Morning, everyone. Welcome to Day 3 of the 19th Annual Wolfe Global Transportation & Industrials Conference. I'm Scott Group, transport and airlines analyst here at Wolfe Research. We are going to get going with our first session of the day with Canadian National. We have Janet Drysdale, Chief Commercial Officer, and Jamie Lockwood from Investor Relations. Thank you guys so much for being back at the conference. Appreciate it as always. I think Janet's got a couple of quick things that she's going to start with, and then we'll jump right into questions. Sounds good. Thanks, Scott. It's great to be here. As you know, I always appreciate the opportunities to spend time with the investment community. I'll make just a few brief high-level remarks, and then, like you said, we can dive right into the Q&A. Let me start off by saying the railroad is running really, really well. I couldn't be more pleased with the service that Pat and team are providing to our customers. That matters because the service, number one, helps us to grow volumes. Number two, it helps us with pricing. Let me talk about pricing for a minute. We have been very, very consistent with our pricing strategy. We have spoken about it on the last three analyst calls. I'll speak about it on the next three at the risk of sounding like a broken record, but it's pretty straightforward. First and foremost, we're going to price to the value of the service that we're providing our customers. We're going to price ahead of our rail cost inflation, we're going to sell into our capacity. Let me say two more words about that. When we are out meeting customers, when we're out trying to drive new business onto the railroad, what we want to do is make sure that we can service that business really, really well. If we do a good job for the customer, the customer is going to win, and when they win, we win. We service it well, we do it at low incremental cost as well, right? You're not jamming up your network. That really matters a lot to us. Let me say a word about revenue per revenue ton-mile while I'm talking about pricing. You'll remember, Scott, many years ago, railroads used to provide same-store pricing. We stopped doing that because it wasn't comparable the way it was measured between the railroads. You're kind of left with revenue per carload or cents per RTM as a kind of proxy for pricing. I have to tell you, it's not a great proxy. There's a lot of noise in revenue per RTM, and I think we saw that in the first quarter when you think about things like FX, the fuel surcharge, and on the Canadian side, we had the carbon tax as well. It gets hard to measure on a year-over-year basis and really have an understanding of the underlying pricing. When we think about the mix of business, there can be a huge impact to revenue per revenue ton-mile based on mix. Just to drive that point home, if you look at the numbers, you'll see intermodal and automotive as examples where the revenue per revenue ton-mile is much higher than the average of the other categories. That's not to suggest that intermodal and automotive are the most profitable business units, nor should it suggest that you're getting the most pricing in those segments, but it's just a way to drive home the point that mix has a significant impact on revenue per revenue ton-mile. Let's talk for a minute on volumes. We had about 3% RTM growth in Q1. As of this morning, I would say we're pretty close to 3% on a quarter to date basis in Q2. That is running, Scott, a little bit ahead of our expectations. Where we've seen some really good strength is Grain Canada, Grain US. We've seen strength in our refined petroleum products, that relates to the Toronto fuel distribution facility that we opened up and are now into Phase 2 of moving unit trains with that facility. natural gas liquids, which I think we should spend a little bit more time talking about today, have all kind of surprised a little bit to the upside. Some of the other areas that have been more resilient, where we expected maybe more weakness are things like metals and automotive that were impacted by tariffs. These segments have proven more resilient than we expected. Potash is surprising to the upside. Automotive, I think I said automotive already. We've got the more weeks, I guess you could say, under our belt, the more confidence grows. When we think about the second half, I would say it's still a bit murky, the macro. We remain cautiously optimistic, but the good news for you is that we report volumes on a weekly basis, so you can track it with us as we go. When we look a little further out, so that was half one, half two. We now think about where are we getting to at the end of 2026 and what does 2027 and 2028 look like? I think that's where we're just really excited. I think we have tremendous growth opportunities, multi-project, multi-commodity. I think the announcement that went out earlier this week on ACE Terminal, this is a partnership with Keyera and AltaGas, who have been great partners to CN and will be great partners for many, many more years to come. This is a little bit of an underappreciated, I think, opportunity for CN, where our network is really just built for growth. If we think about the Montney Shale region, which borders Alberta and B.C., this is one of the most significant natural gas deposits in all of North America. We don't move natural gas as a railroad, but what's happening in Canada is we're getting more export capacity for natural gas. When that happens, there's more drilling that takes place to produce more gas. This is a deposit that is very rich in liquids. Natural gas liquids, you're talking about propane, butane, ethane, condensate. All of that moves by rail. This ACE terminal is going to be an important long-term growth opportunity for us. This is, of course, all linked to growing export capacity at the Port of Prince Rupert and the new capacity coming online there with REEF to actually get the propane and butane offshore. The ethane is also an important component because this is making it cheaper to produce plastics. Plastics eventually will be another key export opportunity in Canada as well. Let me wrap up by just saying, we're built for growth. We have the capacity available. We have the franchise that is well-positioned to where incremental growth is going to come from. We believe that growth is going to be able to come on at a low incremental cost. I'm going to start with some questions. If the audience has questions, raise your hand, we'll get you involved. I appreciate you starting your opening comments talking about price, because I don't know that we typically hear opening comments from rails start that way. I appreciate that. I guess I agree with you, that rev per car, cents per ton are not perfect, right? We look at it because we don't have a choice. Have nothing else to look at. I guess then I would pose to you, why not go back to. Yeah Same-store pricing? You can't say because it's not comparable anymore because no one else is doing it. Why not be the leader and start. Yeah reporting the same-store pricing then? I think this is an area where there is not a big advantage to kind of be out on your own with a number. I think the guidance that we can give you is that we are pricing ahead of our rail cost inflation. Right. Right now, I would say our inflation is driven by two major components. It's labor and it's materials. Our inflation is probably running in the 2.5%-3% range. You can assume that we're pricing ahead of that. When we say we're pricing ahead of that, there's this discussion some rails have pricing dollars and actually. Yes. Let me explain what we mean. Ultimately it's not obvious. Yep that pricing is accretive to margins because margins have sort of been steady, right? Yeah, no, 100%, Scott. It is a good question. Right. When we measure pricing, we measure it on a same-store basis. It's a very detailed measure. Is it the same origin, the same destination, the same commodity, the same car type? You kind of have to check off all of those parameters. Then did it move volume? Is my price this year higher than my price last year? I measure it against the volume, which gives me the pricing dollars, okay. It's a pretty rigorous measure. What we're seeing is that we continue to have this mix headwind. We talked about that a little bit in Q1, where mix is essentially offsetting our same-store price dollars at the moment. The mix impact is really driven by kind of headline would be the forest products. We're seeing 40%-50% kind of tariffs and duties on Canadian lumber into the U.S., and that has hit us hard. That will continue until probably about October of this year, because that's kind of following the sequencing of when the incremental duties and tariffs were applied last year. Metals has been a headwind, but as I mentioned, it's actually faring better at this point than what we would have expected. I would put most of the mix issue on the forest products and give you the sense that as we kind of lap the tariffs that were placed last year, we should have the opportunity for the pricing to show through without the mix impact. Just one more just on this sort of thing I'll add. If you're pricing 50 basis points above inflation, you're sort of at the whim of mix being a headwind. If you start pricing 1, 2, 3 points above. Yeah inflation. You could say, "Hey, mix is a headwind. We don't care. We're still getting net price above. Right Is there an opportunity to sort of accelerate that price? My customers will tell you there's not an infinite pricing capability, right? Sure. No, I'm not No, I'm not suggesting we go 10 point. Yeah. I don't know. Is there some opportunity to sort of? No. Listen. If you understand what I'm saying. I'm very, very comfortable with the team's approach to pricing, and we do this on a disciplined basis. We're looking at individual origin destination lanes, understanding the relative competitiveness. There is no point for me to renew a contract at 6% if I don't move the volume. Okay, that's theoretical pricing. What I care most about is dollars that I can put in the bank account that support earnings growth. There's not unlimited pricing power. I think we're in a market where we've had multiple years of weak volumes. We're seeing that now start to correct itself. We're seeing the tightening truck rates and capacity. We're seeing all of the rails getting a little bit more volume growth. I think we're kind of coming out of the worst of it. Then it's service. Like how good of a service are you providing? That's where you need to be able to anchor your price. Is this trucking phenomenon, certainly in the U.S., any signs of it spilling over into Canada? Yeah, there's some early signs. It is stronger like in the U.S., I would say, and I think you see that from the various companies that you cover. We are seeing some of that traction take hold in Canada as well. Okay. I'll get to you in one second on questions. If there's a mic, we can get around. You mentioned RTMs tracking up about 3% again, right? The guide sort of for the year has been flat, right? You mentioned some macro uncertainty. Do you feel like there's upside potential or is this, "Hey, grain's really good right now."? Grain comps start to get harder as the year progresses? Yeah. I mean, grain's always the unknown, right? Right. I think that's an important point. The single biggest driver of the strength has been Grain Canada and Grain US. Normally at this time of the year, we actually see a little bit of a slowdown in grain shipments because the farmers are out in their field planting. The planting has been delayed. It's been quite wet in Western Canada, those volumes are holding steady. Then it's all about trying to predict what the next crop looks like. As farmers get a better handle on that, they'll make decisions around how much of the current crop they hold back or release. Then that gives us a better sense of what does the, I would say, September to December time period look like in the context of grain. The crop isn't even planted yet. I think that's the key point. Right. Yesterday, CP suggested that they think from a year-over-year standpoint, grain could look pretty good through December. Do you have that visibility yet or hard to know? Well, it is hard for me to predict the crop that has not been planted. I would say that I think the visibility is pretty good on the crop that is in the bins right now. Right. We feel good about it. It's both Canada and U.S. I want to make that point. We've had an all-time record crop in Canada, but it was a record corn crop in the U.S. Then the resolution with China on soybeans in the U.S., the resolution between Canada and China on canola, all of that has been constructive for shipments this year. Okay. Just two more on the volume side. You mentioned we get to October and some of the lumber forest product comp should start to ease. Yes. We're still in a pretty weak sort of housing market. We are in a weak housing market. Yeah. Are things stabilizing at a low level and so we just have to lap this? Is there a risk that we just continue to see downward drift then? Yeah, I think that's a little bit of the unknown. Yeah. I think housing is such an important segment, not just for lumber but for the broader economy. When housing goes well, you have your lumber, you have your roofing shingles, you have your wall board, and then somebody builds a new house and they want all new appliances, and they want all new furniture. It actually brings growth in intermodal as well. When the housing market is doing well, our railroad volumes are doing well. I would say, the way I would answer your question is that the number one issue is the housing starts. The secondary issue is the duties and tariffs. We will lap that issue, but we don't expect growth to return until the U.S. mortgage rates come down a little bit and we see housing starts move up a little bit. Okay. You said we should talk more about NGL. Yeah talk more about -- Yeah. How big is that of a business today? Where do you see over the next 12 months, two years, how much growth it should be? Yeah. This business is growing at double digits. Okay. This is all related to that Montney Shale region that I was talking about. The more opportunity that Canada creates to export more natural gas, the more that this is a long-term opportunity. There's multiple projects that are being kind of fast-tracked to increase export capacity. I think you've seen kind of the Canadian government be very focused on liberating Canadian energy, and obviously it's a good time to be doing that. As that grows, we're going to grow with it. We have more fractionation capacity that's actually coming online in the second half. What I mean by fractionation, if you're less familiar with that, once you kind of extract the liquids from the production process, it goes through a fractionator. The fractionator is what separates the products into propane, butane, condensate, and ethane. More capacity coming online in the 2nd half. I think the Keyera, AltaGas, CN announcement is kind of the proof point that this isn't growth for one or two. This is a decades-long growth story. I think that's an important piece. It doesn't just mean more propane, condensate, and butane opportunities. It will help crude oil opportunities. It helps plastics opportunities. It does have an outsized impact, I think, on overall volumes. It's something that our franchise is particularly well suited to in that Northern B.C. area. And so you- Frac sand as well. That's the kind of key input to make this happen. You think this should be double-digit growth for multiple years? For that segment, yes. Yeah. Where does this rank in terms of, is this a better margin product or something? I don't know. It's within our petroleum and chemicals business unit, which does tend to be at the upper end. Okay. You mentioned this as a growth opportunity. I've heard over a long many years of lots of different growth stories we've talked about. All the rails have. Yeah. There's Meridian Speedway, there's Lázaro, there's this East Coast port, there's this triangle strategy in the east. There's one growth pitch that has really, really hit, and that is Rupert. Yes. The last few years that has stopped. Yeah. Rupert, you have to distinguish. Rupert is down a lot from where it was. Yeah. What went wrong with Rupert of late? Yeah. When does that start to come back? You have to kind of split Rupert in half. Okay. Okay? Rupert used to be just an intermodal story. Yeah. It is equally, if not more, a carload growth story today. As well as an intermodal story. On the intermodal side, we had some challenges, labor issues in Canada, both at the port and the rail side, where we lost some of that traffic to the U.S., and we're working hard to get it back. I will say that we have the Gemini service at Prince Rupert. It is going extremely well, exceeding our own expectations, I think. That creates a proof point for other shipping lines. I think all of the structural advantages of Prince Rupert remain fully intact, and it's more about giving the proof point around the stability of labor and the supply chain is the important point going forward, and Gemini is helping us demonstrate how successful the port can be on the intermodal side. The carload side, like I said, we've talked about the NGL exports. We think there's incremental opportunity for metallurgical coal. It's becoming as much a carload growth story as an intermodal growth story. What is Prince Rupert growing this year, do you think? I don't know offhand, but it's increasing. Is it growing? Absolutely. Okay. Yeah. Do you think Rupert, you think is back on a growth-? Rupert is back on a growth trajectory, absolutely. Okay. Sorry, there's a question at the back. Mic's coming right behind you. Yep. Thanks. It's more just going back to the pricing side. You say pricing in excessive inflation, but can you just drill into that a little bit? What does that mean? When you talk about inflation, is that realized inflation or some sort of pro forma thing? Then when you think about this year, I know you do a fuel surcharge pass-through, but a lot of your other inputs would be petroleum-based. I'm thinking like lubes and things like that could see really significant inflation. How are you factoring that in, and how do you sort of get comfort that the ultimate price will actually be in excessive inflation? The fuel is well covered by the fuel surcharge. The vast majority of that is the diesel fuel for locomotives, and yes, there's some other products that get used on the railway, but that is well covered with what is a pass-through fuel surcharge. When we're talking about other inflation, we're talking about labor being a key part of that. In Canada, the labor inflation is about 3%. We have a smaller base in the U.S. that's maybe running closer to 4%, and those are really just based on the negotiated collective agreement. They're known, and they're typically known kind of multi-years. The balance is materials, and so that's how well you're contracting for other materials that are used on the railway, and that's running a little bit lower. That's more in the 2.5% kind of range. When you put the basket together, this is the inflation that we're talking about. It's the specific inflation for CN that we're trying to make sure that we're pricing ahead of. For sure that this is dynamic, right? As we go through the economic cycles, when demand is higher, when inflation is higher, we're going to see price move up. We do have regulated grain that we're dealing with, so a certain portion of our business is regulated. This is export grain in Canada. That has put a little bit of pressure on our pricing for this year. That regulated grain increase is about 1.7% for the 2025, 2026 crop year. I wish I could tell you that that was going to improve as we think about next year, but the pricing has already been released, and it's a 0.66 for CN for the 2026, 2027 crop year. That segment, the fuel is embedded in the index. There isn't a separate fuel surcharge. Fuel can cause a lot of noise in that regulated grain number, it's not as responsive. It tends to be a timing issue of when you get the benefit of fuel, but that timing issue could be like a year later. That's just something to keep in mind about how we move through the cycle and how we price differently according to the market conditions that are out there. August of 2026, regulated grain rates only go up less than 1%. Correct. It's on a year lag, right? Yeah. You're going to have that piece of your business is going to see a real margin hit relative to fuel that's up meaningfully. In theory, next August, regulated grain rates, including fuel, go up a lot. Yeah. Fuel, hopefully by then, is normal, and regulated grain margins should look really good in the back half of 2027. That's the theory. Right. In theory, yeah. I would just say that it is a bit of a black box in terms of how the government does these calculations, and then how they correct for prior year forecasting errors. Yes, the theory that you've outlined is sound. Is that enough of a margin hit, that mismatch on grain rates versus fuel to impact my model? I don't think so, Scott. I think you've just got to When we talk about the mix headwinds, you got to factor in a little bit on the grain side. I think that's how you should think about it. Not showing through maybe as much as we all would hope in the near term, but catching up, timing issues. Okay. That I think leads a bigger picture question. I think I asked it to you maybe on one of the earnings calls, but I'll sort of ask you again, because I think it's important to sort of understand this, right? For so many years, the thought was rails could grow earnings, high single digits, maybe even low double digits, without much volume growth. There was enough price, there was enough cost margin, there was enough buyback to sort of get us there, even without much volume growth, and certainly that's not. Last couple of years, we're sort of flattish on earnings. This year, you're saying volume flat, earnings up slightly more than volume. Like, can we get back to that better sort of earnings growth algorithm? What has to happen to get there? Yeah. Let me start off and then Jamie can jump in. I think, Scott, we're going to kind of Wikipedia this to your name, Scott Group, earnings algorithm. It has become a thing. Instead of the OR question. Yes. Yes, the earnings algorithm we believe is actually fully intact. Okay. Now, year to year, you're going to have some noise. Do we think that CN has the capacity and a supportive environment, economic environment, good macro, to be able to deliver high single, low double-digit? The answer is yes. Jamie, maybe you can give a little bit more color. Well, I think even if you start looking last year, we had 1% volume growth, 7% EPS growth, so I think in 2025. That at a base kind of proves that earnings algorithm theory. This year, we have FX issues and a higher tax rate, some headwinds from other income. When you pull those aside, as Scott, you look at the base of how the business is performing, how Janet's doing on the commercial side, and with volumes, how Pat's doing operationally, I think you see that at the core, and the core engine's running well. The earnings algorithm is actually intact. Okay. Looking ahead a year, if we lap these headwinds, if the volume environment's picking up a little bit, maybe then the pricing environment picks up, like the pieces, grain pricing could turn into a tailwind back half 2020. Those are the pieces that could get us back to that. There's leverage in our business. When the volume comes back, when you see the volumes come back, you'll see the earnings follow it. Okay. Then just one other, I know there was a question on fuel. I did the Clean Fuel Regulations. Any thoughts of changing the way the surcharge mechanisms work to more frequent resets? Yeah. We have a two-month lag. Right. Most of the rail industry has a two-month lag. On a regulated basis, it's really hard to get shorter than a one-month lag. You have a minimum 20-day notification period that you have to respect when you're changing tariffs. I don't think it's a high priority, to be honest, Scott. I think the overall fuel surcharge functions well and as intended as a kind of a pass-through mechanism. No, I think we're comfortable where we are. A sort of a near term question. You talked about on Q1 call, few CAD 0.01 headwind from fuel in the quarter and sort of 200 basis points on margin, right? Typically, we see margins improve, I know 2, 3 points Q1 to Q2. Given that fuel headwind, should we still see some degree of margin improvement Q1 to Q2? I think you'll see it, Jamie's going to correct me if I'm wrong here. You'll see it on a sequential basis, so that normal seasonal pattern will hold, but fuel is hitting both your top line and your bottom line. It kind of comes at 100% OR. When we look on a year-over-year basis, I think there may be just more of a headwind. You think still fair to see the normal? The normal sequential improvement comes through, and then you have, I think just called it out at Q1 of a 200 basis point hit from fuel. That was fuel was at CAD 95 a barrel. We'll see if it stays north of CAD 100. It was back down yesterday. Right. There's a little bit of noise, maybe a little bit plus minus on that 200, Scott. Okay. Last just few minutes, maybe just a couple of minutes just on the bigger environment with M&A. Maybe just at its core, what are your greatest concerns about the merger and what do you say to the argument of, hey, there's already a transcontinental system in Canada. It works. Why shouldn't we have that here in the U.S.? Right. I think for us, the biggest concern has been making sure that there is adequate data to make an assessment of the impacts of the merger. I think we've demonstrated through our various filings that we don't think we're there yet in terms of the robustness of the data. Can I jump in for one second? Sorry. Yeah. You're not even making a comment about the merger. You're saying the application. Yep is still incomplete in your mind? Yes. We'll find out next Friday. Exactly. This is significant, right? This is the most significant merger I think that the industry has contemplated. With the most significant bar in terms of the necessary remedies to demonstrate enhanced competition. To be clear, the measurement for enhanced competition here is as an existing rail customer. It's not truck to rail conversion. That may be is a kind of community benefit or a social benefit. If I am an existing rail customer, you have to be able to demonstrate to me that this merger creates enhanced competition. I don't think that bar has been demonstrated to this point. It is a high bar. When we think about, is this going to happen? Is it not going to happen? One, we think having the right data is really important. Two, we are the railroad probably least impacted by the merger just due to the nature of our network. We originate about 85% of the traffic that moves on our network, and we originate and terminate about 65%. If there's a way that we can play a role in the context of remedies or if there's a way we can influence what we think remedies look like to demonstrate enhanced competition, then we're going to be an active participant in that process. Okay. Maybe just as we wrap up, anything active participant, any specific things you would like to see from a concession standpoint? Just hypothetical, if this gets approved, is it inevitable that one merger leads to two or three or four mergers? I don't know about inevitable, but I think we're running all scenarios and likelihood would suggest so. I think as we've kind of talked about today, we have a network that is really built for growth. We're well-positioned to bring volumes on at a low incremental cost and to benefit from our operating leverage. This is where we're really putting our time and energy and trying to leverage. We talked about the NGLs, we talked about Northern B.C. We didn't have time to talk about just kind of the Build Canada and the amount of infrastructure projects and the acceleration of those infrastructure projects, whether it's critical minerals, or other just energy products. We are quite excited about how we kind of move into 2027 and 2028. That's what we're focused on, growing. Do you want to take a minute and just talk about that, what you just said? Yeah What that opportunity is? I think we've taken a new Canadian government, new approach in terms of trade diversification, a desire to really liberate Canada's natural resources, whether it's energy, whether it's critical minerals. I think rails are going to play a really important role in that, in getting Canadian goods to offshore markets. I think we're primed to be the railroad to help support that, particularly given our northern reach to where some of these resource bases are located. Janet, Jamie, thanks so much for being here. That was great. Thank you.