CN Railway (CNI) Q4 2025 earnings review
Strong Finish, Hard Stop: Efficiency Peaks as Growth Outlook Flattens
CN delivered a robust Q4 with Adjusted EPS up 14% and a stellar 60.1% Adjusted Operating Ratio, capitalizing on a 4% volume rebound and strict cost controls. However, the celebration is short-lived. Management issued sobering 2026 guidance projecting 'flattish' volume growth and slashed Capital Expenditures by C$500 million. While the railroad is running efficiently (Intermodal +10%, Op Expenses flat), the company is bracing for a stagnant macro environment dominated by geopolitical risk and trade tensions, shifting focus from growth to cash preservation and buybacks.
🐂 Bull Case
CN squeezed the network for maximum profit in Q4. Adjusted Operating Ratio improved 250 basis points to 60.1%. Despite a 4% increase in workload (RTMs), operating expenses remained flat, proving exceptional leverage.
The defensive pivot is shareholder-friendly. Free Cash Flow rose 8% to C$3.3B in FY25. With CapEx cut by ~15% (C$500M) for 2026 and a new 24-million-share buyback authorized, capital returns will be the primary total return driver.
🐻 Bear Case
The momentum from Q4 (+4% RTMs) is expected to evaporate immediately. Guidance for 'flattish' volumes in 2026 implies a sudden deceleration, heavily impacted by macro uncertainty and trade tensions.
Key industrial segments are shrinking. Forest Products revenue dropped 8% and Metals & Minerals fell 5% in Q4. These cyclical drags are offsetting gains in Intermodal and Grain.
⚖️ Verdict: ⚪
Neutral. Operational execution is flawless (A+ grade), but the forward outlook is bleak (D grade). CN is expertly managing a decline, cutting CapEx and boosting buybacks to compensate for a lack of organic growth. It's a 'safe haven' play, not a growth story.
Key Themes
Intermodal & Grain Carrying the Load
Intermodal was the star of Q4, with revenue up 10% and RTMs up 10%, recovering significantly from prior sluggishness. Grain & Fertilizers also remained a stronghold (+6% revenue, +9% RTMs). These two segments are masking deep deterioration in the industrial-facing businesses.
Cost Management Mastery
Accelerating efficiency. CN held operating expenses flat YoY despite handling 5% more Gross Ton Miles (GTMs). Labor cost per GTM dropped, and the Adjusted Operating Ratio hit 60.1%, a 250bps improvement. This confirms the 'scheduled railroading' model is fully optimized.
Defensive CapEx Slash
Management announced 2026 capital program spending at C$2.8B, a sharp decrease of C$500M from 2025. While this boosts short-term Free Cash Flow, such a deep cut in a capital-intensive industry signals a lack of growth conviction and a shift to 'maintenance mode.'
Industrial Recession Signals
Forest Products (-8% revenue) and Metals & Minerals (-5% revenue) accelerated their declines in Q4. Management explicitly flagged 'heightened demand risk' and 'global trade tensions' in the outlook. These segments are bellwethers for the broader industrial economy, suggesting 2026 weakness is structural, not seasonal.
Pivot to Buybacks
With organic reinvestment opportunities drying up (lower CapEx), CN is returning cash. A new Normal Course Issuer Bid (NCIB) for up to 24 million shares (approx 4% of float) begins Feb 2026, alongside a 3% dividend hike. This financial engineering will likely be the primary driver of EPS growth in 2026.
Other KPIs
Accelerating. Improved 250 basis points YoY. This is the best operational performance of the year, driven by higher train length (+3%) and GTMs per employee (+8%).
Stable/Accelerating. Up 8% YoY. With the C$500M cut to CapEx planned for 2026, FCF conversion is set to expand further, securing the dividend and buyback capacity.
Accelerating. Up 4% YoY in Q4, a marked improvement from -1% in Q2 and +1% in Q3. However, guidance suggests this momentum will stall immediately in 2026.
Guidance
Decelerating significantly vs Q4's +4% exit rate. Management cites macroeconomic uncertainty and geopolitical risk. This is a major dampener on the growth narrative.
Decelerating. With 'flattish' volume, this implies low-single-digit EPS growth (likely 1-3%), driven mostly by buybacks rather than operational leverage. This is a sharp drop from the +14% growth delivered in 25Q4.
Decelerating. Down C$500M vs 2025. Reflects a prudent/defensive stance in a low-growth environment.
Key Questions
Guidance vs. Q4 Momentum
You exited Q4 with 4% RTM growth and 10% Intermodal growth. What specific indicators are causing the outlook to collapse to 'flattish' for 2026? Is this conservatism or do you see a cliff in January data?
Forest Products & Housing
Forest products revenue accelerated to the downside (-8%) in Q4. Are you assuming any recovery in housing-related shipments for 2026, or is the 'flattish' guide assuming this segment remains a drag?
Tariff Exposure
With the focus on 'global trade tensions,' can you quantify your exposure to cross-border flows that would be directly impacted by potential new tariffs, specifically in the Automotive and Intermodal segments?
CapEx Sustainability
The C$2.8B CapEx target is significantly lower. Is this a new structural baseline for 'maintenance mode' capital intensity, or a one-year deferral of growth projects?