catch-up. He noted that while some merchandise areas face macro headwinds, unique synergy opportunities and extended length of haul are allowing CPKC to outpace the industry. While not revising long-term targets, Brooks expressed confidence that the future is bright for 2025 and beyond, given the current momentum.

Walter Spracklin questioned why, despite strong operating metrics like record train lengths and velocity, Union Pacific's operating ratio improvement isn't projected to be more significant (e.g., over 100 basis points), and whether pricing or volume is necessary to achieve such improvement without macro support.

Answer

Jim Vena, Chief Executive Officer, explained that OR improvement is a result of multiple levers. He acknowledged wage increases (4% in the first year) as a cost pressure but expressed confidence that Kenny Rocker, Executive Vice President of Marketing, would deliver on pricing, and Eric Gehringer, Executive Vice President of Operations, would drive productivity improvements. He affirmed confidence in OR improvement, noting CFO Jennifer Hamann's more conservative stance.

Walter Spracklin asked about Union Pacific's operating ratio (OR) improvement, noting strong operating metrics such as record train lengths and velocity. He questioned whether the company needs assistance from pricing or volume growth to achieve more than 100 basis points of OR improvement, or if it can be accomplished solely through current operational metrics, given the CFO's comments on inflation and pricing.

Answer

Jim Vena, CEO, explained that OR improvement is driven by multiple levers, including operating efficiency and productivity. He acknowledged the pressure from wage increases (4% in the first year of new collective agreements) but emphasized that Kenny Rocker, EVP of Marketing, is expected to deliver on pricing for the value provided. He expressed confidence in improving OR for the year, noting that Jennifer Hamann, CFO, maintains a more conservative outlook.

Walter Spracklin of RBC Capital Markets asked about the size of the addressable market for repatriating U.S.-bound traffic from Canadian ports and whether port capacity is a bottleneck in pursuing that volume.

Answer

CEO Jim Vena stated that Union Pacific looks at all ways to grow and that competing with Canadian railroads is part of his job. EVP of Marketing & Sales Kenny Rocker added that the company is 'on offense' to capture this business, highlighting new service products from Tacoma into Chicago and a new ramp in the Twin Cities as examples of how they are penetrating those markets.

Walter Spracklin of RBC Capital Markets asked where the greatest opportunity for operating leverage lies if the macroeconomy improves and whether such a scenario could push EPS growth above the high end of the company's long-term target range.

Answer

EVP of Marketing and Sales Kenny Rocker identified significant leverage opportunities in grain products (driven by renewable diesel), petrochemicals, and a potential recovery in automotive and domestic intermodal. EVP of Operations Eric Gehringer added that the network has proven its ability to flexibly support such growth, citing recent successes in handling grain shifts and intermodal surges.

Walter Spracklin of RBC Capital Markets asked if recent margin pressures suggest that prior margin improvement levels are no longer achievable and if an industry-leading operating ratio (OR) is possible next year.

Answer

Executive Vincenzo Vena asserted that Union Pacific has maintained an industry-leading OR for several quarters and expects to continue doing so. He explained that while inflationary pressures are a challenge, the company's strategy, focused on pricing, productivity, and EPS growth, remains on track with the long-term goals outlined at the recent Investor Day.

Walter Spracklin asked for a decomposition of CSX's low single-digit revenue growth profile, specifically whether a negative mix effect is anticipated or if core pricing is expected to be below typical industry levels, also referencing truck pricing trends.

Answer

Maryclare Kenney, SVP and Chief Commercial Officer, CSX Corporation, confirmed that mix will significantly impact RPU, with stronger growth in lower RPU segments (intermodal, minerals, fertilizer) and headwinds in higher RPU areas (chemicals, forest products, automotive). She also noted stabilization in coal RPU and met coal benchmarks.

Walter Spracklin asked SVP and Chief Commercial Officer Maryclare Kenney to decompose the low single-digit revenue growth, focusing on the impact of mix on pricing (whether core pricing is below the typical 3.5% industry average) and how current truck pricing trends influence CSX's revenue outlook.

Answer

SVP and Chief Commercial Officer Maryclare Kenney confirmed that mix will play a significant role, with stronger growth expected in lower RPU segments (intermodal, minerals, fertilizer) and headwinds in higher RPU areas (chemicals, forest products, automotive), impacting overall RPU. She also noted stabilization in export coal benchmarks, particularly Hival, after significant declines in the previous year.

Walter Spracklin asked Mike Cory if operations can reestablish optimal performance quicker than mid-2026, given current strong metrics and completed capacity projects, and if anything stops continued improvement through Q4 and 2026.

Answer

Mike Cory, EVP and COO, affirmed current strong operational performance, including fastest train velocity and lowest cars online in years, and expected continued improvement. He highlighted that completed projects provide capacity and resiliency, creating a stable basis for further gains, despite upcoming weather challenges.

Walter Spracklin from RBC Capital Markets asked if the company's long-term Investor Day EPS growth target could serve as a guidepost for 2026, implying a potential mid-teen growth rate to compensate for a challenging 2025.

Answer

EVP & CFO Sean Pelkey stated it was too early for a specific 2026 forecast but agreed the setup is strong. He explained that simply removing 2025's one-time costs and headwinds provides a low-to-mid single-digit operating income growth base. Combined with the industrial development pipeline and easier comps, he expects 2026 growth to be in the 'double digits.'

Walter Spracklin requested more detail on the "favorable partner alignment" in international intermodal, asking if it could lead to new or deeper partnerships.

Answer

EVP and CCO Kevin Boone clarified that his comment referred to CSX's strong strategic positioning with its existing portfolio of growth-oriented partners, rather than a specific new contract. He highlighted a focus on capturing opportunities from shifting global trade flows, particularly those that could benefit East Coast ports.

Walter Spracklin questioned the feasibility of the 3-year EPS growth target from the Investor Day, noting that the expected dip in 2025 would require a low-teen growth rate in 2026-2027 to achieve it.

Answer

EVP and CFO Sean Pelkey reaffirmed the company's commitment to its long-term guidance. He pointed out that the significant network disruption costs in 2025 will completely reverse into a net benefit in 2026. He also clarified that the 3-year guidance assumes a return to 2024's average commodity price levels by 2027, which is a key variable in hitting the targets.

Walter Spracklin asked about the competitive landscape, specifically if service changes at a key rail competitor were creating market opportunities or risks for CSX.

Answer

CCO Kevin Boone responded that CSX competes with a strong, improving service product and a consistent leadership message. He emphasized that CSX has an effective cost base to compete on both service and cost. However, he stated the primary focus is on growing the overall market by converting freight that is not currently on rail, which also helps in retaining existing business.

Walter Spracklin from RBC Capital Markets inquired about the broader macro outlook for the second half of 2025 and into 2026, and asked about the company's M&A strategy, specifically regarding tuck-in acquisitions versus larger, transformative deals.

Answer

Alain Bedard, President, CEO & Chairman, expressed optimism that a new U.S. administration budget could revive the industrial sector in late 2025 or early 2026. Regarding M&A, he stated that for 2025, the focus is on share repurchases as the best use of capital. He suggested a larger transaction could be considered in 2026, after fully digesting the Daseke acquisition.

Walter Spracklin questioned if customer buying patterns were shifting due to macro uncertainty, leading to market share changes, and asked for an update on the M&A outlook and strategy.

Answer

Executive Alain Bedard confirmed that uncertainty, particularly around tariffs, is causing industrial and agricultural customers to delay orders, impacting flatbed volumes. However, he noted that rate per mile has improved since March. On M&A, Bedard stated that activity will be minimal in 2025, with the company prioritizing share repurchases ($56 million in Q1) and maintaining leverage below 2.5x. A potential deal was abandoned due to the uncertain environment.

Walter Spracklin sought clarification on the U.S. re-domiciliation plan, asking if TFI would delist in Canada, and questioned if the company might accelerate M&A to build network density during the current market downturn.

Answer

Executive Alain Bedard confirmed TFI will not delist from the Canadian stock exchange. He explained the re-domicile is a corporate structure change to a U.S. corp to better align with its business and shareholder base. On M&A, Bedard agreed with the 'buy in bad news' philosophy but noted it's a balance between being bold and managing the company's leverage. He suggested a significant deal could happen in 2025 but wants to get through a difficult Q1 first.

Walter Spracklin questioned management's comfort level with the 2025 consensus EPS estimate of $8.50, given the revised 2024 guidance. He also inquired about capital allocation plans for 2025, specifically the balance between share buybacks and M&A.

Answer

CEO Alain Bedard stated it was too early for a formal 2025 guide but believes an EPS around $8.00 is attainable in a normal freight environment, citing contributions from recent acquisitions like Daseke. He emphasized a focus on aggressive debt reduction, which will lower interest costs. For 2025 capital allocation, Bedard anticipates the usual $200-$300 million for tuck-in acquisitions, while share buybacks will be opportunistic and dependent on the stock price.