Detailed Narrative
A directional guidance reset built around volume uncertainty
Management explicitly abandoned precise targets for a directional framework tied to volume trends, citing elevated macro/policy uncertainty, limited visibility, and volatile FX. The 2026 base case assumes flattish RTMs and holds current tariff levels constant with no assumed upside or downside from further tariff actions. On that basis EPS is guided to grow slightly ahead of volumes. Tracy Robinson framed the choice as avoiding the repeated guidance changes, withdrawals and misses the sector has seen; a more precise approach may return in a less volatile year.
Operating performance: efficiency records across the network
CN posted improvement across all key operating measures in Q4: car velocity +2%, terminal dwell -1%, locomotive productivity +5%, and a Q4 fuel-efficiency record (nearly +1% YoY, full year just shy of the all-time best). Locomotive availability hit an all-time high of 92.5% (+1% vs 2024), cutting mechanical inventory by $20M (-14%). December ran under a full month of winter constraints requiring shorter trains, yet service held with local-service commitment performance well above 90%. Best injury frequency ratio in company history for both Q4 and the full year.
Commercial: share gains backfilling weak markets
The commercial team delivered 4% more RTMs and 3% more carloads on 2% revenue growth, benefiting from an easier comp against the 2024 ILWU port strike but offset by weakness in forest products and metals. Intermodal international revenue rose 13% (Vancouver, Prince Rupert, new Gemini service) and domestic 6% on service-driven gains. Grain set an all-time annual record with monthly records in Oct/Nov/Dec. Petroleum & chemicals grew across all segments led by NGL volumes +9%. Incremental commercial wins reached ~$100M in Q4 (from $35M in Q3), with a further ~$100M in the January scorecard.
Margins, mix and the 2026 headwind stack
Adjusted OR improved to 60.1% in Q4 (250 bps) despite a ~$70M carbon-tax-repeal headwind, negative mix, and tariffs that cut FY25 revenue by over $350M. For 2026, Ghislain Houle flagged a stack of roughly $100M-each headwinds: lower capital credits on the smaller capex program (mostly labor/fringe), lower other income (2025 carried ~$100M, including a $36M branch-line-sale gain), and a higher effective tax rate (25–26% vs 24.7%). Continued unfavorable mix (less forest products/metals) and FX (~$0.10 EPS at spot, though neutralized in the guide) add further pressure; pension is a ~$40M tailwind.
Balance sheet and capital return: a deliberate leverage step-up
CN generated $3.3B FCF (+8%) and finished 2025 capex $50M below its Q3 projection. It repurchased nearly 15M shares (~$2B) in 2025, raised the dividend 3% (30th consecutive year of increases), and authorized a new buyback of up to 24M shares. Management is intentionally lifting leverage to ~2.7x in 2026 to front-load repurchases of what it calls an undervalued share, returning to 2.5x in 2027. Capex drops to $2.8B in 2026 (a $500M cut), supporting improved cash conversion off a 70% base.
Industry consolidation and USMCA overhang
On the proposed UP–NS merger, CN incurred $15M of advisory fees and Robinson was pointedly skeptical: the STB deemed the application incomplete, and CN argues it fails the 'enhancing competition' bar, omits projected combined market share, and offers a gateway commitment covering only a small fraction of impacted traffic that excludes Canadian railways and expires while harms are permanent. CN expects significant concessions on refiling and sees a possible expanded role for its own network. Separately, the July USMCA review is the year's biggest swing factor; the greatest risk cited is investment-chilling uncertainty rather than any single tariff outcome.
Growth catalysts on the northern franchise
Management repeatedly pointed to CN's 'railroad of the North' positioning: BC North and the Montney Shale (NGL exports plus frac sand), Canadian grain and canola crush (aided by improving China trade conditions), potash into 2027, and critical minerals. Network investments completed — Edson Subdivision now 63% double-tracked (adding ~6 trains of capacity), Vancouver corridor additions, EJ&E and Prince Rupert work — leave capacity to absorb growth without a significant capital step-up. Prince Rupert projects (the CANEX export transload facility and IntermodeX import transloading) are ramping into late 2026/2027.