Canadian National Railway Company

Good afternoon. My name is Emma, and I will be your conference operator today. Welcome to CN's second quarter 2023 financial and operating results conference call. All participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session, during which we ask that you kindly limit yourself to one question. I would now like to turn the call over to Stacey Alderson, Interim Assistant Vice President, Investor Relations. Ladies and gentlemen, Ms. Alderson.

Thank you, Emma. Good afternoon, everyone, and thank you for joining us for CN's second quarter 2023 financial results conference call. Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the U.S. and Canadian securities laws. These statements are subject to risks and uncertainties that may actually cause results to differ materially from those expressed or implied in these statements. They are more fully described in our cautionary statement regarding forward-looking statements in our presentation. After the prepared remarks, we will conduct a Q&A session. I do want to remind you to please limit yourself to one question. The IR team will be available after the call for any follow-up questions. Joining us on the call today are Tracy Robinson, our president and CEO, Doug McDonald, our chief marketing officer, Gislaine Wood, our chief financial officer, and Ed Harris, our chief operating officer. It is now my pleasure to turn the call over to CN's president and chief executive officer, Tracy Robinson.

Merci, Stéphie, et bienvenue à tous qui participent par téléphone ou par webcast. It has been a couple of months since we saw many of you in Chicago at our investor day, and we're continuing to execute the plan we laid out for you then. We're running a scheduled operation that moves our assets quickly and services our customers consistently, and this is the central theme, and we're driving our growth initiatives on that foundation. Over the three-year period we discussed in Chicago and beyond, our path is very clear. The longer-term fundamentals remain strong, The growth opportunities are real. We continue to progress that growth agenda built on the foundation of strong service driven by disciplined adherence to our plan. Now, the immediate term is a little less certain. This team has dealt with a number of external weather-related issues over this past few months, as well as a West Coast port strike over the last few weeks. As we sit here today, we're also seeing a little bit more weakness on the economic front than we modeled earlier this year. Now, all of this is temporary, as you know, and our team is doing a great job of managing through it with an eye on the longer term. The heat and the wildfires in parts of both eastern and western Canada over the last few months have impacted our operations and the operations of some of our customers, and that's had a temporary impact on volumes. And we've seen, more generally, a softer volume market economically, particularly in some of our commodity segments. I must say I have been impressed by our team's response. They are managing through this. They're staying true to our plan. They're running the plan. And still, through all of it, improving year-over-year velocity, network train speeds, dwell time, and customer service. You'll notice this in our operating stats. They've done a great job, and it's a testament not only to the team, but also to the strength of our plan. The plan's working. As we look forward, our focus is on continuing to be nimble, adjusting to the softer volumes in the near term, and ensuring that we're prepared for the lift. We'll continue to refine the operating plan to match the volume model. So we're consolidating train starts. We're laying down locomotives and cars where it makes sense. This keeps our network balanced and our assets moving quickly. It maintains our service levels, and it mitigates costs. And as we said we would do, should we find ourselves in this situation, we're adjusting our hiring plans to match what is now a slower expected return of some of our commodity segments. And we're taking the opportunity to advance some locomotive engineer training to ensure that we're ready for the medium and the longer term. And all of these are the right near-term actions that mitigate the impact of lower volumes without jeopardizing our ability to respond when the rebound comes. And it will come, and we will be ready. This puts our margins under a little bit of pressure right now, but our margin leverage will return with the volume. So let's talk about what this all means. Our second quarter EPS of $1.76 is 9% lower than last year on an adjusted basis. and our 60.6% operating ratio is 160 basis points higher. Now, this is the impact of both the macroeconomic being softer than we anticipated and those challenges presented by the weather events here in Canada. On the basis of what we saw in the second quarter and are seeing in these few weeks in July, we've taken a hard look at our year-end outlook, and we're now assuming that the economic recovery is pushed into 2024. So we expect the year-over-year change in annual adjusted EPS to be flat to slightly negative. The team is going to provide you today with more details about our thinking on this. But before I hand it over to them, I just want to say a few words about the situation on the Canadian West Coast ports. We are pleased to see an end to the work stoppage. And we're working hard to get those supply chains back in sync. We expect to move most of the volumes that didn't move during the first two weeks of July over the coming weeks. And this event is another reminder that what happens on one part of the supply chain impacts the full supply chain. Major disruptions like the ILWU strike, the wildfires, and now some flooding in Nova Scotia have impacts across the North American supply chain. And it is critical that we respond as an entire supply chain community. to minimize the impact and build ongoing confidence in the North America and the global supply chain performance. This is how we approach our work here at CN. I'm proud of this team's ability, demonstrated again in this past quarter, to respond in a way that minimizes the impact for our customers, for our employees, for our supply chain partners, and the communities in which we operate. So I'll turn it to the team. Ed's going to first give us a little more color, Ed. on the state of our operations and how his team has been working to mitigate the impacts of these events. Doug will follow up with an update on the markets and what our customers are telling us about the volumes as we look forward. And Jules is always on cleanup to bring it all together with the numbers. Ed?