CN (CNI) Q3 2026 earnings review
CN's third-quarter profit jumps 18%, but fourth-quarter volume will dip
CN, the Canadian transcontinental railway, raised its unit prices and rode strong grain and energy shipments while container and lumber traffic shrank. Third-quarter revenue rose 15% from a year ago, and diluted profit per share excluding one-offs climbed 18% as fuel surcharges caught up with diesel costs. Chief executive Tracy Robinson kept the full-year outlook in place and said profit growth is tracking toward the top of the plan, though a C$118 million software write-off held reported profit back.
| Revenue | C$4,771M +15% from a year ago |
|---|---|
| Profit per share, excluding one-offs | C$2.16 +18% from a year ago |
| Freight volume (revenue ton miles) | +4% from a year ago (9-month: +4%) |
| Full-year profit per share outlook | Upper end of mid-to-high single-digit growth |
⚖️ Verdict: 🟢 Bullish
The story got better because pricing power, record fuel efficiency and an upgraded grain harvest assumption pushed full-year profit growth toward the top of CN's range, while third-quarter accident rates finally fell. One caution: keeping the full-year volume plan at low single-digit growth after a 4% nine-month gain means by our math fourth-quarter freight volume drops about 4% against last year's record harvest.
The question now is whether third-quarter earnings strength reflects lasting market-share gains and terminal productivity or mostly a temporary fuel-surcharge tailwind and bumper crops. If new commercial routes and cost savings are driving the business, freight volume outside grain will accelerate in 2027; if it is mostly crop and fuel timing, profit growth will cool as comparisons toughen. Fourth-quarter volume outside grain and the 2027 outlook in January will tell.
🐂 Bull Case
Higher Prices and Fuel Surcharges Drove Earnings
CN charges customers base freight rates plus fuel surcharges that adjust about two months after diesel prices move. In the third quarter, average fuel prices jumped 59% from a year ago, which lifted fuel expense by 3.8 percentage points of revenue to C$662 million. Because surcharges caught up and core pricing held firm, freight revenue per revenue ton mile (RTM, one ton of freight carried one mile) rose 10.3% to 7.70 cents.
That pricing power turned 3.8% freight volume growth into a 14.6% revenue gain, reaching C$4,771 million. Profit per share excluding one-offs climbed 18.0% to C$2.16, and the railway said it is "currently tracking more towards the upper end of this range" for its full-year target of mid-to-high single-digit profit growth. Labor costs fell 1.3 percentage points as a share of revenue, helping offset the higher fuel bill.
What to watch: fourth-quarter freight revenue per RTM when full-year results arrive in January. A slowdown in unit revenue while diesel prices stay between US$80 and US$110 per barrel would show that the surcharge tailwind has faded and core pricing is doing less work.
Energy, Grain and Autos Carried Freight Volume
Chief executive Tracy Robinson praised her staff, saying "I am very proud of CN’s dedicated railroaders for delivering another strong quarter." CN said its operations enabled "its ability to meet customer demand in key markets including grain and energy" during the period. The Montreal-based carrier upgraded its outlook for the 2026/2027 Canadian and US grain harvests, assuming both crops will finish "above their respective five-year averages" instead of matching historical norms.
- Grain and fertilizers: RTMs up 12% from a year ago to 16,333 million, with revenue up 19% to C$923 million
- Petroleum and chemicals: RTMs up 5% to 12,260 million, lifting segment revenue 17% to C$1,000 million
- Automotive: RTMs up 20% to 933 million, driving revenue up 31% to C$284 million
- Metals and minerals: RTMs up 6% to 7,311 million, with revenue up 18% to C$561 million
What to watch: grain and energy RTMs in the fourth quarter. Another quarter of above-average grain shipments would help cushion the railway against a record prior-year harvest comparison.
Fuel Efficiency and Safety Improved in Q3
Rising accident and injury rates had been a standing blemish for CN over the past year, alongside high operating costs. In the third quarter, the railroad cut its federal accident rate by 21% from a year ago to 1.51 per million train miles, while the employee injury rate dropped 32% to 0.80 per 200,000 hours worked. Locomotives also set a third-quarter fuel efficiency record, burning 0.814 US gallons per 1,000 gross ton miles.
Employee productivity rose 7% to 4,888 thousand gross ton miles per worker as average headcount shrank 2.6% to 23,784. Still, one safer quarter does not settle the safety concern, because the nine-month accident rate remains up 14% from a year ago at 2.09. Network fluidity also slipped slightly, with train speed down 2% to 19.1 miles per hour and car velocity down 2% to 207 miles per day.
What to watch: fourth-quarter accident frequency per million train miles. A second straight quarterly drop would show that field operations have brought derailment risks and incident costs back under control.
Positives this quarter didn't test
Three standing growth and cost initiatives received no quantified update in the third-quarter earnings release and financial statements, because management typically details them on the conference call.
- Union Pacific network agreement: no update on executing the definitive contract for Canada-to-Mexico haulage via Memphis; fourth-quarter remarks will show if shipments started in 2026.
- Fast Track terminal productivity: the release noted ongoing progress without updating the C$100 million savings figure from last quarter; the call transcript will test the full-year run rate.
- New commercial pipeline wins: the release did not quantify quarterly revenue converted from local sales initiatives; management commentary on the call will show if the C$100 million quarterly pace held.
🐻 Bear Case
Full-Year Plan Implies Fourth-Quarter Volume Drop
CN highlighted commercial momentum after increasing freight volume by 3.8% in the third quarter and 4.0% across the first nine months of 2026. Yet the company kept its full-year volume plan unchanged at low single-digit RTM growth. Using a 2% midpoint, by our math the full-year outlook leaves fourth-quarter RTMs falling about 3.6% from a year ago to roughly 59,450 million.
Part of that step-down comes from a difficult comparison against the fourth quarter of 2025, when grain volume hit 19,448 million RTMs and a depreciation study lowered quarterly amortization costs. Even at the upper end of the full-year earnings plan (about 8% growth), by our math fourth-quarter profit per share excluding one-offs slows to about 6.3% growth, down from 18.0% this quarter.
What to watch: fourth-quarter total RTMs against the implied 3.6% decline. A volume drop larger than 4% would show that industrial freight demand is weakening beyond the tough grain comparison.
Scrapped Software Pushed Reported Operating Costs Up
Railroads track efficiency using the operating ratio, which measures operating expenses as a percentage of revenue (a lower number means higher profit margin). CN reported that its operating ratio excluding one-offs improved by 0.4 percentage points from a year ago to 61.0%. However, its reported GAAP operating ratio worsened by 2.3 percentage points to 63.7%, because operating expenses rose 18.8% to C$3,041 million.
The gap came from C$132 million of charges that the company excluded from its headline margin. CN took a C$118 million write-off (2.5 percentage points of revenue) after deciding to "discontinue the development of certain components of its dispatching and back office information technology projects before completion" because the software had no future value. It also spent C$14 million on regulatory lawyers and advisors for the proposed Union Pacific and Norfolk Southern merger, bringing nine-month advisory fees to C$48 million.
What to watch: fourth-quarter asset impairments and purchased services expenses. More technology write-offs or continuing merger legal bills would keep reported profit trailing the numbers excluding one-offs.
Forest Products and Intermodal Volumes Kept Shrinking
Outside the booming grain harvest, CN's freight recovery remains narrow. By our math, RTMs excluding grain and fertilizers grew just 1.0% from a year ago to 43,050 million, and total carloads across the railroad were flat at 1,364 thousand. Three of CN's seven commodity groups shipped less freight than they did a year earlier.
- Intermodal (shipping containers): RTMs fell 3% from a year ago to 12,680 million, and carloads dropped 6% to 542 thousand
- Forest products (lumber and panels): RTMs fell 4% to 4,978 million, continuing a multi-quarter slump tied to weak housing and duties
- Coal: RTMs fell 5% to 4,888 million, while carloads declined 11% to 109 thousand
What to watch: fourth-quarter RTMs excluding grain and fertilizers. A negative reading would mean weakness in container traffic, lumber and coal is outweighing gains in energy and autos.
Debt Rose to Fund Buybacks Alongside Lower Capital Spending
CN bought back 3.9 million shares for C$676 million in the third quarter, bringing nine-month repurchases to C$1,999 million at an average price of C$157.23 per share. To help pay for those buybacks and dividends, the railway increased its short-term commercial paper debt by C$780 million during the quarter to C$1,210 million. Total GAAP debt rose 8.0% from a year ago to C$22,812 million.
Including leases and pension deficits, debt reached 2.61 times trailing twelve-month EBITDA excluding one-offs, up from 2.54 times a year earlier. Meanwhile, the company cut third-quarter property additions by 27.1% to C$805 million, and also signed an agreement to sell C$130 million of rail lines in Louisiana and Mississippi. Raising leverage for buybacks while trimming track investment leaves less balance-sheet cushion if freight demand slows.
What to watch: year-end debt-to-EBITDA multiple in the fourth quarter. A rise above the 2.7 times level management targeted earlier this year would limit capacity for share buybacks in 2027.
👓 Other Themes
Trade Tensions and Oil Assumptions Frame the Year-End
CN warned that it faces "heightened demand risk as a result of volatile macroeconomic conditions, geopolitical conflicts and global trade tensions" heading into year-end. For the rest of 2026, the railroad assumes the Canadian dollar averages US$0.71 and West Texas Intermediate crude oil stays between US$80 and US$110 per barrel. In the third quarter, a weaker Canadian dollar ($1.399 per US dollar vs $1.378 a year ago) added C$39 million to revenue and C$0.02 to diluted profit per share.
💲 Other KPIs
Free cash flow jumped 35.7% from a year ago in the third quarter and 24.6% across the first nine months to C$2,918 million. Cash from operating activities was virtually unchanged at C$1,904 million (down 0.5% as cash taxes paid rose by C$166 million), so the entire third-quarter cash flow gain came from cutting capital spending by C$300 million.
The diluted share count fell 2.8% from 622.4 million a year ago and 0.4% from 607.5 million last quarter. Under its current buyback authorization for up to 24.0 million shares running through February 2027, the Canadian railway has retired 11.1 million shares for C$1,751 million, adding about 3 percentage points to per-share profit growth.
Accounts receivable climbed 22.7% from C$1,117 million at year-end, outpacing nine-month revenue growth of 8.3% and absorbing C$247 million of operating cash. Meanwhile, contract liabilities (cash collected in advance from customers for future freight service) slipped by C$3 million from last quarter to C$540 million, leveling off after rising late last year.
🔮 Guidance
Unchanged range, firmer tone. CN kept its target of mid-to-high single-digit growth in diluted profit per share excluding one-offs (5% to 9% over 2025's C$7.63), while noting it is tracking toward the upper end. After earning C$6.03 in the first nine months (+8.8%), by our math an 8% full-year gain leaves fourth-quarter profit per share growing about 6.3% to C$2.21, down from 18.0% in Q3.
Unchanged. The plan still calls for low single-digit freight volume growth for the full year, having been raised from flattish in the second quarter. Because nine-month RTMs are already up 4.0% from a year ago, by our math a 2% full-year midpoint implies fourth-quarter RTMs shrink by about 3.6% against last year's record grain quarter.
Unchanged. The railway still plans to invest about C$2.8 billion in track, locomotives and technology this year, net of customer reimbursements. After spending C$1,939 million on gross property additions in the first nine months, by our math the plan leaves about C$861 million for the fourth quarter, up from C$805 million in Q3 but 30% below last year's fourth quarter.
Unchanged. Management still expects the share of profit that turns into free cash flow to keep improving across 2026. Through the first nine months, free cash flow of C$2,918 million equaled 79.5% of net income excluding one-offs, up from 67.4% in the same period of 2025, helped by the C$490 million drop in capital spending.
❓ Key Questions
Which dispatching software failed, and will CN replace it?
CN wrote off C$118 million after halting parts of its dispatching and back-office software projects. Investors need to know what went wrong, whether those systems must be rebuilt from scratch, and how much future capital spending that replacement will require.
How much did fuel surcharge timing add to Q3 profit?
Management previously indicated that the two-month lag between diesel prices and customer surcharges could add about C$0.15 to third-quarter EPS. The release does not quantify the actual tailwind, which is needed to separate one-off fuel timing from underlying margin gains.
What did local sales pipeline conversions total in Q3?
Earlier in 2026, management reported converting about C$100 million per quarter of new business from its local sales pipeline, then stopped giving the number in Q2. Knowing the Q3 total would show whether share gains are offsetting weak container and lumber traffic.
Has the Union Pacific Mexico haulage agreement taken effect?
In July, CN announced a commercial memorandum with Union Pacific to move Canada-to-Mexico freight via Memphis and expected revenue to start flowing in 2026. The third-quarter release gave no update on whether the final contract is signed and moving cars.