Canadian National Railway Company

Good afternoon. My name is Julianne and I will be your operator today. All participants are now in a listen-only mode. At this time, I would like to turn the call over to Tracy Robinson, CN's President and Chief Executive Officer. Ladies and gentlemen, Ms. Robinson.

Thank you, Julianne, and good afternoon, everyone. We're here in Memphis today. We've had our board meetings over the past two days and have had an opportunity to spend some time visiting our local facilities. Now, we did a pre-recording of our prepared remarks over the weekend. But before we play those remarks, we received some very sad news today about the loss of one of our engineering employees. Early this morning, there was a motor vehicle accident in British Columbia. A semi-truck collided with a CN engineering vehicle with two employees on board. We are deeply saddened that one of our CN family Juver Balmores suffered fatal injuries as a result of the accident and died at the scene. The other employee traveling in the truck was taken to the hospital with critical injuries. I understand he's now in critical but stable condition. Our prayers are with him and his family. The second group of CN employees traveling behind the first vehicle were the first on the scene to respond. They showed a tremendous courage and compassion in a critical situation. a very tragic and painful loss for all of us at CN, and our hearts go out to Juveur's family. Before we move on to the business today, I want to remind all CN employees and everyone listening in today to take care of yourselves and those around you. Stay safe. So, operator, could you please start the pre-recording with Stacey Alderson, our Head of Investor Relations.

Bonjour à tous et merci de vous joindre à notre appel de conférence sur les résultats Good afternoon everyone and thank you for joining us on CN's first quarter 2024 financial and operating 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 cause actual 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 would ask that you please limit yourself to one question. The IR team will be available after the call for any follow-up questions. Now, joining us on the call today are Tracy Robinson, our President and CEO, Pat Whitehead, our Chief Network Operations Officer, Derek Taylor, our Chief Field Operations Officer, Doug McDonald, our Chief Marketing Officer, and Jislaul, our Chief Financial Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracey Robinson.

Merci, Stacey, et bienvenue à tous. Thanks, everyone, for joining our call today. Q1 was a solid quarter. It played out as we expected and has set us up well for the growth that we see ahead of us. I'd like to start today with a few words related to last week's press release on Remy and Doug's transition. And firstly, I want to thank Doug. not only for his many years of service to CN, but especially for his leadership and his wisdom over the last two years. You've done a great job, Doug, in the recrafting of our book of business as we move back to the scheduled operating model, and setting the commercial team up for continued success. And I want to personally wish you health and happiness in your retirement. Now, we've been intentional about Remy's transition, starting with some pretty intense field exposure since he joined in January, followed by a deep dive into the commercial organization. He's a great fit with our team, and he's going to bring a new perspective to his chief commercial officer role, especially having been in a customer's shoes. He's in the room with us today, but he's not mic'd up. He'll be in the seat next quarter and spending some time with the investment community in the coming months. Now, before we get into the details of the quarter, I know that TCR has seen negotiations in Canada have been on the minds of our customers and our employees and some other stakeholders. And I want to provide a little context to what's happening. Now, it's important to us that we have an agreement that assures the availability of our crews to run trains on time in support of our customer service commitments and to support the growth of the industries we serve. It's also important that we can offer to our employees a predictable schedule with guaranteed days off that supports safe operations, and allows them to plan and to live their lives. And that improves the attractiveness of our work as we engage the next generation of conductors and engineers. Now, the introduction of the new Canadian duty and rest rules last year stacked on top of the provisions already in our collective agreements has had a negative impact both on the availability of crews to run trains and on scheduling for our people. So in this round of bargaining, we're endeavoring to improve the predictability of when our train crews will work and when they'll be off. It's an important part of improving safety, providing more predictability to employees on when they'll work, giving them better work-life balance, and improving crew availability to support a consistent service for our customers and supporting the growth of the Canadian economy. We have this kind of agreement in the U.S., so we know how effective it is. We're continuing our constructive discussions with the TCRC leadership and we remain focused on reaching a negotiated agreement. Now, economically, there'll be benefits for both of us. I hope that gives you a good sense of where we're at. Turning now to the quarter. As I said, it has come in as we expected. Safety continues to be an area of intense focus. Pat's going to speak to our performance on the quarter here. We are committed to improving our safety performance and advancing towards our goal of zero harm. On the operations, velocity and speed were solid this quarter, despite some colder temperatures in Western Canada this year, some congestion in Vancouver, and a dip in crew availability related to the new Canadian regulations. I've got to tell you, I'm proud of how we've performed and how we've adapted to the plan to align with what's coming at us. Customer service remains a top priority, and I want to call out local service commitment performance. Now, this is a key customer-facing metric, and at 92%, It improved 6% versus last year. Volumes are firming up. We're seeing momentum building. Doug will speak to end market performance and the outlook for the balance of the year, including updates on our CN-specific initiatives. These projects are lining up quite nicely, giving us increasing confidence in our volume outlook. And as we knew, we're up against a very strong performance last year, which included $0.10 of favorable fuel surcharge lag. So I'm pleased with our solid EPS of $1.72. This is right where we thought we'd be after three months. I'll leave it to Suzanne to walk us through the first quarter financial highlights in just a few minutes. We are right where we want to be. The team is gelling, the operation is performing, and volumes are on the upswing. Putting it all together, I'm very happy with the direction we're headed and want to reaffirm the guidance we issued in January. I'll now hand it over to the team. Pat, you're up.

Merci, Tracy, et bienvenue a tous. Injury and accident rates increased in Q1. Despite our best efforts, intense winter weather poses increased safety exposures. We have seen improvement in April and are now tracking in line year to date with CN's lowest ever frequency ratio in 2023. One area I want to highlight in our safety performance is slips, trips, and falls, which increased in the quarter. So what are we doing about it? We're addressing slips, trips, and falls with several actions. The first I'll cover is our recently deployed walking simulators at our training centers. We've seen 30% fewer walking injuries with employees who have been trained with this tool. We're going to be deploying a mobile version of this simulator out to our workforce in the field. We've also rolled out our Enable On Go app to the entire workforce, which is our hazard and near miss reporting system. We've received and corrected over 3,300 hazards utilizing this system since its deployment in 2023. Now, before I discuss the network, I want to address some of the comments that have been made recently regarding CN removing safety critical rest in our current negotiations with TCRC. This is just not true. To be very clear, we successfully implemented the duty and rest period rules that were mandated in Canada in May of 2023 and have been in full compliance with these rules. We have managed operations accordingly. What we are doing is working to simplify the complexity of the stacking effect we experienced beginning in 2023 of the additional paid sick and personal leave days under the Canada labor code, the duty and rest period rules, and the unavailable time provided by the legacy collective bargaining agreement. We are fully committed to providing sufficient rest for our employees and we will continue to work with our union partners to find solutions that benefit our employees and our customers. Now turning to the network, we remained largely fluid this quarter despite more impactful winter weather this year. While our scheduled operation gives us improved resiliency, we were challenged in certain pockets as the newly mandated work rest rules impacted labor availability. As for volume, we are currently seeing what we believe is a sustained increase in demand for intermodal volumes on the West Coast, which has increased existing train size to the point that we have added a combined additional eight trains per week out of Vancouver and Prince Rupert in April. To support the growth we see coming our way, we will continue to invest in network capacity in key corridors, what we call no-regret capital. In 2024, we are on track to complete additional double track along our Vancouver to Chicago corridor and we will finish a siding extension project west of Kamloops, British Columbia. This will increase our capacity in this busy corridor and help alleviate some of the congestion we see from time to time in and out of Vancouver. I'll now ask Derek to speak about field execution in the first quarter.

Thanks, Pat, and good afternoon, everyone. Time and again, we've seen that our make the plan, run the plan, sell the plan model is the right one for our network. As you heard from Pat, Q1 had a number of ups and downs. January brought an extended cold snap in Western Canada that we recovered from in short order. Interestingly, in February, we had some ideal operating conditions and demand started to pick up. Then in March, Mother Nature reminded us that winter wasn't over yet on the northern part of our network. During that March time period, we also had a combination of continued strengthening demand along with the beginning of work block season, particularly in the Edmonton to Vancouver corridor. In fact, daily train counts in that corridor are now approaching our 2018-2019 high watermark years. These work blocks are critical for us to comply with and complete, as they will support growth and fluidity going forward. However, they did cause some additional pressure in and out of the Vancouver Gateway. Importantly, we kept our yards fluid, which has enabled us to maintain a high level of service for our customers. In fact, our local service commitment performance, or LSCP, improved 6% versus last year to 92% for the quarter. Running the plan is the team's focus, and I'm really pleased that a few weeks into April, speed and velocity are back in line where we need them to be. We've got good operational momentum, so as volumes continue to ramp up through the year, we expect to deliver incremental operating leverage, particularly in terms of our manifest trains, which have room for growth at low incremental cost. To wrap it up, I'm convinced that continued strong alignment between the operations, marketing, and finance teams is key for us to grow profitably. This is a team effort. We're making sure there's tight coordination across the entire organization so that we have the capacity and service in place to keep delivering for our customers. Now, I will turn it over to Doug.

Thanks, Derek, and thanks, Tracy, for the kind words. I've been fortunate to spend my entire career at CN, and it's been a gratifying 35-year journey. I am thankful to all of you around the table, as well as the many others in and outside of CN, for their support and help. I leave knowing that the team is well set up for the future. Looking at slide 11, first quarter revenues were down 1% versus last year due to lower applicable fuel surcharge. We had solid pricing ahead of CN's cost of inflation. RTMs, our standard measure of volume, were flat in the quarter as higher shipments of potash, refined petroleum products, track stand, international intermodal, and natural gas liquids were offset by lower shipments of coal, grain, forest products, and crude oil. Petroleum and chemicals led the way in Q1 at 6% RTM growth, with record volumes in refined products and natural gas liquids. Q1 crude volumes were down year over year, but we expect them to move higher sequentially for the rest of 2024 from new business to the Gulf Coast. Our strategic investments in Northeast BC are paying off with stronger frac stand volumes, which drove a 4% increase in metals and minerals RTMs in Q1. Aluminum volumes also increased in the quarter due to market share gains from truck, given our consistent car supply and service. We also had new raw lithium interline shipments with the UP to Texas for battery production. Forest Products' RTMs decreased 5% in the quarter, but center beam orders for lumber have increased sequentially since Q4 last year. Our bus car fleet remains nearly sold out, indicating solid demand in multiple segments. In the bulk sector, Canadian coal was down 20% from production problems at several mines, while U.S. coal was down 23% from softer export demand for thermal coal. Grain and fertilizer RTMs were flat overall, as strong potash growth in Q1 fully offset softer grain volumes. Canadian grain demand was strong all quarter. We moved record grain tonnage in February. And there's pent-up demand heading into Q2. U.S. corn volumes decreased versus last year due to muted domestic and export demand. Automotive RTMs were up 6% on stronger Vancouver imports, despite a slow start in Q1 from delayed new product launches. All plants are running normally now. Turning to intermodal, international was up 5% for the quarter, continuing the steady upward trend we've seen since Q4. Import RTMs via the ports of Vancouver and Prince Rupert are up 12%. as U.S. destined traffic returned after last summer's West Coast Canada strike. Port Halifax volume was down due to Red Sea impacts. In Q1, we lapped the remaining comparable container storage revenues, roughly a $35 million impact this quarter, which negatively impacted revenue per RTM. Domestic volume was down 3% on ample truck capacity. Let's move to the outlook on slide 12. The North American economy continues to be supportive. International intermodal continues to strengthen with strong service and dwell times at our ports. The can export development at Rupert is well underway, as well as land clearing for the Ridley Island Energy Export Facility. We are also expecting to see a gradual recovery in the domestic intermodal markets as capacity exits the over the road segment. Automotive demand remains strong, with some OEMs pushing back the timeline for retooling their plants for EV production. In bulk, Canadian coal mines should return to full production. In addition, Conuma's Quintet mine will start this summer, and the new Valerie mine is delayed until 2025 due to permitting. U.S. export thermal coal volumes will be challenged with low global demand and a surplus of natural gas. In terms of grain, we expect more oil and meal production from new and expanding crush plants on CN in the second half. Our IANR acquisition, which remains subject to SCB approval, will create further volume growth for U.S. grain. Potash demand remains firm, but we expect lower volume in the balance of 2024 as we lap last year's Portland terminal outage. Our CN-specific growth projects are advancing as expected. In Northeast BC, our growing frac sand market for natural gas drilling also produces propane for export via Prince Rupert. New frac sand terminals are expected to be announced in the coming months to grow the market even more. Partnership initiatives like the EMP program, Falcon Premium, and Crowley Service into Mexico and Access to Gulfport will deliver intermodal growth in the second half and beyond. CN's new fuel terminal at our yard in Toronto has received its first cars and ramp up is commencing in May. Construction took a little longer since some phase two construction was advanced to minimize downtime later in the year. Both phase one and two are now sold out. We also moved our first steel cars into our new transload in Flat Rock, Michigan which is all truck-to-rail conversion. We've come through the first quarter of 2024 in great shape, with excellent service for our customers and a strong pipeline of significant growth opportunities that are starting to deliver. I want to recognize Remy, who has spent the last few months getting up to speed with the great CMP people across our network. He'll be ready, more than ready, for our next quarterly call. Over to you, Justine.

Merci beaucoup, Doug, et félicitations pour ta retraite bien méritée. J'ai le plaisir de parler de nos résultats du premier trimestre. Turning to slide 14, in the first quarter, we executed and delivered a financial performance in line with, or maybe even a bit better than planned. Volumes in terms of RTMs were flat on a year-over-year basis, while our revenues were down roughly 1%. We delivered operating income of around $1.5 billion, 7% lower than last year, with a more winter-like operating ratio of 63.6% versus 61.5% last year, up 210 basis points. The first quarter EPS was $1.72 versus $1.82 for the first quarter last year, down 10 cents or 5%. Recall that last year we had a favorable fuel lag tailwind of around 10 cents of EPS. We are monitoring fuel prices very closely. OHD, which drives fuel surcharge revenue, decreased by 17% versus last year, while our fuel prices driving our expense decreased only 6% year-over-year in Q1. In terms of expenses, labor was 10% higher versus last year, driven by 3% higher average headcount and general wage increases. Fuel expense was more than $40 million lower than in the same period last year, mostly due to a 6% decrease in fuel prices that I just mentioned. Our effective tax rate in the quarter was 24%, which is a bit lower than the guidance we provided in January. This was mostly due to the excess tax benefit on incentive compensation booked in the first quarter. We had anticipated this benefit in the quarter, so we will expect our effective tax rate for the full year to be around 25%. We generated around $530 million of free cash flow in Q1, about $65 million lower than last year, mainly due to higher capital expenditures, partly offset by higher net cash from operating activities. Under a current share repurchase program, which runs from February 1, 2024 to January 31, 2025, we have repurchased close to 3.5 million shares for almost $600 million as at the end of March. Our leverage ratio increased to around 2.4 times at the end of the first quarter. This increase is largely due to timing and reflects the atypical quarterly earnings trend in 2023. We expect the leverage ratio to decrease as we move through 2024 and earnings increase sequentially. Moving to slide 15, let me provide some visibility to 2024. With economists' sentiment on the macro environment improving sequentially, we continue to believe that the broad economy in 2024 will be more constructive than last year, with likely positive industrial production growth and interest rates stabilizing. However, the environment remains quite volatile with continued monetary policy and geopolitical risks. Weak sectors, particularly intermodal international and forest products, continue to improve sequentially. We continue to assume that Canadian grain will come back to a three-year average in the second half of the year. We have good visibility on our CN-specific growth initiatives that account for half of our mid-single-digit volume growth assumption in terms of RTMs, and these initiatives are diversified, both from a commodity and geographic standpoint, and they are advancing per plan. Foreign exchange for the year continues to be around 75 cents. Our WTI assumption is now in the range of $80 to $90 per barrel versus the previous range of $70 to $80 per barrel. With this in mind, we are confident that we will deliver 10% EPS growth in 2024 versus 2023. So, in conclusion, let me reiterate a few points. We continue to deliver strong operating and financial performance. Our customers continue to benefit from our excellent service. We are encouraged by the positive direction of the macro environment. End market demand in most of our segments, importantly intermodal international, and forest products continue to show sequential growth. Our CN specific growth initiatives are advancing and delivering per plan. We are committed to delivering operating leverage. We are confident in our EPS growth of around 10% this year versus 2023. Let me pass it back to Tracy.

Thanks, Jess. We're ready to take questions now.

Thank you. We will now begin the question and answer session. As previously mentioned, we ask that you kindly limit yourselves to one question. Our first question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.

Oh, yes. Good afternoon. Thank you for the time. Look, I was hoping you could provide some additional color here on the international intermodal segment of late. seeing some really good outsized growth there, but also seeing an increase in shipping length, it looks like, or distance hauled. Just based upon your discussions with customers, what kind of visibility do you have on that sustaining through summer into the back half of the year?

Thanks, Steve. It's Doug. So we're seeing some great growth on the West Coast. Customers have really come back there after the strike last summer. We're seeing lots of growth in Vancouver, but we're also seeing it start to push up to Rupert. So that's working really well, and I think you can see that in the numbers. The customers are very confident that that's going to continue moving forward. They really like the service and the dwell time they're seeing from us. Now, when you shift over to the East Coast, it's a little bit different story. They have more of an impact because of the Suez Canal. They're routing the boats around south of Africa, and they come back up, which doesn't impact the Canadian business, but it does impact the U.S. business because they're going by a bunch of U.S. ports where they can offload that business there. So we're seeing a little bit down at Halifax, a little bit down at Montreal because of all that, and we're just hoping that that will come back once that issue in the world gets cleared up.

Thank you for your question.

Our next question comes from Fadi Chamoun from BMO Capital Markets. Please go ahead, your line is open.

Okay, thank you.

Doug, congratulations on your retirement and thanks for all the insights and help over the years. My question is on pricing. You know, you mentioned pricing ahead of inflation. What is inflation first, just to kind of help us benchmark what the pricing environment is like? And also, given kind of the strong demand we're seeing both on your network and your comparator network, is the pricing firming up? Do you expect that we could start to see some firming up in the pricing as we move through the year.

Okay. Well, thanks, Paddy. So, overall, what we're seeing in pricing is we're still able to price above real inflation, and I'll get to the second part of your question there. The only part we're starting to see, obviously, some pressure is within the domestic intermodal section, which I think everyone would understand with the truck capacity issues that are out there today. There's a lot of surplus capacity. We're expecting that overall within North America to decline as more and more shops, I'll say, go bankrupt and some of that capacity comes out of the market. So that is where the only areas I think we're seeing some pressure. So with respect to that, when it comes to what we gauge, we still use the all-inclusive index less fuel for the AR as our major benchmark that we tell people for what our rail costs are. Thanks for your question.

Our next question comes from Ken Hexter from Bank of America. Please go ahead. Your line is open.

Hey, great. Good afternoon. I just want to, I guess you're coming up against a comp against maybe the strikes and want to understand the CN specific initiatives. So I think you said there's minimal economic growth in there in that mid single digits. It sounded like maybe some of the, CN-specific issues were delayed. You mentioned a coal field, Doug. I think somebody mentioned the auto field was delayed, but phase one and two were sold out. Just want to understand, does that impact the outlook on growth, or are those coming back online? Just want to understand the CN-specific growth initiatives to meet that target. Thanks.

Thanks, Ken. So everything's kind of running, I'll say, as per plan is the easiest way to say it. So we have seen a delay just in the one, I'll say, project that we have ongoing for this year, right? So with respect to that, that's the facility we have in our MAC yard for our eastern fuels. And we pushed that back so we could actually add some construction and sell out phase two. So if we didn't do that, we would have to take more outage in phase two later this year and into next year. We didn't want to do that. It made more prudent economic sense to do it at the beginning. But with that, we actually got additional commitment from the customer. So that project is moving full steam ahead, and we will recoup those volumes. With respect to the Valerie coal mine, we had a very limited number of volumes into this year. Really, it was in the next couple of years. So what we're looking at is when does that permitting get done? If it gets done in the next couple of months, then they'll be getting that moving forward. So we'll be able to give you – or Remy will be able to give you a great update on the next call, actually. Everything else seems to be running really well. I don't think we're going to see any other issues. And so the projects will deliver where we've said they will. And the economy is doing OK. And I think Jessalyn has talked to the community quite a bit about that.

Thanks for the question.

TD Cowan, please go ahead. Your line is open.

Thanks very much. Good afternoon. And Doug, all our best to you in your retirement. I wonder if there's a way that you could help us frame how much the CM specific growth opportunities added to either volume or revenue in the quarter. And in terms of the relative importance of each that you're expecting for the year, are they basically listed in rank order of importance the way that they're listed on slide 11?

Thanks, Cheryl. They're not listed in any order. We just kind of go through them. We don't really give like guidance per specific year. projects out there we have given some specific updates as to where we expect them to be on the project on the list that we gave at investor day last year so i'm sure the team can probably help you out with that after the call and say here's where we're on each single one but it's a little much to go into right here thanks for your question question comes from ravi shanker from morgan stanley please go ahead your line is open

Thanks a lot for everyone. So I think the tone of this call is surprisingly bullish in this environment, especially given what you've seen from other transportation companies' reports so far. Do you guys have, like, evidence or more confidence in a cycle inflection in the back half of the year that's giving you that confidence. Obviously, you spoke of the idiosyncratic catalyst as well, but obviously you need a macro backdrop to be supportive as well. So just trying to get a sense of how confident you are in that full year number and the environment that's going to power it. Thank you.

Ravi, thanks for the question. Listen, we're mapping out a year. When we put the three-year guidance in front of you, we looked at industrial production that was about in the 2% range. Industrial production is turning more positive. It's not 2% yet, but we are following a number of those indicators that Ghislaine has spoken about, and it does give us some confidence in a lift in the underlying economy. That's 50% of our growth. The other 50% is the CN-specific growth initiative that Doug is taking you through. We're watching it all pretty closely. And, Ghiz, do you have any other comments?

Yeah, I think, Ravi, what makes us confident as well is that These CN-specific growth initiatives are very diversified from a commodity and from a geographic standpoint. So it's not a one-home run type of thing. It's a lot of different singles. So if we're wrong on one of them, on the negative side, we'll be more right on the positive for something else. So it's the law of compensating errors. So the fact that it's a bunch of different projects and we have great visibility on these as Doug just talked about, I think makes us very confident that we will deliver on our volumes. Thank you for the question.

Our next question comes from Benoit Poirier from Desjardins. Please go ahead. Your line is open.

Yes, merci beaucoup. Thank you very much. And Doug, happy retirement and all the best. So one question, obviously you made some comments about the softness for domestic intermodal, but I was wondering if you could talk about whether there's a different dynamic at play in Canada given the longer average length of all. And also just in terms of headcounts going through the reminder of the year, could you talk about your expectation in terms of headcount given the rent pop in volume in the second half? Thank you very much.

Okay. Thanks a lot, Benoit. So I'll address the intermodal specific numbers. So listen, within Canada, you're correct. We have a much longer length of haul than in the U.S. So there's a little bit added protection there where we do face pressure because if there's excess capacity, you can see the truckers are dropping their rates and they put pressure on our pricing. But so far, because of that length of haul, we've been able to hold our own pretty well. and there will be cases where we'll let go some market share, there'll be cases where we're going to gain some market share, and that happens all the time. So not too worried about that, and we feel it's also the business that's going to come back right away that we've lost, because as the trucking capacity diminishes across North America and in Canada, that will shift back. I'll say from the headcount perspective, I guess the team will be able to... Pat, why don't you take the headcount question?

Yeah, I can take that one. So as we look at... Keep in mind that as we train T&E employees, it takes six to nine months to have those folks ready in advance of the volume. So we will see our headcount increase, but it will not be a one-to-one increase. We'll ramp up for the volume, but it'll be a busy quarter at the training centers, but not a one-to-one increase. Thank you for the question. Thank you very much. Thank you.

Our next question comes from Konark Gupta from Scotiabank. Please go ahead. Your line is open.

Thanks, and good afternoon, and I echo the Congress relations, Doug. Maybe just one question on one of the projects you guys highlighted last year at the Investor Day. The Milton project, I think, seems like the court overturned the federal government's decision to approve that project. Any thoughts on what are you expecting from that? Will that be delayed, or will that be canceled and back to the drawing board? Any thoughts would be appreciated. Thanks.

Thanks, Kodark. So yeah, it's a complicated issue, obviously. We have filed our appeal and we expect to have a decision on the stay that we've appealed for in the next couple of months. So at that point, we're not going to comment too much. We're going to wait for that to come back. And then if we're successful there, we will continue building. If we are not successful there, then we will have to decide how we move forward with that project. We are very dedicated to moving this project forward. If we're going to grow the economy in Canada as well as in southwestern Ontario, this project is critical. So we will have this run forward. Thanks for your question. Thank you.

Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open.

Hey, good afternoon. Thanks. And Doug, congratulations. I just wanted to figure out or just ask you if you could kind of help us understand what Coming out of 1Q, we're flat RTMs. We're still looking at mid-singles for the back half of the year, which is obviously going to have quite a bit of mix in it. Can you just help us understand from where you're looking at the numbers, where is the strength in the RTMs going to come? I know you've got a lot more detail on the CN specific growth initiatives and the impact of mix here, but I'm just getting a lot of questions about whether that mid-single digit RTM number remains realistic. So if you could help us kind of understand that walk, that would be great.

Yeah, so great question, David. So first of all, you are right, we were flat for their Q1, but our whole project and list was geared towards April and on. So as a good example, in April, we're 7% up in RTM so far this month. So we knew that was really going to start to pop. We have the comparables that are there from last year, so we're easily going to be able to top some of them. So we're all set. We know there's going to be good growth in intermodal overseas, and that's what we've been seeing. It's a little bit lighter on domestic. We're seeing some other things pop in other areas. All of these are really just part of the economy as well as part of the projects. Combine them all up, we're pretty confident that we are still going to be able to maintain our guidance.

Okay, and then just as a quick follow-up, cost of fuel up 5% in the quarter. How much of that is because last winter there wasn't much of a winter, and how much of that is resourcing ahead of this expected volume growth, and how much of that is just natural cost creep in a weaker revenue quarter?

When you look at fuel, as I said, we're comping. I talked about the fuel positive lag last year. versus no lag this year. When you look at the overall fuel situation in the first quarter, and you can look at it in the NBNA, it's all disclosed, but our fuel surcharge, Doug mentioned it, was down on a year-over-year basis by about $170 million, while our fuel expense related just the price was down $30 million. So the fuel issue in the quarter was about $140 million of headwind or call it 15 cents of EPS or 180 basis point of OR. So that's the fuel. And yes, we did consume, David, more fuel this year versus last year due to a harsher winter specifically in January. Thanks for the question.

Our next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead. Your line is open.

Yeah, thanks very much operator. So so when I look back at your guidance that you issued when you reported your fourth quarter, I know there was some trepidation that perhaps it was a little bit too too robust, maybe too too positive, too optimistic, especially around the 5% volume and very encouraging, given that you you've kind of reiterated that there was a lot also mentioning about how with high single digit revenue, where you're only achieving 10% earnings. And I know, Ghislaine, since that, you've been, you know, through your public remarks at various conferences, you've kind of hinted that perhaps there is some upside there if that volume growth does come in. So I guess my question is, you know, as you're now one quarter through the year, or obviously a bit more than that here, how much, where has things changed relative to your original guide, even though you're maintaining it, do you feel a bit more comfortable about volume? Are you feeling more comfortable about price? Is margin coming in better or worse? If there's any indication as to the kind of comfort level you have around the guidance, I'd love to hear your thoughts on which areas are coming in a bit better or worse in each of those elements.

Thanks, Walter. So I would tell you that Q1 we delivered exactly as per plan. Even in my opening remarks, I said we did probably a little bit better than planned. So I think that, and when you look, you know, now the volumes are coming in in April, as Doug mentioned, 7% up on a year-over-year basis. I think at the end of the day, you know, as we said, to get to our 10%, we can't just focus on one area. We need a little bit of price, and Doug talked about that. We need that volume that we've talked about. and we need better operations from our guys here, and I call our guys to be a little bit here sandbaggers, and that's my own opinion. Share buyback is not that accretive for the current year, especially when you look at it from an after-financing point of view, but it is helpful a little bit more in the out years because you get that compounding effect of having the shares out of circulation. So when you put all of this in, and I'm happy because when you We got out of the winter. Q1 is typically very noisy. As I said, we deliver per plan. So I think those growth opportunities are happening. I'm crossing my fingers that the economy holds up. We're not banking, as Tracy said, on a 2%. We're banking on a slightly positive economy, call it 0.5%. I think that I'm very comfortable that we can deliver, and we will deliver our 10% EPS growth.

Let me just add to that, Walter, if I could. So as we look at volumes, you heard Derek and Pat talk about what we went through in the first quarter, but I think that we are more optimistic on the volumes from an economic perspective. We are, as Doug has outlined, pretty much on plan and feeling very, very strongly about our CN-specific growth alternatives, our plans. Derek keeps reminding us that if you look at Q1, it's the best Q1, Derek, on operating metrics that we've had in the last... Seven years, since 2017. The last seven years since 2017, with the exception of last year. So the railroad's running. The volumes are coming. And as we look at our plan going forward, we're feeling pretty good about our 10%.

Thank you very much.

Our next question comes from Kevin Chang from CIBC. Please go ahead. Your line is open.

Good afternoon. Thanks for taking my question and best of luck in your retirement, Doug. Maybe just want to get your sense on, you know, this morning, the Canadian Competition Bureau put out, I guess, a report on this Viterra-Bungi potential merger and potential anti-competitive effects. Just wondering how you're viewing that, I guess, potential combination, you know, does that have an impact on on how you view your grain franchise? Does that have any impact on some of the CN-specific initiatives you've highlighted back at the investor day in terms of grading fertilizer?

Okay, thanks, Kevin. It's a great question. So we did participate within the Transport Canada did ask us for our opinion. Listen, we don't see much of a conflict from our standpoint if it happens. But with respect to that, Viterra is one of our top customers. They are a top 10 customer. We move lots of grain for them, and we do it all over North America, primarily West Coast, Vancouver, but also to Rupert, to Montreal. So we're very happy with that. We don't see as much of a conflict with Bungie at all. Bungie we have very little business with. We do have some, but they're primarily moving other products with another carrier. So overall, when you look at that, we don't have a problem with the competition bureau or the combination of these two companies. So we'll effectively, I'll say, stay out of it. Won't really have an issue on our markets today. Now, what they are looking at doing is building some canola meal plants or some crush plants. So that will eventually bring more business online that we think they're both in a good position to. One plant would be in the Georgina market, and they're looking at some others that are both also on CN's line. So it may delay these future plants, but none of these were currently in the plan today that we have for 2024 to 2026. So we shouldn't see any issues there. Thanks for the question.

Our next question comes from Scott Group from Wolf Research. Please go ahead. Your line is open.

Hey, thanks, afternoon. So, Ghislaine, it looks like we can often see a four to five points of OR improvement from 1Q to 2Q. Is that right, that we should be sub-60 this quarter? And then I guess I'm just wondering how the labor negotiation impacts how you're thinking about Q2 in the year. Maybe, Tracy, just some thoughts, like, on the scenarios. What's the upside potential if we get hourly deals? What's the risk that inflation ends up higher than what you're thinking? Just any thoughts there. Thank you, guys. Thank you.

Just why don't you start off, and I'll take it from there.

So thanks, Scott. Listen, we don't give guidance on OR on a quarterly basis, but as you know, if you look historically, you know, from a seasonality standpoint, Q1 has been, you know, the quarter that has the highest OR. Q3 has been typically the one that has the lowest, and then Q2 is in between, and, you know, Q2 and Q4 is more or less in between, depending on how you finish Q1 getting into the spring. and in Q4 is how you get into the winter in October, November, and December. So definitely from an historical standpoint, you would assume that OR in Q2 would be better than Q1.

And from a labor perspective, we're working very hard at instilling discussions with the TCRCs. We would like a negotiated agreement with them, and we believe that that is possible. The proposal that we have in front of them now is an hourly agreement, We don't yet have an agreement with them, but it's an hourly agreement. It would have economic benefits, of course, for both of us. For our employees, it would be predictable scheduling, two consecutive days off and increased earnings for the company. The benefits would fall largely in improvements in availability and productivity. So think trains awaiting crews, re-crews, deadheads, those types of things. So we're in discussion with them. And I think given that we are in discussion with them right now and still in negotiations, it would be inappropriate to comment much further than that, Scott. Thanks for the question.

Our next question comes from Tom Wadowitz from UBS. Please go ahead. Your line is open.

Yeah, good afternoon. And, Doug, congratulations. I hope you enjoy the retirement as well. Um, I guess, uh, two, you know, two questions for you. I think you talked about some new, or I don't know, I'll call it part A, part B, uh, just on the bulk side. Um, you said, I think some new business on crude by rail. I don't know if you have any color on how big that is or, or, or what that is. And then coal, you were kind of, you know, one is getting Canadians getting better. U S stays weak. What's the kind of net coal view within that is, is coal going to be overall volumes going to be flat or still down, but down less. So. Thank you for the comments on those two.

Okay. Well, thanks, Tom. So on the crude by rail, so we have a natural crude heavy oil franchise that moves down to the U.S. We've been working with a couple of our customers to create a new terminal that's on CN. So rather than having to worry about moving this product offline to other railways, we've been able to work with our customer base to create a new crude receiving terminal for heavy oil down in the Baton Rouge market. And that is great because we're able to cycle those sets from the Alberta market down there and back a lot faster. So we were able to turn our customers' assets and move Canadian oil to the US market as fast as anybody has ever been able to do. So we expect that to continue on moving forward with other opportunities there as well. On the coal market, we're expecting obviously Canadian coal to pick up only because we had a couple of mines that were down earlier in Q1. Those mines are now back running properly. So we expect to see very comparable numbers moving forward on the Canadian coal side. The U.S. coal side is more market dependent. So our U.S. coal franchise is mostly export through the Gulf Coast. That coal moves typically over to Europe. And that market is tough right now because they use it for blending with Russian coal and they're not taking Russian coal. So it's a complex, I'll say, blending operation. but our customers at the same time are looking at new opportunities in different countries around Asia as well as in Europe. So we'll see what happens there, and we'll only be able to give an update once they're able to convince their customers to take that coal market. So I think that covers both topics.

Thanks very much.

Is the crude new volume or extended length of haul? Most of it's extended length of haul, but there will be some new volume in there. Okay. Thank you very much.

It comes from David Zazula from Barclays. Please go ahead. Your line is open.

Hey, thanks for taking my question. Doug, congrats on a great period of service. Anytime I've left anywhere, I've always had some undone items. I was wondering what your undone items that you never really got to and what you'd be excited to turn over to Remy for him to get started on.

Well, thanks very much. So there's always lots of undone items, like you've said. But listen, my key goal was to help find a great replacement, and that's one goal heavily accomplished. So there's nothing much we can say about that. You're going to love having Remy on these calls, and the rest of the team will straighten him out if it's not really working. But it's not like he's a stranger. He's been doing this in some of his other jobs, so he is going to be awesome. With respect to that, there's always tons of work to do, and I work with the team around that. You always want to be able to grow and help your customers grow, So we're always trying to find new ways to work with our customers to create either new products or even get deeper into their supply chains. And we accomplish that on a regular basis, but there's always the next one and the next one and the next one. And that's really what I haven't been able to get done. You can't get them all done. It's just impossible because there's always something else to do. So I'm looking forward to turning that over to Remy, and he'll be able to do that and work with the team here on creating those products that the customers really need to drive additional growth at CN. Thanks for your question.

Thanks, Doug.

Our next question comes from John Chappell from Evercore. Please go ahead. Your line is open.

Thank you. Good afternoon. On the productivity front, there's a lot of focus on headcount, but your purchase service is down 4% year-over-year in a flat volume environment. And with the winter that you actually had this year versus last year, Is that all kind of productivity? And as we think about, you know, that major cost line item, we kind of extrapolate a much lower run rate going forward? Or is there something kind of out of the ordinary in first quarter that made that cost item come down despite the flat volumes?

I'll hand that one over to you.

Yeah, I mean, when you look at the year-over-year, you're right. Purchasing services material were down 4%. A lot of it was a little bit of less snow clearing, a little bit of less outsourced services, and a little bit of less maintenance. But these are not big variants, but you're right. When you add them up, we're down 4%, and those are mainly the items that make it up. Thanks for the question, John.

Any reason to extrapolate that at a lower run rate than going forward, or are you saying it's basically just kind of a one-timey

decline I would not I would not assume that this would that will deliver a lower a lower run rate in in the following quarters got it thank you design thank you our next question comes from Brian Austin back from JP Morgan please go ahead your line is open hey thanks for taking the question Doug two quick ones for you one on the Canadian green

pricing on the regulated side. You had, I think, two 12%s in a row. I don't know if you'd expect something similar just based on how that formula works, but we're going to get that any day now. So any way to level set what we should expect for the coming year. And then just maybe some brief thoughts on the pipeline as you look further out from the CN specific growth opportunities. Obviously, you outlined it at the Investor Day a little while ago. There have been a few moving pieces, but any other themes you've seen you know, since then in terms of what's come and come out or maybe accelerated or slowed down as you look on a multi-year view. Thanks.

Okay, so thanks, Brian. So on the Canadian grain pricing, it's been one year at 12%, so that's the current year we're in. The prior year, if memory serves me right, was more in that 4% to 5%, but it's still all good numbers. So we're going to do very well on Canadian grain this year. So we continue to have a strong grain market even into the spring. So it's going extremely well. and we expect that to continue on moving forward actually through Q2 for at least the next month or so. So we're very happy with the overall grain this year. Now, we've also been able to get the pricing with there, so we should finish very well on grain pricing. For next year, listen, it's a little bit of a black box within the CTA and Transport Canada, so when they come back, they consider a lot of different things, and then out comes the numbers. So we usually budget just in that 3% range and just try and move forward from there. If we're surprised on the upside, great. If we're surprised on the downside, we'll adjust accordingly. So we'll all be surprised when the number comes out in a week or two. Now, with respect to some of the other pipeline growth opportunities, we've done obviously very well with what you've seen. Some of the things we've really been delivering is on the refined products and on the LPGs. So that's one that's really started to add up. We obviously got the long-term agreement with AltaGas, which we announced before. But we're seeing additional growth head towards both the West Coast for export, as well as we're still servicing the domestic market really, really well. So we continue to see that. And refined products has actually been the surprise this year. The number is up quite a bit. Now we're moving out to different markets. It was moving export during the winter. And we're expecting to see more and more domestic market during the rest of this year. So we're very happy with all that. And then that ties in nicely with our new facility in Mack Yard as well, which would be above and beyond that. Thanks for your question, Brian. Thank you, Doug.

Our last question will come from Justin Long from Stevens. Please go ahead. Your line is open.

Thanks, and good afternoon. So, I know the CAPEX guidance didn't change overall, but I was wondering if you could provide any update on your locomotive plans for this year as it relates to both new locomotives and modernizations. And in addition to that, you know, the CARB has proposed some regulations in the U.S. I know the EPA is looking at those currently. Just curious if you have any thoughts around what's been proposed and how that could potentially impact your locomotive strategy going forward if passed.

So I'll take that one. This is Pat Whitehead. So our plan is that we continue to modernize our fleet. We will continue to work with Wabtec, and we have some Progress Rail modernizations as well. That's been our chosen path. That's the most reliable locomotive in the industry currently, and we will continue to invest in that. other technologies for the locomotive of the future. And we'll continue down that path and we'll continue to have, we purchased donors last year that we could convert for our modernization program and we will be converting those between this year and next.

Just let me add a little bit to that as we finish up today. We are watching CARB very closely and where that is going to go with the rest of the industry. As an industry, this is something that we've got to get our head around. We have made Some investments ourselves on battery electric locomotive and on a hybrid locomotive, but clearly as we go forward, this is something the industry will collaborate on more fully and decide on the ultimate path. It's an important effort for us and for the industry, and we'll keep you guys in the loop as we go along. Thanks so much for the question. So we'll wrap it up today, and as we do that, I'll reiterate the plan is working. Clearly, Your guys' mind is on growth. Thanks for giving Doug such a good workout on his last call. Our mind's on growth as well, and we're feeling very optimistic around what we see ahead of us. We look forward to talking again with you in a few months. Thank you.

The conference call has now ended. Thank you for your participation. You may now disconnect your line. Thank you. Thank you. Hello. Thank you. Thank you. Good afternoon. My name is Julianne, and I will be your operator today. All participants are now in a listen-only mode. At this time, I would like to turn the call over to Tracy Robinson, UCN's President and Chief Executive Officer. Ladies and gentlemen, Ms. Robinson.

Thank you, Julianne, and good afternoon, everyone. We're here in Memphis today. We've had our board meetings over the past two days and have had an opportunity to spend some time visiting our local facilities. Now, we did a pre-recording of our prepared remarks over the weekend, but before we play those remarks, we received some very sad news today about the loss of one of our engineering employees. Early this morning, there was a motor vehicle accident in British Columbia. A semi-truck collided with a CN engineering vehicle with two employees on board. We are deeply saddened that one of our CN family, Juver Balmores, suffered fatal injuries as a result of the accident and died at the scene. The other employee traveling in the truck was taken to the hospital with critical injuries. I understand he's now in critical but stable condition. Our prayers are with him and his family. The second group of CN employees was traveling behind the first vehicle, or the first on the scene to respond. They showed a tremendous courage and compassion in a critical situation. It's a very tragic and painful loss for all of us at CN, and our hearts go out to Juver's family. Before we move on to the business today, I want to remind all CN employees and everyone listening in today to take care of yourself and those around you. Stay safe. So, operator, could you please start the pre-recording with Stacey Alderson, our Head of Investor Relations.

Good afternoon, everyone, and thank you for joining us on CNC, First Quarter 2024 Financial and Operating 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 cause actual 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 would ask that you please limit yourself to one question. The IR team will be available after the call for any follow-up questions. Now, joining us on the call today are Tracy Robinson, our President and CEO, Pat Whitehead, our Chief Network Operations Officer. Derek Taylor, our Chief Field Operations Officer. Doug McDonald, our Chief Marketing Officer. And Jislant Wul, our Chief Financial Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Merci, Stacy. Bienvenue a tous. Thanks, everyone, for joining our call today. Q1 was a solid quarter. It played out as we expected and has set us up well for the growth that we see ahead of us. I'd like to start today with a few words related to last week's press release on Remy and Doug's transition. And firstly, I want to thank Doug, not only for his many years of service to CN, but especially for his leadership and his wisdom over the last two years. You've done a great job, Doug. and the re-crafting of our book of business as we move back to the scheduled operating model, and setting the commercial team up for continued success. And I want to personally wish you health and happiness in your retirement. Now, we've been intentional about Remy's transition, starting with some pretty intense field exposure since he joined in January, followed by a deep dive into the commercial organization. He's a great fit with our team, and he's going to bring a new perspective to his chief commercial officer role today. especially having been in a customer's shoes. He's in the room with us today, but he's not mic'd up. He'll be in the seat next quarter and spending some time with the investment community in the coming months. Now, before we get into the details of the quarter, I know that TCRC negotiations in Canada have been on the minds of our customers and our employees and some other stakeholders. And I want to provide a little context to what's happening. Now, it's important to us that we have an agreement that assures the availability of our crews to run trains on time in support of our customer service commitments and to support the growth of the industries we serve. It's also important that we can offer to our employees a predictable schedule with guaranteed days off that supports safe operations and allows them to plan and to live their lives. And that improves the attractiveness of our work as we engage the next generation of conductors and engineers. Now, the introduction of the new Canadian duty and rest rules last year, stacked on top of the provisions already in our collective agreements, has had a negative impact both on the availability of crews to run trains and on scheduling for our people. So in this round of bargaining, we're endeavoring to improve the predictability of when our train crews will work and when they'll be off. It's an important part of improving safety. providing more predictability to employees on when they'll work, giving them better work-life balance, and improving crew availability to support a consistent service for our customers and supporting the growth of the Canadian economy. We have this kind of agreement in the U.S., so we know how effective it is. We're continuing our constructive discussions with the TCRC leadership, and we remain focused on reaching a negotiated agreement. Now, economically, there'll be benefits for both of us. I hope that gives you a good sense of where we're at. Turning now to the quarter. As I said, it has come in as we expected. Safety continues to be an area of intense focus. Pat's going to speak to our performance on the quarter here. We are committed to improving our safety performance and advancing towards our goal of zero harm. On the operations, velocity and speed were solid this quarter, despite some colder temperatures in western Canada this year. some congestion in Vancouver, and a dip in crew availability related to the new Canadian regulations. I can tell you I'm proud of how we've performed and how we've adapted to the plan to align with what's coming at us. Customer service remains a top priority, and I want to call out local service commitment performance. Now, this is a key customer-facing metric, and at 92%, it improved 6% versus last year. Volumes are firming up. We're seeing momentum building. Doug will speak to end market performance and the outlook for the balance of the year, including updates on our CN-specific initiatives. These projects are lining up quite nicely, giving us increasing confidence in our volume outlook. And as we knew, we're up against a very strong performance last year, which included 10 cents of favorable fuel surcharge lag. So I'm pleased with our solid EPS of $1.72. This is right where we thought we'd be after three months. I'll leave it to Suzanne to walk us through the first quarter financial highlights in just a few minutes. We are right where we want to be. The team is gelling, the operation is performing, and volumes are on the upswing. Putting it all together, I'm very happy with the direction we're headed and want to reaffirm the guidance we issued in January. I'll now hand it over to the team. Pat, you're up.

Merci, Tracy, et bienvenue à tous. Injury and accident rates increased in Q1. Despite our best efforts, intense winter weather poses increased safety exposures. We have seen improvement in April and are now tracking in line year-to-date with CN's lowest ever frequency ratio in 2023. One area I want to highlight in our safety performance is slips, trips, and falls, which increased in the quarter. So what are we doing about it? We're addressing slips, trips, and falls with several actions. The first I'll cover is our recently deployed walking simulators at our training centers. We've seen 30% fewer walking injuries with employees who have been trained with this tool. We're going to be deploying a mobile version of this simulator out to our workforce in the field. We've also rolled out our Enable On Go app to the entire workforce, which is our hazard and near-miss reporting system. We've received and corrected over 3,300 hazards utilizing this system since its deployment in 2023. Now, before I discuss the network, I want to address some of the comments that have been made recently regarding CN removing safety critical rest in our current negotiations with TCRC. This is just not true. To be very clear, we successfully implemented the duty and rest period rules that were mandated in Canada in May of 2023 and have been in full compliance with these rules. We have managed operations accordingly. What we are doing is working to simplify the complexity of the stacking effect we experienced beginning in 2023 of the additional paid sick and personal leave days under the Canada Labor Code, the duty and rest period rules, and the unavailable time provided by the legacy collective bargaining agreement. We are fully committed to providing sufficient rest for our employees, and we will continue to work with our union partners to find solutions that benefit our employees and our customers. Now turning to the network, we remained largely fluid this quarter despite more impactful winter weather this year. While our scheduled operation gives us improved resiliency, we were challenged in certain pockets as the newly mandated work rest rules impacted labor availability. As for volume, we are currently seeing what we believe is a sustained increase in demand for intermodal volumes on the West Coast, which has increased existing train size to the point that we have added a combined additional eight trains per week out of Vancouver and Prince Rupert in April. To support the growth we see coming our way, we will continue to invest in network capacity in key corridors, what we call no regret capital. In 2024, we are on track to complete additional double track along our Vancouver to Chicago corridor, and we will finish a siding extension project west of Kamloops, British Columbia. This will increase our capacity in this busy corridor and help alleviate some of the congestion we see from time to time in and out of Vancouver. I'll now ask Derek to speak about field execution in the first quarter.

Thanks, Pat, and good afternoon, everyone. Time and again, we've seen that our make the plan, run the plan, sell the plan model is the right one for our network. As you heard from Pat, Q1 had a number of ups and downs. January brought an extended cold snap in Western Canada that we recovered from in short order. Interestingly, in February, we had some ideal operating conditions and demand started to pick up. Then in March, Mother Nature reminded us that winter wasn't over yet on the northern part of our network. During that March time period, we also had a combination of continued strengthening demand, along with the beginning of work block season, particularly in the Edmonton to Vancouver corridor. In fact, daily train counts in that corridor are now approaching our 2018-2019 high-water mark years. These work blocks are critical for us to comply with and complete, as they will support growth and fluidity going forward. However, they did cause some additional pressure in and out of the Vancouver Gateway. Importantly, we kept our yards fluid which has enabled us to maintain a high level of service for our customers. In fact, our local service commitment performance, or LSCP, improved 6% versus last year to 92% for the quarter. Running the plan is the team's focus, and I'm really pleased that a few weeks into April, speed and velocity are back in line where we need them to be. We've got good operational momentum, so as volumes continue to ramp up through the year, we expect to deliver incremental operating leverage, particularly in terms of our manifest trains, which have room for growth at low incremental cost. To wrap it up, I'm convinced that continued strong alignment between the operations, marketing, and finance teams is key for us to grow profitably. This is a team effort. We're making sure there's tight coordination across the entire organization so that we have the capacity and service in place to keep delivering for our customers. Now, I will turn it over to Doug.

Thanks, Derek, and thanks, Tracy, for the kind words. I've been fortunate to spend my entire career at CN, and it's been a gratifying 35-year journey. I am thankful to all of you around the table, as well as the many others in and outside of CN, for their support and help. I leave knowing that the team is well set up for the future. Looking at slide 11, first quarter revenues were down 1% versus last year due to lower applicable fuel surcharge. We had solid pricing ahead of CN's cost of inflation. RTMs, our standard measure of volume, were flat in the quarter as higher shipments of potash, refined petroleum products, track stand, international intermodal, and natural gas liquids were offset by lower shipments of coal, grain, forest products, and crude oil. Petroleum and chemicals led the way in Q1 at 6% RTM growth, with record volumes in refined products and natural gas liquids. Q1 crude volumes were down year over year, but we expect them to move higher sequentially for the rest of 2024 from new business to the Gulf Coast. Our strategic investments in Northeast BC are paying off with stronger frac stand volumes, which drove a 4% increase in metals and minerals RTMs in Q1. Aluminum volumes also increased in the quarter due to market share gains from truck, given our consistent car supply and service. We also had new raw lithium interline shipments with the UP to Texas for battery production. Forest Products RTMs decreased 5% in the quarter, but center beam orders for lumber have increased sequentially since Q4 last year. Our bus car fleet remains nearly sold out, indicating solid demand in multiple segments. In the bulk sector, Canadian coal was down 20% from production problems at several mines, while U.S. coal was down 23% from softer export demand for thermal coal. Grain and fertilizer RTMs were flat overall, as strong potash growth in Q1 fully offset softer grain volumes. Canadian grain demand was strong all quarter. We moved record grain tonnage in February. And there's pent-up demand heading into Q2. U.S. corn volumes decreased versus last year due to muted domestic and export demand. Automotive RTMs were up 6% on stronger Vancouver imports, despite a slow start in Q1 from delayed new product launches. All plants are running normally now. Turning to intermodal, international was up 5% for the quarter, continuing the steady upward trend we've seen since Q4. Import RTMs via the ports of Vancouver and Prince Rupert are up 12%. as U.S. destined traffic returned after last summer's West Coast Canada strike. Port Halifax volume was down due to Red Sea impacts. In Q1, we lapped the remaining comparable container storage revenues, roughly a $35 million impact this quarter, which negatively impacted revenue per RTM. Domestic volume was down 3% on ample truck capacity. Let's move to the outlook on slide 12. The North American economy continues to be supportive. International intermodal continues to strengthen with strong service and dwell times at our ports. The can export development at Rupert is well underway, as well as land clearing for the Ridley Island Energy Export Facility. We are also expecting to see a gradual recovery in the domestic intermodal markets as capacity exits the over the road segment. Automotive demand remains strong, with some OEMs pushing back the timeline for retooling their plants for EV production. In bulk, Canadian coal mines should return to full production. In addition, Kanuma's Quintet mine will start this summer, and the new Valerie mine is delayed until 2025 due to permitting. U.S. export thermal coal volumes will be challenged with low global demand and a surplus of natural gas. In terms of grain, we expect more oil and meal production from new and expanding crush plants on CN in the second half. Our IANR acquisition, which remains subject to SCB approval, will create further volume growth for U.S. grain. Potash demand remains firm, but we expect lower volume in the balance of 2024 as we lap last year's Portland terminal outage. Our CN-specific growth projects are advancing as expected. In Northeast BC, our growing frac sand market for natural gas drilling also produces propane for export via Prince Rupert. New frac sand terminals are expected to be announced in the coming months to grow the market even more. Partnership initiatives like the EMP program, Falcon Premium, and Crowley Service into Mexico and Access to Gulfport will deliver intermodal growth in the second half and beyond. CN's new fuel terminal at our yard in Toronto has received its first cars and ramp up is commencing in May. Construction took a little longer since some phase two construction was advanced to minimize downtime later in the year. Both phase one and two are now sold out. We also moved our first steel cars into our new transload in Flat Rock, Michigan which is all truck-to-rail conversion. We've come through the first quarter of 2024 in great shape, with excellent service for our customers and a strong pipeline of significant growth opportunities that are starting to deliver. I want to recognize Remy, who has spent the last few months getting up to speed with the great CMP people across our network. He'll be ready, more than ready, for our next quarterly call. Over to you, Ghislaine.

Merci beaucoup, Doug, et félicitations pour ta retraite bien méritée. J'ai le plaisir de parler de nos résultats du premier trimestre. Turning to slide 14, in the first quarter, we executed and delivered a financial performance in line with, or maybe even a bit better than planned. Volumes in terms of RTMs were flat on a year-over-year basis, while our revenues were down roughly 1%. We delivered operating income of around $1.5 billion, 7% lower than last year, with a more winter-like operating ratio of 63.6% versus 61.5% last year, up 210 basis points. The first quarter EPS was $1.72 versus $1.82 for the first quarter last year, down 10 cents or 5%. Recall that last year we had a favorable fuel lag tailwind of around 10 cents of EPS. We are monitoring fuel prices very closely. OHD, which drives fuel surcharge revenue, decreased by 17% versus last year, while our fuel prices driving our expense decreased only 6% year-over-year in Q1. In terms of expenses, labor was 10% higher versus last year, driven by 3% higher average headcount and general wage increases. Fuel expense was more than $40 million lower than in the same period last year, mostly due to a 6% decrease in fuel prices that I just mentioned. Our effective tax rate in the quarter was 24%, which is a bit lower than the guidance we provided in January. This was mostly due to the excess tax benefit on incentive compensation booked in the first quarter. We had anticipated this benefit in the quarter, so we will expect our effective tax rate for the full year to be around 25%. We generated around $530 million of free cash flow in Q1, about $65 million lower than last year, mainly due to higher capital expenditures, partly offset by higher net cash from operating activities. Under our current share repurchase program, which runs from February 1st, 2024 to January 31st, 2025, we have repurchased close to 3.5 million shares for almost $600 million as at the end of March. Our leverage ratio increased to around 2.4 times at the end of the first quarter. This increase is largely due to timing and reflects the atypical quarterly earnings trend in 2023. We expect the leverage ratio to decrease as we move through 2024 and earnings increase sequentially. Moving to slide 15, let me provide some visibility to 2024. With economists' sentiment on the macro environment improving sequentially, we continue to believe that the broad economy in 2024 will be more constructive than last year, with likely positive industrial production growth and interest rates stabilizing. However, the environment remains quite volatile, with continued monetary policy and geopolitical risks. Weak sectors, particularly intermodal international and forest products, continue to improve sequentially. We continue to assume that Canadian grain will come back to a three-year average in the second half of the year. We have good visibility on our CN-specific growth initiatives that account for half of our mid-single-digit volume growth assumption in terms of RTMs, and these initiatives are diversified, both from a commodity and geographic standpoint, and they are advancing per plan. Foreign exchange for the year continues to be around 75 cents. Our WTI assumption is now in the range of $80 to $90 per barrel versus the previous range of $70 to $80 per barrel. With this in mind, we are confident that we will deliver 10% EPS growth in 2024 versus 2023. So, in conclusion, let me reiterate a few points. We continue to deliver strong operating and financial performance. Our customers continue to benefit from our excellent service. We are encouraged by the positive direction of the macro environment. End market demand in most of our segments, importantly intermodal international and forest products continue to show sequential growth. Our CN specific growth initiatives are advancing and delivering per plan. We are committed to delivering operating leverage. We are confident in our EPS growth of around 10% this year versus 2023. Let me pass it back to Tracy.

Thanks, Jess. We're ready to take questions now.

Thank you. We will now begin the question and answer session. As previously mentioned, we ask that you kindly limit yourselves to one question. Our first question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.

Oh, yes. Good afternoon. Thanks for the time. Look, I was hoping you could provide some additional color here on the international intermodal segment of late. seeing some really good outsized growth there, but also seeing an increase in shipping length, it looks like, or distance hauled. Just based upon your discussions with customers, what kind of visibility do you have on that sustaining through summer into the back half of the year?

Thanks, Steve. It's Doug. So we're seeing some great growth on the West Coast. Customers have really come back there after the strike last summer. We're seeing lots of growth in Vancouver, but we're also seeing it start to push up to Rupert. So that's working really well, and I think you can see that in the numbers. The customers are very confident that that's going to continue moving forward. They really like the service and the dwell time they're seeing from us. Now, when you shift over to the East Coast, it's a little bit different story. They have more of an impact because of the Suez Canal. They're routing the boats around south of Africa, and they come back up, which doesn't impact the Canadian business, but it does impact the U.S. business because they're going by a bunch of U.S. ports where they can offload that business there. So we're seeing a little bit down at Halifax, a little bit down at Montreal because of all that, and we're just hoping that that will come back once that issue in the world gets cleared up.

Thank you for your question.

Our next question comes from Fadi Chamoun from BMO Capital Markets. Please go ahead, your line is open.

Okay, thank you.

Doug, congratulations on your retirement and thanks for all the insights and help over the years. My question is on pricing. You know, you mentioned pricing ahead of inflation. What is inflation? First, just to kind of help us benchmark what the pricing environment is like. And also, given kind of the strong demand we're seeing both on your network and your comparator network, is the pricing firming up? Do you expect that we could start to see some firming up in the pricing as we move through the year. Okay.

Well, thanks, Paddy. So, overall, what we're seeing in pricing is we're still able to price above real inflation, and I'll get to the second part of your question there. The only part we're starting to see, obviously, some pressure is within the domestic intermodal section, which I think everyone would understand with the truck capacity issues that are out there today. There's a lot of surplus capacity. We're expecting that overall within North America to decline as more and more shops, I'll say, go bankrupt and some of that capacity comes out of the market. So that is where the only areas I think we're seeing some pressure. So with respect to that, when it comes to what we gauge, we still use the all-inclusive index less fuel for the AR as our major benchmark that we tell people for what our rail costs are. Thanks for your question.

Our next question comes from Ken Hexter from Bank of America. Please go ahead. Your line is open.

Hey, great. Good afternoon. I just want to I guess you're coming up against a comp against maybe the strikes and want to understand the CN specific initiatives. So I think you said there's minimal economic growth in there in that mid single digits. It sounded like maybe some of the CN-specific issues were delayed. You mentioned a coal field, Doug. I think somebody mentioned the auto field was delayed, but Phase 1 and 2 were sold out. I just want to understand, does that impact the outlook on growth, or are those coming back online? I just want to understand the CN-specific growth initiatives to meet that target. Thanks.

Thanks, Ken. So everything's kind of running, I'll say, as per plan is the easiest way to say it. So we have seen a delay just in the one, I'll say, project that we have ongoing for this year, right? So with respect to that, that's the facility we have in our MAC yard for our eastern fuels. And we pushed that back so we could actually add some construction and sell out phase two. So if we didn't do that, we would have to take more outage in phase two later this year and into next year. We didn't want to do that. It made more prudent economic sense to do it at the beginning. But with that, we actually got additional commitment from the customer. So that project is moving full steam ahead, and we will recoup those volumes. With respect to the Valerie coal mine, we had a very limited number of volumes into this year. Really, it was in the next couple of years. So what we're looking at is when does that permitting get done? If it gets done in the next couple of months, then they'll be getting that moving forward. So we'll be able to give you – or Remy will be able to give you a great update on that on the next call, actually. Everything else seems to be running really well. I don't think we're going to see any other issues. And so the projects will deliver where we've said they will. And the economy is doing OK. And I think Jessalyn has talked to the community quite a bit about that.

Thanks for the question.

TD Cowan, please go ahead. Your line is open.

Thanks very much. Good afternoon. And Doug, all our best to you in your retirement. I wonder if there is a way that you could help us frame how much the CM specific growth opportunities added either volume or revenue in the quarter. And in terms of the relative importance of each that you're expecting for the year, are they basically listed in rank order of importance the way that they're listed on slide 11?

Thanks, Cheryl. They're not listed in any order. We just kind of go through them. We don't really give like guidance per specific projects out there we have given some specific updates as to where we expect them to be on the project on the list that we gave at investor day last year so i'm sure the team can probably help you out with that after the call and say here's where we're on each single one but it's a little much to go into right here thanks for your question this question comes from ravi shanker from morgan stanley please go ahead your line is open

Thanks a lot for everyone. So I think the tone of this call is surprisingly bullish in this environment, especially given what you've seen from other transportation companies' reports so far. Do you guys have, like, evidence or more confidence in a cycle inflection in the back half of the year that's giving you that confidence. Obviously, you spoke of the idiosyncratic catalyst as well, but obviously you need a macro backdrop to be supportive as well. So just trying to get a sense of how confident you are in that full year number and the environment that's going to power it. Thank you.

Ravi, thanks for the question. Listen, we're mapping out a year. When we put the three-year guidance in front of you, we looked at industrial production that was about in the 2% range. Industrial production is turning more positive. It's not 2% yet, but we are following a number of those indicators that Ghislaine has spoken about, and it does give us some confidence in a lift in the underlying economy. That's 50% of our growth. The other 50% is the CN-specific growth initiative that Doug is taking you through. We're watching it all pretty closely. Ghislaine, do you have any other comments?

Yeah, I think, Ravi, what makes us confident as well is that These CN-specific growth initiatives are very diversified from a commodity and from a geographic standpoint. So it's not a one-home run type of thing. It's a lot of different singles. So if we're wrong on one of them, on the negative side, we'll be more right on the positive for something else. So it's the law of compensating errors. So the fact that it's a bunch of different projects, and we have great visibility on these, as Doug just talked about, I think makes us very confident that we will deliver on our volumes. Thank you for the question.

Our next question comes from Benoit Poirier from Desjardins. Please go ahead. Your line is open.

Yes, merci beaucoup. Thank you very much. And Doug, happy retirement and all the best. So one question, obviously you made some comments about the softness for domestic intermodal, but I was wondering if you could talk about whether there's a different dynamic at play in Canada given the longer average length of all. And also just in terms of headcounts going through the reminder of the year, could you talk about your expectation in terms of headcount given the rent pop in volume in the second half? Thank you very much.

Okay. Thanks a lot, Benoit. So I'll address the intermodal specific numbers. So listen, within Canada, you're correct. We have a much longer length of haul than in the U.S. So there's a little bit added protection there where we do face pressure because if there's excess capacity, you can see the truckers are dropping their rates and they put pressure on our pricing. But so far, because of that length of haul, we've been able to hold our own pretty well. and there will be cases where we'll let go of some market share, there'll be cases where we're going to gain some market share, and that happens all the time. So not too worried about that, and we feel it's also the business that's going to come back right away that we've lost, because as the trucking capacity diminishes across North America and in Canada, that will shift back. I'll say from the headcount perspective, I guess the team will be able to... Pat, why don't you take the headcount question?

Yeah, I can take that one. So as we look at... Keep in mind that as we train T&E employees, it takes six to nine months to have those folks ready in advance of the volume. So we will see our headcount increase, but it will not be a one-to-one increase. We'll ramp up for the volume, but it'll be a busy quarter at the training centers, but not a one-to-one increase. Thank you for the question. Thank you very much. Thank you.

Our next question comes from Konark Gupta from Scotiabank. Please go ahead. Your line is open.

Thanks, and good afternoon, and I echo the Congress relations, Doug. Maybe just one question on one of the projects you guys highlighted last year and yesterday. The Milton project, I think, seems like the court overturned the federal government's decision to approve that project. Any thoughts on, you know, what are you expecting from that? Will that be delayed or will that be canceled and back to the drawing board? Any thoughts would be appreciated. Thanks.

Thanks, Kodark. So, yeah, it's a complicated issue, obviously. We have filed our appeal and we expect to have a decision on the stay that we've appealed for in the next couple of months. So at that point, we're not going to comment too much. We're going to wait for that to come back. And then if we're successful there, we will continue building. If we are not successful there, then we will have to decide how we move forward with that project. We are very dedicated to moving this project forward. If we're going to grow the economy in Canada as well as in southwestern Ontario, this project is critical. So we will have this run forward. Thanks for your question. Thank you.

Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open.

Hey, good afternoon. Thanks. And Doug, congratulations. I just wanted to figure out or just ask you if you could kind of help us understand what Coming out of 1Q, we're flat RTMs. We're still looking at mid-singles for the back half of the year, which is obviously going to have quite a bit of mix in it. Can you just help us understand from where you're looking at the numbers, where is the strength in the RTMs going to come? I know you've got a lot more detail on the CN specific growth initiatives and the impact of mix here, but I'm just getting a lot of questions about whether that mid-single digit RTM number remains realistic. So if you could help us kind of understand that walk, that would be great.

Yeah, so great question, David. So first of all, you are right, we were flat for their Q1, but our whole project and list was geared towards April and on. So as a good example, in April, we're 7% up in RTM so far this month. So we knew that was really going to start to pop. We have the comparables that are there from last year, so we're easily going to be able to top some of them. So we're all set. We know there's going to be good growth in intermodal overseas, and that's what we've been seeing. It's a little bit lighter on domestic. We're seeing some other things pop in other areas. All of these are really just part of the economy as well as part of the projects. Combine them all up, we're pretty confident that we are still going to be able to maintain our guidance.

Okay, and then just as a quick follow-up, costex fuel up 5% in the quarter. How much of that is because last winter there wasn't much of a winter, and how much of that is resourcing ahead of this expected volume growth, and how much of that is just natural cost creep in a weaker revenue quarter?

When you look at fuel, as I said, we're comping. I talked about the fuel positive lag last year. versus no lag this year. When you look at the overall fuel situation in the first quarter, and you can look at it in the NBNA, it's all disclosed, but our fuel surcharge, Doug mentioned it, was down on a year-over-year basis by about $170 million, while our fuel expense related just the price was down $30 million. So the fuel issue in the quarter was about $140 million of headwind or call it 15 cents of EPS or 180 basis point of OR. So that's the fuel. And yes, we did consume, David, more fuel this year versus last year due to a harsher winter specifically in January. Thanks for the question.

Our next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead. Your line is open.

Yeah, thanks very much operator. So So when I look back at your guidance that you issued when you reported your fourth quarter, I know there was some trepidation that perhaps it was a little bit too, too robust, maybe too too positive, too optimistic, especially around the 5% volume and very encouraging, given that you you've kind of reiterated that there was a lot also mentioning about how with high single digit revenue, where you're only achieving 10% earnings. And I know, Ghislaine, since that, you've been, you know, through your public remarks at various conferences, you've kind of hinted that perhaps there is some upside there if that volume growth does come in. So I guess my question is, you know, as you're now one quarter through the year, or obviously a bit more than that here, how much, where has things changed relative to your original guide, even though you're maintaining it, do you feel a bit more comfortable about volume? Are you feeling more comfortable about price? Is margin coming in better or worse? If there's any indication as to the kind of comfort level you have around the guidance, I'd love to hear your thoughts on which areas are coming in a bit better or worse in each of those elements.

Thanks, Walter. So I would tell you that Q1 we delivered exactly as per plan. Even in my opening remarks, I said we did probably a little bit better than planned. So I think that, and when you look, you know, now the volumes are coming in in April, as Doug mentioned, 7% up on a year-over-year basis. I think at the end of the day, you know, as we said, to get to our 10%, we can't just focus on one area. We need a little bit of price, and Doug talked about that. We need that volume that we've talked about. and we need better operations from our guys here, and I call our guys to be a little bit here sandbaggers, and that's my own opinion. Share buyback is not that accretive for the current year, especially when you look at it from an after financing point of view, but it is helpful a little bit more in the out years because you get that compounding effect of having the shares out of circulation. So when you put all of this in, and I'm happy because when you We got out of the winter. Q1 is typically very noisy. As I said, we deliver per plan. So I think those growth opportunities are happening. I'm crossing my fingers that the economy holds up. We're not banking, as Tracy said, on a 2%. We're banking on a slightly positive economy, call it 0.5%. I think that I'm very comfortable that we can deliver, and we will deliver our 10% EPS growth.

Let me just add to that, Walter, if I could. So as we look at volumes, you know, you heard Derek and Pat talk about what we went through in the first quarter, but I think that, you know, we are more optimistic on the volumes from an economic perspective. We are, as Doug has outlined, pretty much on plan on our – and feeling very, very strongly about our CN-specific growth alternatives, our plans. Derek keeps reminding us that if you look at Q1, it's the best Q1, Derek, on operating metrics that we've had in the last – Seven years, since 2017. The last seven years since 2017, with the exception of last year. So the railroad's running. The volumes are coming. And as we look at our plan going forward, we're feeling pretty good about our 10%.

Thank you very much.

Our next question comes from Kevin Chang from CIBC. Please go ahead. Your line is open.

Good afternoon. Thanks for taking my question and best of luck in your retirement, Doug. Maybe just want to get your sense on, you know, this morning, the Canadian Competition Bureau put out, I guess, a report on this Viterra-Bungi potential merger and potential anti-competitive effects. Just wondering how you're viewing that, I guess, potential combination, you know, does that have an impact on on how you view your grain franchise. Does that have any impact on some of the CN-specific initiatives you highlighted back at the investor day in terms of grading fertilizer?

Okay, thanks, Kevin. It's a great question. So we did participate within the Transport Canada did ask us for our opinion. Listen, we don't see much of a conflict from our standpoint if it happens. But with respect to that, Viterra is one of our top customers. They are a top 10 customer. We move lots of grain for them, and we do it all over North America, primarily West Coast, Vancouver, but also to Rupert, to Montreal. So we're very happy with that. We don't see as much of a conflict with Bungie at all. Bungie we have very little business with. We do have some, but they're primarily moving other products with another carrier. So overall, when you look at that, we don't have a problem with the Competition Bureau or the combination of these two companies. So we'll effectively, I'll say, stay out of it. Won't really have an issue on our markets today. Now, what they are looking at doing is building some canola meal plants or some crush plants. So that will eventually bring more business online that we think they're both in a good position to. One plant would be in the Regina market, and they're looking at some others that are both also on CN's line. So it may delay these future plants, but none of these were currently in the plan today that we have for 2024 to 2026. So we shouldn't see any issues there. Thanks for the question.

Our next question comes from Scott Group from Wolf Research. Please go ahead. Your line is open.

Hey, thanks, afternoon. So, Ghislaine, it looks like we can often see a four to five points of OR improvement from 1Q to 2Q. Is that right, that we should be sub-60 this quarter? And then I guess I'm just wondering how the labor negotiation impacts how you're thinking about Q2 in the year. Maybe, Tracy, just some thoughts, like, on the scenarios. What's the upside potential if we get hourly deals? What's the risk that inflation ends up higher than what you're thinking? Just any thoughts there. Thank you, guys. Thank you.

Why don't you start off, and I'll take it from there.

Thanks, Scott. Listen, we don't give guidance on OR on a quarterly basis, but as you know, if you look historically, from a seasonality standpoint, Q1 has been the quarter that has the highest OR. Q3 has been typically the one that has the lowest, and then Q2 is in between. Q2 and Q4 is more or less in between, depending on how you finish Q1 getting into the spring. and in Q4 is how you get into the winter in October, November, and December. So definitely from an historical standpoint, you would assume that OR in Q2 would be better than Q1.

And from a labor perspective, we're working very hard at instilling discussions with the TCRCs. We would like a negotiated agreement with them, and we believe that that is possible. The proposal that we have in front of them now is an hourly agreement, We don't yet have an agreement with them, but it's an hourly agreement. It would have economic benefits, of course, for both of us. For our employees, it would be predictable scheduling, two consecutive days off and increased earnings for the company. The benefits would fall largely in improvements in availability and productivity. So think trains awaiting crews, recrews, deadheads, those types of things. So we're in discussion with them. And I think given that we are in discussion with them right now and still in negotiations, it would be inappropriate to comment much further than that, Scott. Thanks for the question.

Our next question comes from Tom Wadowitz from UBS. Please go ahead. Your line is open.

Yeah, good afternoon. And, Doug, congratulations. I hope you enjoy the retirement as well. Um, I guess, uh, two, you know, two questions for you. I think you talked about some new, or I don't know, I'll call it part A, part B, uh, just on the bulk side. Um, you said, I think some new business on crude by rail. I don't know if you have any color on how big that is or, or, or what that is. And then coal, you were kind of, you know, one is getting Canadians getting better. U S stays weak. What's the kind of net coal view within that is, is coal going to be overall volumes going to be flat or still down, but down less. So. Thank you for the comments on those two.

Okay. Well, thanks, Tom. So on the crude by rail, so we have a natural crude heavy oil franchise that moves down to the U.S. We've been working with a couple of our customers to create a new terminal that's on CN. So rather than having to worry about moving this product offline to other railways, we've been able to work with our customer base to create a new crude receiving terminal for heavy oil down in the Baton Rouge market. And that is great because we're able to cycle those sets from the Alberta market down there and back a lot faster. So we were able to turn our customers' assets and move Canadian oil to the US market as fast as anybody has ever been able to do. So we expect that to continue on moving forward with other opportunities there as well. On the coal market, we're expecting obviously Canadian coal to pick up only because we had a couple of mines that were down earlier in Q1. Those mines are now back running properly. So we expect to see very comparable numbers moving forward on the Canadian coal side. The U.S. coal side is more market dependent. So our U.S. coal franchise is mostly export through the Gulf Coast. That coal moves typically over to Europe. And that market is tough right now because they use it for blending with Russian coal and they're not taking Russian coal. So it's a complex, I'll say, blending operation. but our customers at the same time are looking at new opportunities in different countries around Asia as well as in Europe. So we'll see what happens there, and we'll only be able to give an update once they're able to convince their customers to take that coal market. So I think that covers both topics.

Thanks very much.

Is the crude new volume or extended length of haul?

Most of it's extended length of haul, but there will be some new volume in there. Okay. Thank you very much.

The next question comes from David Zazula from Barclays. Please go ahead. Your line is open.

Hey, thanks for taking my question. Doug, congrats on a great period of service. Anytime I've left anywhere, I've always had some undone items. I was wondering what your undone items that you never really got to and what you'd be excited to turn over to Remy for him to get started on.

Well, thanks very much. So there's always lots of undone items, like you've said. But listen, my key goal was to help find a great replacement, and that's one goal heavily accomplished. So there's nothing much we can say about that. You're going to love having Remy on these calls, and the rest of the team will straighten him out if it's not really working. But it's not like he's a stranger. He's been doing this in some of his other jobs, so he is going to be awesome. With respect to that, there's always tons of work to do, and I work with the team around that. You always want to be able to grow and help your customers grow, So we're always trying to find new ways to work with our customers to create either new products or even get deeper into their supply chains. And we accomplish that on a regular basis, but there's always the next one and the next one and the next one. And that's really what I haven't been able to get done. You can't get them all done. It's just impossible because there's always something else to do. So I'm looking forward to turning that over to Remy, and he'll be able to do that and work with the team here on creating those products that the customers really need to drive additional growth at CN. Thanks for your question.

Thanks, Doug.

Our next question comes from John Chappell from Evercore. Please go ahead. Your line is open.

Thank you. Good afternoon. On the productivity front, there's a lot of focus on headcount, but your purchase service is down 4% year-over-year in a flat volume environment, and with the winter that you actually had this year versus last year. Is that all kind of productivity? And as we think about that major cost line item, we kind of extrapolate a much lower run rate going forward? Or is there something kind of out of the ordinary in first quarter that made that cost item come down despite the flat volumes?

I'll hand that one over to you, Glenn.

Yeah, I mean, when you look at the year-over-year, you're right. Purchasing services material were down 4%. A lot of it was a little bit of less snow clearing, a little bit of less house source services, and a little bit of less maintenance. I mean, but these are not big variants, but you're right. When you add them up, you know, we're down 4%, and those are mainly the items that make it up. Thanks for the question, John.

So, any reason to extrapolate that at a lower run rate than going forward, or are you saying it's basically just kind of a one-timey

decline I would not I would not assume that this would that will deliver a lower a lower run rate in in the following quarters got it thank you design thank you our next question comes from Brian Austin back from JP Morgan please go ahead your line is open hey thanks for taking the question Doug two quick ones for you one on the Canadian green

pricing on the regulated side. You had, I think, two 12%s in a row. I don't know if you'd expect something similar just based on how that formula works, but we're going to get that any day now. So any way to level set what we should expect for the coming year. And then just maybe some brief thoughts on the pipeline as you look further out from the CN specific growth opportunities. Obviously, you outlined it at the Investor Day a little while ago. There have been a few moving pieces, but any other themes you've seen since then in terms of what's come in, come out, or maybe accelerated or slowed down as you look on a multi-year view. Thanks.

Okay. So thanks, Brian. So on the Canadian grain pricing, it's been one year at 12%. So that's the current year we're in. The prior year, if memory serves me right, was more in that 4% to 5%. But it's still all good numbers. So we're going to do very well on Canadian grain this year. So we continue to have a strong grain market even into the spring. So it's going extremely well. and we expect that to continue on moving forward actually through Q2 for at least the next month or so. So we're very happy with the overall grain this year. Now, we've also been able to get the pricing with there, so we should finish very well on grain pricing. For next year, listen, it's a little bit of a black box within the CTA and Transport Canada, so when they come back, they consider a lot of different things, and then out comes the number. So we usually budget just in that 3% range and just try and move forward from there. If we're surprised on the upside, great. If we're surprised on the downside, we'll adjust accordingly. So we'll all be surprised when the number comes out in a week or two. Now, with respect to some of the other pipeline growth opportunities, we've done obviously very well with what you've seen. Some of the things we've really been delivering is on the refined products and on the LPGs. So that's one that's really started to add up. We obviously got the long-term agreement with AltaGas, which we announced before. But we're seeing additional growth head towards both the West Coast for export, as well as we're still servicing the domestic market really, really well. So we continue to see that. And refined products has actually been the surprise this year. The number is up quite a bit. Now we're moving out to different markets. It was moving export during the winter. And we're expecting to see more and more domestic market during the rest of this year. So we're very happy with all that. And then that ties in nicely with our new facility in Mack Yard as well, which would be above and beyond that. Thanks for your question, Brian. Thank you, Doug.

Our last question will come from Justin Long from Stevens. Please go ahead. Your line is open.

Thanks, and good afternoon. So, I know the CAPEX guidance didn't change overall, but I was wondering if you could provide any update on your locomotive plans for this year as it relates to both new locomotives and modernizations. And in addition to that, you know, the CARB has proposed some regulations in the U.S. I know the EPA is looking at those currently. Just curious if you have any thoughts around what's been proposed and how that could potentially impact your locomotive strategy going forward if passed.

I'll take that one. This is Pat Whitehead. Our plan is that we continue to modernize our fleet. We will continue to work with Wabtec and we have some Progress Rail modernizations as well. That's been our chosen path. That's the most reliable locomotive in the industry currently and we will continue to invest in that. We are working with both OEMs and exploring other technologies for the locomotive of the future. And we'll continue down that path, and we'll continue to have – we purchased donors last year that we could convert for our modernization program, and we will be converting those between this year and next.

Just let me add a little bit to that as we finish up today. We are watching CARB very closely and where that is going to go with the rest of the industry. As an industry, this is something that we've got to get our head around. We have made some investments ourselves on electric, battery electric locomotive and on a hybrid locomotive, but clearly as we go forward, this is something the industry will collaborate on more fully and decide on the ultimate path. It's an important effort for us and for the industry, and we'll keep you guys in the loop as we go along. Thanks so much for the question. So we'll wrap it up today, and as we do that... I'll reiterate the plan is working. Clearly, your guys' mind is on growth. Thanks for giving Doug such a good workout on his last call. Our mind's on growth as well, and we're feeling very optimistic around what we see ahead of us. We look forward to talking again with you in a few months. Thank you.

The conference call has now ended. Thank you for your participation. You may now disconnect your lines.