CNI Q3 2025: Strategic Shift
Hello, everyone! Today, I've brought you an in-depth look at Canadian National Railway's (CNI) latest earnings call. As a seasoned investor and a keen observer of market trends, I always find these calls a goldmine for understanding a company's pulse, especially in dynamic sectors like transportation. CNI just wrapped up its Q3 2025 earnings, and management offered some fascinating insights into their strategic adjustments amidst a challenging macroeconomic landscape. Let's dive in!
CNI's Q3 2025 call highlighted a persistent theme: a tough macroeconomic environment. CEO Tracy Robinson openly admitted that predicting the volume environment has been challenging, citing a "markedly worse macro" and "unanticipated shocks from tariffs and labor." Despite these challenges, CNI delivered solid results:
- EPS Growth: Reported EPS rose 6% to $1.83, up from $1.72 a year ago.
- Operating Ratio Improvement: A significant 170 basis points improvement, reaching 61.4% in Q3 2025, compared to 63.1% a year earlier. This is a clear sign of operational efficiency!
- Revenue: Increased 1% in the quarter, supported by higher RTMs (Revenue Ton-Miles) and carloads.
- Free Cash Flow: Exceeded $2.3 billion year-to-date through September 2025, with management expecting continued sequential acceleration into 2026.
However, the outlook for 2026 remains "limited" due to weak North American industrial production, housing starts, and ongoing tariff impacts on forest products. Management isn't sitting idle, though. They've initiated several key actions:
- Capital Expenditure Reduction: The 2026 capital spend is set at $2.8 billion, a substantial reduction of nearly $600 million from 2025. This positions capital intensity at a mid-teens percentage of revenue, aligning with U.S. peers. This isn't about cutting growth potential, but rather reflecting network readiness after major capacity expansion projects.
- Doubling Down on Productivity: Targeting a $75 million reduction in management labor costs, alongside a 5% year-over-year headcount decline. This "productivity mindset" is being applied across all departments.
- Enhancing Shareholder Value: Accelerated share buybacks in Q3 (nearly 8 million shares for over $1 billion) demonstrate a commitment to returning excess capital, balanced with maintaining a strong balance sheet for flexibility.
Pat Whitehead, the newly sole Chief Operating Officer, highlighted the focus on a "disciplined, scheduled railroad." Despite a year-to-date increase in injury and accident ratios, targeted campaigns saw improvements by October. Key operational achievements include:
- Train & Engine Labor Productivity: Improved 20% year over year due to disciplined crew management and furloughs where volumes softened.
- Fuel Efficiency: Gained 2% year over year, partly due to the elimination of the Canadian Federal Carbon Tax and fleet modernization.
- Reduced Contractor Spend: Approximately $120 million year-to-date reduction by internalizing functions.
On the commercial front, Janet Drysdale, the new Chief Commercial Officer, is injecting a new level of "intensity and urgency." Her "boots-on-the-ground sales program" brought in $35 million in Q3 and is targeting nearly $100 million in Q4, helping to offset weakness in other areas. This proactive approach has already led to market share wins in chemicals and plastics.
Example: Janet mentioned innovating with products, like the successful test move of their first unit train of scrap iron, which the operating team "hit out of the park," beating their aggressive service plan. This shows a real drive to find new revenue streams!
The call also touched on broader industry dynamics, particularly M&A. Tracy Robinson firmly stated that the industry "does not need a merger to provide better service" and that "more cooperation and less regulation" are needed. CNI intends to be an "active and engaged participant" in any merger review to protect its franchise.
- Pricing Strategy: CCO Janet Drysdale confirmed that CNI's pricing strategy remains consistent: pricing to the value of service, selling into capacity, and ensuring pricing remains ahead of rail cost inflation (around 3%). While regulated grain pricing for 2025-2026 is lower (1.7% vs. nearly 6% last year), the overall goal is to grow price ahead of expenses.
- Growth Opportunities: Despite the overall "limited volume growth" outlook, CNI sees strong potential in its diversified portfolio, particularly in natural resources. Think LNG Canada's phase two, frac sand expansion, NGLs exported via Prince Rupert, and a strong ag sector. These commodities are less susceptible to North American macroeconomic fluctuations and are finding their way to global markets.
Example: Prince Rupert, a "very unique asset," is evolving from a pure intermodal play to increasingly handling carload traffic like energy, plastics, and grain exports. CNI is well-positioned with capacity in this corridor, including the nearly complete Zanardi Bridge project, to capitalize on evolving global trade flows.
The Q&A session always provides a deeper dive into management's thinking. Here are a few highlights:
Q1. CapEx Cuts: Jeopardizing Future Growth?
A. Tracy Robinson clarified that the CapEx reduction isn't about limiting growth. Past investments in the western corridor (Edson Sub, Vancouver Corridor) and locomotive fleet modernization have already built significant capacity. The network and fleet are now "properly sized" for the current environment, with ample room to grow when demand rebounds.
Q2. Re-energizing Commercial Strategy for 2026 Volumes?
A. Janet Drysdale emphasized increased "intensity and urgency" in their "boots-on-the-ground" sales, targeting every opportunity. She highlighted recent market share gains in domestic intermodal and spot moves in soybean meal, plastics, and coal. While the overall macro outlook is flat, CNI is proactively working to win market share and innovate.
Q3. Why is the Canadian Rail Structure Good, but US Consolidation is Bad?
A. Tracy Robinson argued that Canada's transcontinental networks operate under a different regulatory environment. For the industry to grow sustainably and compete with trucking, it needs "less regulation, more competition," and the ability to be more nimble and innovative. Large U.S. transcon mergers, she believes, would inevitably attract more regulation, hindering this progress.
Q4. Can CNI Achieve an Operating Ratio Starting with a "Five"?
A. Tracy Robinson boldly stated, "I've always thought that the right operating ratio for this place starts with a five." She believes CNI is "highly leveraged to volume growth" and that their sustained productivity efforts, combined with a rebound in volumes, will drive further OR improvement.
Canadian National Railway is clearly not just weathering the storm; it's actively adjusting its sails. By strategically reducing capital spend, relentlessly pursuing productivity gains, and re-energizing its commercial approach, CNI aims to deliver value through all economic cycles. The leadership team's commitment to operational excellence, shareholder returns, and protecting its unique network position, especially with assets like Prince Rupert, paints a picture of a company focused on long-term agility and sustainable growth.
It will be fascinating to see how these proactive measures play out in 2026, especially when the full-year guidance is released with Q4 results. Keep a close eye on CNI; they're making some structural changes that could redefine their performance in the coming years!