Canadian National Railway Company - Q4 2017

Transcript

Operator (participant)

Welcome to CN's fourth quarter and full year 2017 financial results conference call. I would now like to turn the meeting over to Mr. Paul Butcher, Vice President, Investor Relations. Ladies and gentlemen, Mr. Butcher.

Paul Butcher (Head of Investor Relations)

Thank you, Patrick. Good afternoon, everyone, and thank you for joining us for CN's fourth quarter and full year 2017 earnings call. I would like to remind you about the comments already made regarding forward-looking statements. With me today is Luc Jobin, our President and Chief Executive Officer; Mike Cory, our Executive Vice President and Chief Operating Officer; JJ Ruest, our Executive Vice President and Chief Marketing Officer; and Ghislain Houle, our Executive Vice President and Chief Financial Officer. In order to be fair to all participants, I would ask that you please limit yourselves to one question. I will be available after the call for any follow-up questions. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Mr. Luc Jobin.

Luc Jobin (President and CEO)

Thanks, Paul, and welcome everyone to our fourth quarter and full year 2017 earnings call. Well, we faced in the fourth quarter some very challenging operating conditions. On top of record workload levels, specifically in key segments such as Western Canada and the U.S. Midwest, we encountered in that quarter a series of outages on our main line and very cold December weather across the entire network. These conditions, while largely outside of our control, nevertheless resulted in disruptions and put our network resiliency to the test, as our operating team worked hard to maintain the best level of service possible for our customers in the circumstances. I'm extremely proud of what our dedicated team of railroaders at CN have been able to accomplish in the face of such adversity.

In fact, when you look at our operating ratio in the fourth quarter at 60.4, it is, when you look at the previous record in terms of volume, it is lower than the previous record in terms of volume going back to 2014, where we had an OR of 60.7. In any event, to deliver this kind of environment, in this kind of environment implies, however, an exponential level of resources, higher cost, and less efficiency as trains are shortened, delayed, and/or detoured. Many of our partners in the supply chain also faced weather-related issues and some of their own capacity issues in the fourth quarter, nevertheless, also compounding the challenge.

Mike will give you more color in a minute on how we've been ramping up resources, and that's people, motive power, and infrastructure in the last quarter, but more importantly, how our 2018 operating plans are addressing this situation as we move through winter and then build momentum in service and efficiency throughout the year. That being said, the fourth quarter capped an impressive year for CN in 2017, a year where we delivered strong all-around results as we onboarded significant volume, adding over $1 billion of revenues while growing adjusted diluted EPS by 9% to $4.99. We also generated solid free cash flow. With this strong performance and good prospects for the future, we announced today that our board has approved a 10% dividend increase for 2018.

In essence, we have witnessed strong growth across a broad range of business segments in 2017, and JJ will recap our fourth quarter and full year performance. He'll also give you our perspective on key markets as we look ahead in 2018. Turning to financials, Ghislain will give you more flavor, a flavor for the fourth quarter and the full year results. He'll also share with you our outlook for 2018. All right, so on that note, let me turn it over to Mike and the team for their more detailed comments. Mike?

Mike Cory (EVP and COO)

Thank you very much, Luc. To start, 2017 saw a record volume and workload handled. To put the growth story in perspective, volume growth in 2017 has been by far the biggest increase I've experienced in my time as an operating executive at this company. Our ability to handle it and the complexities that come with the demand of our customers and changing operating environment is a testament to the talented group of railroaders I'm proud to lead. Our traffic workload, or GTMs, continued to climb in this fourth quarter, up 3% from Q4 2016, and 7% versus Q4 2015. For this full year, overall workload was up 11% over 2016, and 6% compared to 2015.

The real story, though, is that in segments of our network, volume was up by as much as 20% compared to 2016, and 18% compared to 2015. But as I've explained before, our standard approach is to accommodate growth through increased train load. Over time, our investment in the network-related components, like sidings and double track, has allowed us to safely and efficiently increase our train length and tonnage at a rate to accommodate growth at a low incremental cost by not necessarily introducing additional trains. As you can see, even in the tougher operating conditions, we've continued to respond to growth by increasing train size by 8% in the last 2 years. This has been accomplished with minimal network investment. The growth we experienced in 2017 came on quickly and concentrated.

This concentration placed resiliency pressure in certain geographic areas and has had an effect on fluidity and resource availability as portions of our network have seen substantial volume increases. This rate of growth has required additional train starts, and as a result, we've not been able to maintain the speed of trains in segments of our network. Our network is primarily a single-track operation, with some components of double track on our main line. Those were wise investments we made in previous years that will continue to be made in the coming years, and, as we leverage this railroad to grow. As I mentioned on the third quarter call, our Western Canadian and Wisconsin corridors have experienced the greatest growth. In Wisconsin, volume was up 17% year-over-year, and 13% compared to 2015.

This was driven by strong movements in specific commodity, commodities, notably frac sand, which doubled relative to 2016, while crude, intermodal, finished vehicles, and fertilizers all experienced double-digit increases. In northern BC, coal and intermodal drove volumes up 20% year-over-year and 18% compared to 2015. Operating crews, locomotives, and cars are all operating at less than optimum velocity as a result of the loss of resiliency due to the concentrated growth. In the fourth quarter, we had a series of significant outages on our Western Canadian mainline corridor in October and December. An early winter also impacted network fluidity and productivity. Like cars on a freeway, when rush hour hits or disruptions occur, fluidity drops. In the railway, you see this in train speed, car velocity, and terminal dwell.

As we recovered our fluidity in December, cold weather set in, and both train size and fluidity were affected. To date, this harsher winter, coupled with higher volumes in certain segments of our network, has had a greater impact on overall velocity and productivity than we have seen in the previous three years. In order to combat the effect of the present conditions, we've brought on additional locomotive fleet through short-term leases and are working to move more people into high-growth areas using provisions in our collective agreements. While we're very skilled at managing through temporary situations like this, we have worked equally hard to take the necessary steps to identify and create plans to increase network capacity and resiliency in order for us to meet our future growth opportunities and customer demands.

I'm very confident that once winter conditions subside, our performance will improve, and we will be in position to deliver some very strategic capital programs that will continue to produce top-line growth at low incremental cost. As Luc mentioned earlier, we're bringing our capital investment to a record $3.2 billion this year, with approximately $700 million targeted to increase network capacity and resiliency, providing the level of service and efficiency required. On the locomotive front, we're acquiring 200 locomotives, with 60 coming online in 2018. As mentioned earlier, we have term-leased locomotives to bridge the gap. Overall, we are well positioned for motive power and have flexibility to respond to changing demands. We've been very busy hiring and are starting to see the qualified new employees put into service. In Q1, we will have about 400 new conductors qualify.

Our hiring continues in pace with growth forecasted this year and in response to attrition. We're stepping up our investment in network capacity with detailed plans in place for network enhancements, mostly double track and long sidings. These investments will realize benefits in later quarters as we continue to leverage this franchise for growth. Our approach to network investments is building resiliency to support continued growth at low incremental cost and to increase our network fluidity. Our trains will continue to get bigger. With more trains on the network, we must reduce the number of times trains have to stop for a meet and the duration of that stop. That is why a number of our investments are targeted for building double-track sections where our big trains can meet without stopping. Imagine driving on a one-lane logging road, having to stop and pull over every time there's an approaching truck.

As the number of oncoming trucks increases, you pull over more often, ultimately adding time to your journey. This is why we are creating more opportunities to keep moving, even as oncoming traffic approaches. Further, these investments and added resources will help us regain speed and prepare us for continued growth, notably in our high-growth corridors, the corridor between Edmonton and Chicago, as well as on the British Columbia territories. Our investments in capacity will help enable this and are positioning us well for 2018 and beyond, as we work closely with JJ and his team to leverage this great franchise for future growth at low incremental cost. With that, over to you, JJ.

Jean-Jacques Ruest (EVP and CMO)

Well, thank you, Mike, and it's JJ speaking. I'm gonna do a brief commercial overview of the last quarter. Because it was very strong growth in calendar 2017, with over $1 million of top-line growth or approximately $1.15 billion on a FX-adjusted basis. Regarding the last quarter, revenue was up $68 million, 2.1% above last year or 5.1% on the FX-adjusted basis. CN revenue ton-miles were up 1%. We are currently very tight on network capacity, but as Mike mentioned, we have a very strong CapEx program to add to our network by late summer. The same store price on the last quarter was up 2.4%. The core pricing from recent renewal, concluded in the last 90 days, presents core pricing averaging 3.8%.

Same store price is a backward-looking measure of price applied on our full book of business of the prior quarter. Core pricing from recent renewal is a forward-looking measure of price trend for from the deal that we just got renewed in the last 90 days. As a reference point on of the rail industry cost inflation, the AAR All-Inclusive Less Fuel Index for calendar 2017 came in at 1.9%. Last quarter, the strong Canadian currency was a $96 million negative headwind on last quarter revenue, while the fuel surcharge program was a $50 million positive addition. Let's now turn to the some of the detail of the last quarter, but also more importantly, on the outlook forward. Starting with frac sand. Frac sand revenue was up about 50%.

This segments remained very solid on the CN network, especially for destination service centers that are unit train capable. International container revenue were up 22%, and demand for imports stays very strong, so much it has created port congestions. We are now in the process to evaluate all of our trade opportunities and to redesign our forward book of business. Regardless of the outcome of some contract negotiations, our 2018 volume outlook is to set new record volume on the West Coast. The North American market demand for imports and for our product is that strong. Last quarter, Prince Rupert revenue was up more than 35%. Vancouver, Halifax, and Montreal were up about 15% each.

On export potash, we diverted almost 1.5 million tons in calendar 2017 from the West Coast to the East Coast Port of Saint John, mostly heading to Brazil as the final destination. The CN Canadian grain volume was down from last year's record carload, as we experienced a number of disruptions on the network. However, the current harvest is strong at 71 million metric tons, and the export from the CN catchment area should stay solid till the middle of this summer. Coal revenue grew by 7%, mostly from export via both the West Coast and the Gulf Coast. China and India have really driven the world price and demand for seaborne coal. CN coal export prospect for 2018 and 2019 is solid. Some mines will increase production, and some other mines will be starting up.

We de-emphasized crude by rail volume last quarter to save network capacity for regulated Canadian grain, and we brought our crude business down by 30% for the time being. However, since December, the crude price spread for Western Canada Select versus WTI, Brent and Maya, shot up in the $25-$30 U.S. dollar, buck, U.S. per barrel range, creating a very favorable forward volume and pricing environment for crude by rail. As our new CapEx capacity get deployed by this summer, we will reenter Canadian crude with improved core pricing and with take-or-pay volume contract. Demand held up for lumber volume, despite the application of the U.S. import tariff. The higher lumber selling price has basically neutralized the U.S. import duty. In conclusion, to wrap this up, demand for transportation services is strong and broad-based.

Demand visibility is good, and it's in line with the business sectors that we described in our last June investor meeting. On pricing, as demand is rising for most transportation mode and on most individual carriers, core pricing at deal renewal are generally trending up. On volume and network capacity, in the case of CN, RTM is the data set to follow. Currently, January to date, CN's volume in RTM are down 3.5%, and generally speaking, our business will grow in line with our network capacity. Our volume will ramp up as our capacity CapEx become operational and as our new crews become qualified. At this point, I'm gonna pass it on to our peerless CFO, Ghislain.

Ghislain Houle (EVP and CFO)

Thank you, JJ. Starting on page 13 of the presentation, I will summarize the key financial highlights of our fourth quarter performance. Then I will comment on our full year 2017 results. Finally, I will provide our financial outlook for 2018. As JJ has previously pointed out, revenues for the quarter were up 2% versus last year at just under $3.3 billion. Fuel lag on a year-over-year basis represented a revenue headwind of $15 million or $0.01 of EPS, driven by an unfavorable lag in the fourth quarter of $25 million versus an unfavorable lag of $10 million experienced in the same quarter of last year. Operating income was $1.3 billion, down $94 million or 7% versus last year.

Our operating ratio came in at 60.4% or 380 basis points higher than last year. Higher fuel prices accounted for 100 basis points of this increase in the quarter. Excluding this impact, the operating ratio would have been 59.4%. Net income stood at slightly over $2.6 billion or 156% higher than last year, with reported diluted earnings per share of $3.48 versus $1.32 in 2016, up by 164%. Excluding the impact on deferred income tax expense from the U.S. tax reform and the enactment of higher provincial tax rates in Canada, our adjusted diluted EPS for the fourth quarter came in at $1.23 or 2% lower than last year.

The impact of foreign exchange was unfavorable by $26 million or netting on net income, or 3% on EPS in the quarter. Turning to expenses on page 14, our operating expenses were up 9% versus last year at $1,984 million, impacted by higher fuel prices, a less fluid network, including harsh early winter weather across our network, and higher volumes. Expressed on a constant currency basis, this represented a 12% increase. At this point, I will refer to the variances in constant currency. Labor and fringe benefit expenses were $589 million, 6% higher than last year. This was mostly the result of higher wage expenses, partly offset by lower incentive compensation. We finished 2017 with a pension tailwind of $30 million versus the prior year.

As the discount rate finished at 3.51% at December 31st, pension expense will be a headwind of around $50 million in 2018 versus 2017 on a year-over-year basis. In addition, pursuant to a new accounting GAAP on pensions starting in January, only current service costs will be accounted for in labor and fringe benefit expenses, and all other components of pension expense will be reclassified in a separate caption called Net Periodic Benefit Income or Cost, excluding current service costs below operating income. Purchased services and material expenses were $473 million, 13% higher than last year. This was mostly the result of higher trucking and transload expenses, higher material and repair costs, and lower credits driven by our capital program.

Fuel expense came in at $379 million, or 27% higher than last year. Higher fuel prices accounted for roughly a $60 million increase, while higher volumes was an $8 million unfavorable variance versus 2017. Fuel productivity was unfavorable by 1.7% in the quarter versus last year, driven by commodity mix and lower velocity, but was essentially flat for the year. Depreciation stood at $316 million, 4% higher than last year. This was mostly a function of net asset additions. Equipment rents were up 18% versus last year, driven by increased car hire expenses. Finally, casualty and other costs were $120 million, which was 12% higher than last year, mainly driven by an insurance recovery claim recorded in the fourth quarter of 2017.

Let me now turn to our full-year results on page 15. We completed 2017 with revenue slightly above $13 billion, over a $1 billion or 8% higher than 2016. Our operating expenses, at around $7.5 billion, were 11% higher than last year, producing a 5% increase in operating income versus 2016. The operating ratio stood at 57.4%, a 150 basis points higher than last year. Higher fuel prices accounted for 90 basis points of this increase. Net income was up 51%, just shy of $5.5 billion.

Excluding the impact of the one-time line sale in 2016, and income tax adjustments in both years, including the U.S. tax reform in 2017, adjusted diluted EPS for 2017 came in at CAD 4.99, up 9% versus 2016. This is quite a performance in a strong volume growth environment. Now, moving to free cash flow on page 16. For the full year 2017, we generated CAD 2.778 billion of free cash flow, which is CAD 258 million or 10% higher than in the prior year. This was mostly driven by improvements in net income and favorable working capital, partly offset by higher cash taxes.

Our capital expenditures finished roughly at our increased budget of $2.7 billion, and our balance sheet remains strong, with debt and leverage ratios well within our guidelines. Finally, let me turn to our 2018 financial outlook on page 17. As the demand environment remains solid, we continue to be optimistic with regards to CN's prospects for the year. While we expect volume growth in 2018, we are continuing to experience some volatility in a number of commodity sectors. North American economic conditions should remain supportive, with continued favorable consumer confidence supporting growth in many sectors. While energy markets, namely frac sand, crude, and steel, have demonstrated strong growth in 2017, we would expect more moderate growth this year.

In addition, we are assuming the Canadian to U.S. dollar exchange rate to be approximately 80 cents, and fuel prices to be in the range of $60-$70 per barrel WTI. Finally, our effective tax rate should be around 25% for the year, versus 26% in 2017. This environment should translate into volume growth in the range of 3%-5% in terms of RTMs for the full year versus 2017, with overall pricing above inflation. Therefore, we expect to deliver EPS in the range of $5.25-$5.40 versus 2017 adjusted diluted EPS of $4.99. On the capital front, we remain committed to reinvesting in our business to support safety, service, and growth.

Given the strong volume environment we have experienced in 2017, and to continue to support future growth opportunities with superior service, we are increasing our capital envelope for 2018 by a full $500 million to approximately $3.2 billion. A good portion of the increase relates to step up in capacity investments to accommodate strong volumes. Investments in PTC and other mandated regulatory initiatives should be roughly flat on a year-over-year basis. Furthermore, we continue to pursue our shareholder return agenda. In 2017, we returned to shareholders roughly 85% of our adjusted net income through dividends and share repurchases and our current share buyback program is approximately $2 billion for 2018.

Finally, we are pleased to announce, as Luc mentioned, that our board of directors has approved a 10% dividend increase for 2018, reflecting our solid performance in 2017, and our confidence in the future as we progress towards a 35% dividend payout ratio. In closing, we remain committed to our agenda of operational and service excellence with our supply chain focus, and we continue to manage the business to deliver sustainable value for our customers and shareholders today and for the long term. On this note, back to you, Luc.

Luc Jobin (President and CEO)

All right, thank you, Ghislain, and thanks, guys, for, you know, giving, a little bit more color and detail around the quarter, the year, and more importantly, I think, you know, the bright prospects ahead. Our outlook for 2018, to sum it all up, is actually quite constructive. The economic backdrop remains favorable in the North American economy, and we expect continued volume growth. Although this will be muted for CN in the first quarter, it will increase through the balance of the year. Mike is ensuring that our resource investments get fully deployed, and this will support gains in service, efficiency, and volume starting sometime in, in the second quarter, but much more robust in the second half of the year.

JJ highlighted future opportunities for CN, and in the context of tighter capacity and generally strong demand for transportation services, how we're judiciously managing our demand portfolio and pricing accordingly. Ghislain gave you our EPS guidance and key underpinning assumptions. Keep in mind here that in 2017, in the first half, our RTMs were actually up on average about 17%, and our EPS was up about 18%. So clearly, we're going against some very, very strong comps, and looking back to last year, and so, you know, you've got to keep those numbers in mind as you're modeling, trying to model all of this. Our decision to step up our capital investments to $3.2 billion in support of both our short-term business requirements and long-term opportunities will allow CN to grow profitably while delivering superior shareholder value.

We have a solid plan, a very strong team, and the determination to see it through. We remain confident in our ability to deliver for our valued customers while positioning CN for long-term success. This has been a strategy at CN since 2010, and we remain on track. On that note, I will turn it over back to you, Patrick, for questions.

Operator (participant)

Thank you. Please press star one at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Brandon Oglenski from Barclays. Please go ahead.

Dan Cagle (Company Representative)

Hi, this is Dan Cagle on for Brandon. Thanks for taking my question. The CapEx uptick is pretty significant at close to 23% of revenue. Is that kind of within your range of the expectations you set out for the 20%+ level through 2021?

Ghislain Houle (EVP and CFO)

Yeah, absolutely. As you remember, during the—this is Ghislain. During the Investor Day, we guided our CapEx to be on average for the next five years in around 20% of revenues. I would tell you in the next few years, I would tell you that we're looking more in the low 20s. So again, if you look at this year, it'll be around 23%. So the low 20s is probably a good number.

Luc Jobin (President and CEO)

Yeah, I think, you know, again, as we look at 2018, and with the book of business that we brought on in 2017, it was clear that, you know, we wanted to very quickly, you know, get back to the, the spot that we have been holding for, for quite some time in terms of superior service and, and superior efficiency. So we actually looked to 2018 and said, "You know what? We're not gonna, we're not gonna mince our words. We're actually, we have the opportunity," and we felt good. And this is, you know, if you go back to 2013, 2014, we also faced similar conditions. And, and again, I mean, so, and we took the same approach. It is an opportunity, so we're not ...

So we're quite confident that the capital we're gonna be deploying is gonna bear fruit. Where we go from there, looking beyond 2018, will remain a factor of, you know, what it is that the business looks like and the growth. JJ did outline some, you know, pretty significant opportunities, and we did that both back in June at our Investor Day, as well as in his update. So we feel, you know, the opportunity is there, and smart capital, which for us, it revolves mostly around our main line and key equipment, such as locomotives, is clearly a good place to be deploying the capital. So we feel good. It'll be somewhere in the 20%-25% range is really, you know, what we think is not an unreasonable range.

you know, we'll go from there. Thank you for your question.

Dan Cagle (Company Representative)

Appreciate it.

Operator (participant)

Thank you. The next question is from Fadi Chamoun from BMO Capital Markets. Please go ahead.

Fadi Chamoun (Equity Research Analyst)

Thank you. Good evening. I just want to kind of drill a little bit on the operating side. I mean, it sounds like you've kind of brought on board some capacity in terms of crews and in terms of locomotives. If you can talk us through, like, what are the critical project on the network that you need up and running to kind of restore fluidity to normal levels and incremental margin to normal level, and the timing of that. Is this kind of early spring turn, or is it you know, a little bit more delayed than that?

Mike Cory (EVP and COO)

Okay. It's, it's Mike here, Fadi. Let me put a little color around this first. We did some work at the tail end of 2017 because we had the ability in Wisconsin to help a little bit with our frac sand franchise, and at the same time, provide a little bit of relief around a couple of the operating yards that up to that point, our main lines ran right through. This work we're talking about now is definitely located in Western Canada, where we've seen, I wouldn't say normal disruptions, but in my experience, this can happen. We've had a series of disruptions since the middle of October, that really shows us that our resiliency between Winnipeg and Edmonton is not there.

Those disruptions, this is already on a piece of track that is handling probably 15% more volume, and it's our highway, essentially between Western Canada and eastern and the U.S. But that 15% with these disruptions, you know, they've exponentially, the volume started to grow 20% and 25% that had to move. Because every time we stopped, we had no way around. That area specifically, we'll see about 4-5 pieces of double track put in. That's between Winnipeg and Edmonton. And then to JJ's point, we see tremendous growth in the B.C. North Corridor with both coal and intermodal to Rupert. That success story, we're gonna spend quite a bit of time up there this spring and start to put about 6 sidings up there that will help us create that fluidity we need.

As well, a little bit of work on the corridor to Vancouver, same thing. So we're as soon as winter is over, and as soon as we can start, and this will not be one crew, obviously, this will be numerous work crews that are out there. But as soon as we can start laying the foundation to build the track and the double, and the sidings, we'll be out there. So that's, you know, at some point in late Q2. But we see that this is starting to come to fruition in Q3 and Q4, when you'll start to see us perform. And not just on the main line, but that'll also allow us to relieve the pressure in our yards.

We have four major yards in Western Canada that have really had a hard time pushing traffic out onto this really heavy, highway, so to speak. So I'd say, Fadi, just, just in closing, Western Canada is really primarily the location we're gonna be focusing our capital spend, investment this year, and that will take place as soon as winter allows us to get in onto the track, and, we'll see the results of that in the second half of the year, as Luc said.

Luc Jobin (President and CEO)

So, Fadi, we're—it's Luc. We're certainly looking for an early spring, so we'll be out there with a sense of urgency, and, of course, it takes a little bit of time for that infrastructure. But we've actually done where we could. We've prepared the groundwork, so again, we should be off to the races as soon as weather conditions permit. Thanks very much, Fadi.

Fadi Chamoun (Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. The next question is from Chris Wetherbee, from Citi. Please go ahead.

Chris Wetherbee (Senior Research Analyst)

Yeah, hey, thanks. Good afternoon, guys. Wanted to ask a question on sort of the cadence of the year, maybe keeping guidance in perspective. So Luc, you mentioned obviously there's gonna be some headwinds in the first quarter in particular, but maybe the first half in general. You know, how should we think about earnings growth? Could it be down in the first half before sort of comping against easier numbers in the second half and growing? And then maybe just a little bit of a question about that network recovery. It sounds like we're hearing maybe second quarter could be when we get the work going, but maybe second quarter could be when we start to see results improve. I just wanna make sure I'm kind of clear on some of the puts and takes on the timing of how things play out in 2018.

Luc Jobin (President and CEO)

Yeah, thanks for your question, Chris. Listen, I think, I think you got it pretty good. You know, we don't obviously, you know, I mean, we do not guide on a quarterly basis, but I think it is helpful to give, you know, you folks, a little bit more of that sense of timing. And yes, I mean, the first half, strong comps, a little bit of, flex, because we've got more crews and we've got more motive power. So as we're dealing with winter, of course, you know, weather permitting, anytime we have a little bit of a reprieve, you can see, you know, we can, we can move the volume and it's encouraging. But, but we, we can never really, expect, you know, a mild winter to, to finish up the first quarter.

So first quarter, it will be difficult. And again, we're going against some very, very strong comps last year. Second half, we're flexing, and some of the infrastructure is starting to happen. And again, I mean, it'll be a positive momentum, but it really builds and delivers really in the second half. So, it's gonna be a tale of two halves in 2018. And if you look at the first half, again, it'll be a tale of, you know, a very tough first quarter, followed by clearly some momentum in the second. Thank you, Chris.

Chris Wetherbee (Senior Research Analyst)

Thank you. Thank you.

Operator (participant)

Thank you. The next question is from Benoit Poirier, from Desjardins Securities. Please go ahead.

Benoit Poirier (VP and Industrial Products Analyst)

Yes, thank you very much, and good afternoon. Could you maybe provide more color about the pricing? You were quite detailed about the core pricing for renewal, which seems positive. I was just wondering what type of expectation should we be looking for in 2018? And also, if you could talk about the mix also, if it will offset kind of the pricing strength, you see. Thank you.

Jean-Jacques Ruest (EVP and CMO)

... Thank you very much, JJ. So when we look at forward pricing, we can maybe break this into two buckets. One bucket is, deal that were renewed in the last 90 days, so they're, they're new deal, let's say from October 2015 to January 2015. And on average, those deals with an average of, because it was 3.8%, core pricing. So that's pricing going forward. And as you would know, in every quarter, we also have a multi-year contract, 2, 3, 5 years contract, where we apply the GRI, the General Rate Increase. And those, those, application of GRI are based at, you know, whatever the, the market was when those contracts were signed.

So forward pricing is a combination of past trend from multi-year contract, as well as recent trend of deal that were made in the last 90 days. So the trend is right now, based on core pricing, is capacity is tight, at least at CN, and I think it is also in some other transportation mode and companies, is for better pricing environment for 2018. I think that's pretty much all I can say about the way forward, and hopefully that helps.

Benoit Poirier (VP and Industrial Products Analyst)

Thank you.

Jean-Jacques Ruest (EVP and CMO)

Yes, thank you.

Luc Jobin (President and CEO)

Thank you.

Operator (participant)

Thank you. The next question is from Matt Ross from Goldman Sachs. Please go ahead.

Matthew Ross (Managing Director)

Yeah, thanks for taking my question. Just wanted to follow up on the crude by rail commentary you had on the call. Is this something where you've already discussed with customers, or you are discussing and seeing interest in longer term contracts, volume commitments on those contracts? And, can you provide us any additional guidance about how much is baked into your estimates for 2018, and how long we should think about this opportunity lasting?

Jean-Jacques Ruest (EVP and CMO)

Okay, it's JJ again. So the first thing we do is we sat down at a very specific workout detail with Mike's team as to what kind of capacity we have month by month for 2019. Looking at 2018 and looking at 2019 as well. You know that the history of crude by rail is a bit of a yo-yo. It's kind of a more of a spot business than an ongoing long-term business like usually regulated grain is. So therefore, we, as we now deploy very fresh capital, and Mike and Ghislain, our shareholders, expect a return on that fresh capital. We've offered some of that future capacity to a crude company are willing to commit with us. We commit capacity, we deploy fresh capital.

We expect they will be there when the capacity come in and not jump ship. So on those basis, we've offered capacity for the second half of this year and some of 2019. We have made agreement where the capacity is now locked in at better price than what crude by rail was in the last 12 months, where the two parties commit to one another, they will move product no matter what. And we still have some capacity that we can offer on that basis.

Mike Cory (EVP and COO)

Thank you for your question, Matt.

Operator (participant)

Thank you. The next question is from Turan Quettawala, from Scotiabank. Please go ahead.

Turan Quettawala (Director, Equity Research)

Yes, good evening, and thank you for taking my question. I guess you sound pretty bullish on volumes overall, despite all the capacity issues, and I do understand that there's gonna be some capacity issues that will maybe hurt you in the first half. I guess my question is, maybe for JJ, when you think about your 3%-5% RTM growth estimate for the year, you know, is there room for potential upside in the second half? And I guess also, where would it come from? And maybe you can talk a little bit about some of the areas where you think there might be some risk.

Jean-Jacques Ruest (EVP and CMO)

I think it's maybe a question I can answer directly with Mike. It's 3-5 is where we're comfortable. You know, we don't know yet what kind of a winter we'll have the next two months. So far, it hasn't been, you know, hasn't been that great, so that's not giving us a lot of confidence, but you never know. Then after, that's a question of how the work block will work out during the summer, and whether or not we'll have access to the network that Mike talked about in July, or in August, or in September. So capacity is a question of weather and construction sites, and Mike and you are running a big construction company this year.

Mike Cory (EVP and COO)

Yeah. No, Turan, we're sitting down literally as we speak, going through the best possible opportunities to continue to upgrade not just our service, but the volumes JJ's bringing, and find a way to do this tremendous amount of work in that already heavy corridor that, you know, goes from the West Coast to the East Coast. So, look, we're gonna get this work done. We're gonna get the volumes that JJ's JJ's predicting we're gonna have, or not predicting, but saying we're gonna have. And this isn't the first time we've had to do this, and it... we'll make it happen.

Jean-Jacques Ruest (EVP and CMO)

Yeah, I think, I think it's fair to say, Mike, that, you know, when we look at the detailed plans we've laid out.

Turan Quettawala (Director, Equity Research)

Yeah.

Jean-Jacques Ruest (EVP and CMO)

... For all of this, infrastructure work, it's probably down to a level of precision that we haven't seen, you know, we haven't really done, in this company before. So, we're kind of doubling down. Listen, I mean, we tend to be a cautious bunch. Some have called us conservative before, and, you know, we're not insulted. You know, we wanna deliver, and we want to, you know, regain the momentum. So, it's with that that we've approached the guidance, as JJ said, you know, 3-5. You know, there's always potential, but we're being thoughtful about when and how to onboard more volume growth.

Turan Quettawala (Director, Equity Research)

That's right.

Jean-Jacques Ruest (EVP and CMO)

But clearly, if you look at us historically, we've been opportunistic where it makes sense. And, you know, last year we, you know, we got a lot more than we expected.

... And again, that's a nice problem to have. So we're just in the process of making sure that we digest that as much as we can in the first and second quarter. And, you know, but you should expect that, as I said, strong second half, and we'll be there. If there's any upside, we'll be there for it.

Turan Quettawala (Director, Equity Research)

Yeah, any carload available, we'll grab.

Luc Jobin (President and CEO)

Thank you for your question, Turan.

Turan Quettawala (Director, Equity Research)

Thank you.

Operator (participant)

Thank you. The next question is from Kenneth Hoexter from Bank of America Merrill Lynch. Please go ahead.

Kenneth Scott Hoexter (Managing Director and Senior Equity Research Analyst)

Hey, good afternoon, it's Kenneth Hoexter. So Luc, maybe just a little bit on your thoughts. Is this the end of precision rail? Is this becoming now a cyclical business, purely dependent on volumes and adding capacity along with those volumes? Or in hindsight, I don't know, Mike, maybe it's for you, is this something that how you catch the regional growth, how it grows so rapidly, or is it just really a surprising ramp-up in volumes?

Luc Jobin (President and CEO)

Well, you know, to be honest, Ken, I mean, we have been on the same strategy since 2010, right? Which is to balance operational excellence, service and operational excellence. So we have looked to continue to grow a little bit faster than what the markets would normally have. You know, it's not a straight line, and sometimes it happens a little more quickly than you'd hope. If it's over a period of time, then you have the opportunity to layer in your capital and your investments in a more thoughtful and longer term timeframe. So you know what? I mean, the strategy hasn't changed. I think, as I mentioned earlier, you know, we are still very much focused on delivering on both fronts.

You know, the operating ratio, as I did mention, actually, when you look at, you know, comparable volume, is actually lower than than the last record. And, you know, I mean, we all knew that 2016 was not a year of comparison for 2017. So all that to say, strategy is the same. We are continuing on a bias towards growing a little bit faster, but doing that in a way that balances these two things. So it's not all about growth, and it's not all about cost. It's just, it's, you know, the reality lies somewhere in between. And given the cards that you're dealt, as the business comes on, you know, you do the best job possible in the short term to accommodate it.

But you know, with the $3.2 billion, you can clearly see, you know, that our commitment is strong and our confidence in the future is as well. So Mike, I don't know if you wanna add a couple of things.

Mike Cory (EVP and COO)

I just, you, you made the reference of precision railroad. Look, this has been a, an extremely tough quarter, just from the, again, from the lack of resiliency we've had in our major corridors, the concentrated growth. And then, you know, you throw in, throw in some pretty tough winter conditions. But when it comes to sweating assets, controlling costs, managing the process tightly, we're all disciples. That never leaves our operating team. We, it's about, it's about delivering just those three things, like I said, Ken, so that doesn't change.

Kenneth Scott Hoexter (Managing Director and Senior Equity Research Analyst)

Cool.

Mike Cory (EVP and COO)

We're back.

Kenneth Scott Hoexter (Managing Director and Senior Equity Research Analyst)

Appreciate it.

Luc Jobin (President and CEO)

Thanks, Ken.

Kenneth Scott Hoexter (Managing Director and Senior Equity Research Analyst)

Thanks.

Operator (participant)

Thank you. The next question is from Walter Spracklin from RBC. Please go ahead.

Mike Cory (EVP and COO)

Hello, Walter.

Luc Jobin (President and CEO)

Yeah, we're listening, Walter.

Walter Spracklin (Managing Director and Senior Equity Research Analyst)

Hi. Sorry, mute was on there. Thanks for taking my question here. I'd like to... I guess this one's for both Ghislain and Luc. Looking at your-- going back to your longer term, 10% EPS growth guidance that you provided back in kind of May. At that time, you were benefiting from some significant growth in the first half of the year, and obviously, the pipeline looked attractive, and that was the lay up to the guidance that you gave. That growth came on a little bit more in a more challenged fashion than you had envisioned, and now we're looking at about a 9% earnings growth in 2017, and a 5%-8% that you're providing in guidance for 2018.

Does that mean that with the volume coming in a little differently than you expected, your five-year target now is, you're not as comfortable with it any longer? And should we have a re-examination of the 10% EPS growth rate over that period, or is this something that you believe in the later years you can get up to the, you know, low teens that you would require to get that 10% CAGR?

Luc Jobin (President and CEO)

Yeah. I mean, thanks, thanks for your question, Walter. Okay, so listen, if you look at the numbers, first of all, for 2017, and if you remove a little bit of the FX noise, we're actually up 10%, EPS growth. And, you know, when you look at the guidance we've provided, you can see as well that there's an FX headwind in there. Now, we can't control that, and so, you know, we'll take it as it comes. But our, overall, the overall longer-term guidance we provided back in June remains the same. It's unchanged. The, as we mentioned back then, I mean, the, you know, the, the way in which this comes about is not linear, it's not steady, but the prospects are good.

Frankly, you know, we're very much on track. I think a little bit more of growth than we expected in 2017, a little bit more digestion in early 2018. But JJ reaffirmed, you know, in his sense, that a lot of these opportunities continue to be out there for the taking, and we're very well positioned.

... And so, you know, we feel very good about the longer term, and the, you know, 10% on average, over that period, that timeframe, five-year timeframe, is absolutely still within our scope.

Walter Spracklin (Managing Director and Senior Equity Research Analyst)

Okay, thank you very much.

Luc Jobin (President and CEO)

Thank you.

Operator (participant)

Thank you. The next question is from Cherilyn Radbourne from TD Securities. Please go ahead.

Cherilyn Radbourne (Managing Director, Equity Research)

Thanks very much. Good afternoon.

Ghislain Houle (EVP and CFO)

Good afternoon.

Cherilyn Radbourne (Managing Director, Equity Research)

Wanted to ask a question on the intermodal outlook, because the slides mention that you expect to test the expanded capacity limit at Prince Rupert this year, which is pretty extraordinary. So I'm just curious, whether you think that with your partners, you'll be able to exceed the nameplate capacity as you did in the last phase, or whether, in fact, this is a suggestion that, the next phase might be needed sooner than expected?

Jean-Jacques Ruest (EVP and CMO)

Thank you, Cheryl, it's JJ. So this year, what we would like to test is the nameplate capacity, which is 1.35 million TEU per year. We don't really want to go, I don't, we don't have ambition at this time to go beyond that. That's something we probably would like to test in 2019, if we're successful in the first phase. And I know DP World intend to proceed. My understanding, they intend to proceed the next phase of construction, which means eventually there'll be some more capacity in the future. So to test the capacity of Rupert this year, it could be one of two things, or it could be two things.

One is, existing customers of Rupert today may come in with bigger vessel, with bigger discharge, and we've had discussion with both alliances using Rupert, and they are actually berthing plan right now to look at that very seriously. Or it could also be a new service from a new alliance, the one which is a combination of Japanese, the German, and the Taiwanese. That's also a serious possibility. And, you know, there could be possibility of both these things happening at the same time. So that's why earlier when I was saying, we have these two opportunities, bigger vessel and/or new alliance, plus there's a Korean shipping line who wants to enter the Vancouver market, plus we have a major contract to renew with the Japanese at Vancouver.

Look at it as a baseball team, where you have more players coming from the farm team, coming up in the majors, and we can't accommodate all four. So we will make the choice in the weeks to come. We intend to set record in the West Coast this year. Prince Rupert is one of the places where we think there's the biggest potential in terms of the asset and the capacity to there. Mike is deploying some extra siding and double track in that direction. And right now, we haven't said how we're gonna play these four cards, but we think we have enough cards to be successful of creating some new record this year.

Cherilyn Radbourne (Managing Director, Equity Research)

Thank you. That's my one.

Jean-Jacques Ruest (EVP and CMO)

Hopefully that helps.

Cherilyn Radbourne (Managing Director, Equity Research)

That's my one.

Jean-Jacques Ruest (EVP and CMO)

Thank you.

Cherilyn Radbourne (Managing Director, Equity Research)

Thank you.

Jean-Jacques Ruest (EVP and CMO)

Thank you, Cherilyn.

Operator (participant)

Thank you. The next question is from Ravi Shanker from Morgan Stanley. Please go ahead.

Ravi Shanker (Managing Director)

Thanks. Good evening, everyone. Just to follow up on the earlier CapEx commentary. Can you just help us understand, of the $3.2 billion CapEx, you know, what's the timing on the ROI on those investments? I mean, is that pretty quick? And, you know, what percentage of that will you see returns starting in the second half of 2018, versus what percentage of that is longer term contracts that take a few years to deliver returns?

Ghislain Houle (EVP and CFO)

Yeah, let me, Ravi, it's just, let me give you a little bit of more color on the CapEx. So again, as Luc mentioned, and I mentioned in my remarks, the total investment that we're looking at is $3.2 billion. We're looking at, again, very consistent and basic investments, and we've done that year in, year out of about $1.6 billion, and this is maintenance investments on our track infrastructure. We're looking at PTC to remain basically flat at $400 million year-over-year. Equipment, and Mike have referred to it, on locomotives and cars is $400 million. And then, when you look at the other, therefore, growth and efficiency and capacity, it's about $800 million.

So now, if you strip out and you look at capacity per se, and capacity, meaning investments that Mike has referred to in terms of siding, and also capacity in our intermodal terminals, and also capacity in terms of our rolling stock and locomotives, then you're looking at $700 million of capacity investment. So it's significant. And as Luc mentioned, I think we, on the infrastructure side, we have a very robust plan that we will monitor very closely to make sure that we deliver on that plan. Now, all of the projects that we have at CN, the CapEx, go through a very rigorous process.

And again, we've provided some visibility at our Investor Day in June, that really like—again, there's some maintenance CapEx on the track, but all other projects, we're looking for a rate of return of 12%, and that's our threshold. So again, we're looking at, we're getting all these projects in the ringer. Obviously, these capacity and what Mike is referring to, we've got all this profitable business coming at us. So I think, and, and Mike has gone through some very detailed work as to where these capacity are required, and we're very confident that, that this will provide very good value for the company, and we're looking forward to monetize on those as they come online in the second half of the year.

Luc Jobin (President and CEO)

Yeah, and Ravi, it's Luc. I'll just add a little bit of color on this. You know, frankly,

... Mike is chomping at the bits. I mean, when he looks at the opportunity, for you know getting our operating numbers to where you know he's used to, you know this is gonna pay off very very quickly. I mean, both in terms of service and in terms of efficiency. So you know we're not really worried about the return on this, and as I said, it's all on the mainline. I mean, this is capital that serves the entire book of business, because it does extend you know between the West Coast all the way down to probably halfway through our southern region. And that that's where we've seen the growth being concentrated. And as we look forward that's where we continue to see good growth prospects.

So, expect a, you know, this is almost, in our view, it's almost a no-brainer investment, and one that will bring, you know, returns in the very short term.

Ravi Shanker (Managing Director)

Yeah.

Luc Jobin (President and CEO)

So I hope this helps you, you know, get a bit, a bit more comfort around that. Thank you for your question.

Ravi Shanker (Managing Director)

Yep, very helpful. Thank you.

Operator (participant)

Thank you. The next question is from Seldon Clarke from Deutsche Bank. Please go ahead.

Seldon Clarke (Research Analyst)

Hey, thanks, guys, for the question. In terms of your 2018 capital plan, just what type of excess capacity does this give you above your current revenue run rate? And if you could just help me understand how current capacity constraints and sort of the timing delay of these investments might impact some of the more near-term contract negotiations?

Mike Cory (EVP and COO)

Well, I'll start with the capacity. Capacity is relative. For us, and for what our customers demand, whether it be speed or reliability, we obviously need more capacity or resiliency than we have today. So these investments, I think as you said earlier, start to provide us with the ability not only to bring on more traffic, but the traffic we have moving today, do it faster and do it cheaper. So sweat the assets harder, control those costs, and that's what allows us actually then to now go back with JJ and provide that level of service that he needs to get that good volume growth that we've been, you know, working through.

Luc Jobin (President and CEO)

Yeah, and then just before JJ jumps in, you know, it's Luc. Listen, Seldon, the reality is, historically, we've always erring on the side of being there at five to midnight, as opposed to five after midnight. It turns out this year, or 2017, that, you know, I mean, the onslaught of business was amazing and, you know, and so here we are. We clearly need more resiliency, as Mike indicated. You know, when we as a team look to the prospects for the next three, four years, they are very good. And so, you know, what you should expect is that we will continue to invest in a pretty robust fashion.

You know, we, we again, we think that the prospects longer term are good, and, and we do wanna be a little bit more ahead of the curve than, than we, we were in 2017. You know, it's always a very difficult measure in terms of exactly how much capacity. I mean, it's more of an art than a science. But we feel good that the investments we have on the books for 2018 are actually gonna give us very, very good momentum, not just for 2018 and catching up, but momentum, which will be there to carry through 2019 and beyond.

And as we continue to look at the opportunities, if we continue to see them as we've indicated, we'll be back looking at, you know, again, continuing to build a network in 2019 and beyond. So that's kind of how we're looking at it.

Mike Cory (EVP and COO)

Yeah. Just to, again, you said it, it's a network, and these investments are not singularly done in locations. These are to not just broaden this whole entire network, but they're very valuable pieces for us to be able to deliver these, this growth, this volume at the, at the service level and the price, or at, at service level and the, and the efficiency and cost that, we feel that we're accustomed to.

Jean-Jacques Ruest (EVP and CMO)

As you relieve pinch points, you know, there's always... and the business grows, there's always the next pinch point. There's the next opportunity for, you know, again, to either efficiency gains or service enhancements.

Luc Jobin (President and CEO)

Thank you for your question, Seldon.

Seldon Clarke (Research Analyst)

Thank you very much.

Operator (participant)

Thank you. The next question is from Steve Hansen from Raymond James. Please go ahead.

Steven Hansen (Managing Director, Equity Analyst)

Yeah, good evening, guys. Just a quick one for me. JJ, I think if I caught it in your prepared remarks, you said you're in the process of redesigning or reevaluating your current book of business, given that you've got tight capacity right now. Outside of the crude opportunity that I think we've discussed here already, are there other parts of your book that you're looking at shaking up, to make way for better pricing or for better opportunities in the book?

Jean-Jacques Ruest (EVP and CMO)

So yes, Steve. So one of them was regarding the international container business on the Canadian West Coast, and I did describe in my answer to Cherilyn, the three, the four things that we're looking to select from to promote on the West, West Coast, book of business. Another example, you could argue the, the, the work we did between Christmas and New Year on our very detailed month-to-month capacity program for 2018, and how we, after that, went to market with some of that on the take-or-pay contract, and these-

... These contracts are very month specific. And so these would be two examples of how we're gonna be doing crude in 2018 much different than last year. And we're gonna be doing the West Coast international business somewhat different this year than we did last year, as an example. But broadly speaking, when you talk about price, you're talking, capacity is tight, and the network is a highway used by all, and therefore, the capacity is tight by all. Therefore, the pricing environment is good, more favorable for all markets, regardless of color, size, or, you know, where they come from, east or west.

Steven Hansen (Managing Director, Equity Analyst)

Understood. Helpful. Thanks.

Luc Jobin (President and CEO)

Thank you.

Jean-Jacques Ruest (EVP and CMO)

Thank you, Steve.

Operator (participant)

Thank you. The next question is from Justin Long from Stephens. Please go ahead.

Justin Long (Managing Director and Senior Equity Research Analyst)

Thank you, and good afternoon. So I was wondering if you could provide an update on where you stand as it relates to PTC implementation. I know you mentioned that CapEx should be relatively flat this year, but how should we be thinking about the potential ramp in operating costs related to that technology, both in this year and beyond?

Ghislain Houle (EVP and CFO)

Yeah, Justin, this is Ghislain. Let me give you a bit of color. As you know, from an operating standpoint, PTC, OpEx, standpoint, PTC in 2017 was about $120 million, 1 /3 of which was depreciation. I think, as we look at 2018, it looks like PTC operating expenses will be more around $160 million, about 40% of which is depreciation. Again, I'm not gonna go into the future years. I mean, I think this year is gonna be a big year for PTC. As you know, we have to deliver half of our PTC subdivision that we've committed to this FRA by the end of the year. I think we've got good momentum.

We've got a very good team, and we're very confident that we'll deliver on our commitment by the end of the year.

Justin Long (Managing Director and Senior Equity Research Analyst)

Okay, great. Thank you.

Ghislain Houle (EVP and CFO)

Thanks, Justin.

Luc Jobin (President and CEO)

Thank you.

Operator (participant)

Thank you. The next question is from Brian Ossenbeck from JPMorgan. Please go ahead.

Brian Ossenbeck (Managing Director)

Hi, good evening. Thanks for taking my question. So just if you can give us an update on the labor side. I know you're trying to hire, I think, around 250 conductors in the fourth quarter, looking at 400 or so in the first quarter. How many more, from there do you think you need for the second quarter and for the full year? And, just what's the hit rate on being able to get people back into the training system and back on the network, especially in some of these pinch points where you really need them the most?

Mike Cory (EVP and COO)

Well, it's Mike here, Brian. First of all, training is training's at full bore, and both our training centers right in Chicago and Winnipeg. You know, we're looking at qualifying, I, I think I said 400, 400 conductors for the quarter, and we'll continue to replace people one for one in the transportation ranks. You know, we'll follow growth closely with JJ. We'll match that up with what our productivity levels will be and how they'll improve as we invest in capital, and we'll hire accordingly. I don't wanna get into too many specific numbers at this moment, but we're fully ramped up to do it. We're doing it as we speak, and as the need comes through attrition and/or growth or both, we'll hire accordingly.

Luc Jobin (President and CEO)

Yeah, and Brian, it's Luc. Just to, again, to add a little bit to what Mike said, you know, so about 400 or so conductors in the first quarter. I would... You know, again, we're— our best estimate is about the same in the second quarter-

Brian Ossenbeck (Managing Director)

Yeah.

Luc Jobin (President and CEO)

So, you know, a little bit more front-ended. On the year, all in all, but this is the total labor, we're probably looking at somewhere in the neighborhood of 2,000 or thereabout. So, but be careful, because here, they're not all conductors.

Mike Cory (EVP and COO)

Yeah, total.

Luc Jobin (President and CEO)

And so, you know, we, as I said, I mean, we are, we'll be erring on the side of being a little bit long. And for the rest of labor, we're not replacing one to one. So we continue to have some gains on the non, T&E. We continue to invest on the mechanical side. It's very important for us.

Mike Cory (EVP and COO)

We're wrapping up for our engineering programs.

Luc Jobin (President and CEO)

Yep. And so, you know, so that gives you a little bit more, the specifics around that, hopefully. Thank you for your question.

Brian Ossenbeck (Managing Director)

Yeah, it does. Thank you.

Luc Jobin (President and CEO)

All right, Patrick, I think we'll bring the session to a close. I wanna thank everybody for joining us on this, you know, call for the fourth quarter results, as well as the full year, 2017. You know, we look to 2018 with a great deal of anticipation. You know, and frankly, as I mentioned earlier, we can't wait for you know, winter to subside and really get out there and railroad the way you know, CN has done over the years. The prospects remain bright, and so we're pretty excited about the way forward. We're deploying capital. We're mobilizing resources. We've got a great plan, and as I said, the team is really pumped.

I hope you all will join us for, you know, the first quarter results. In the meantime, I hope everybody will be safe. Thank you very much, Patrick. We'll now bring the call to a close.

Operator (participant)

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.