Canadian National Railway reported a 6% increase in third-quarter profit Friday as stronger grain, energy and automotive freight activity lifted revenue, while higher fuel costs and a technology write-down weighed on reported margins.
The Montreal-based railway (NYSE: CNI) maintained its full-year earnings outlook, saying growth was tracking toward the upper end of its forecast range.
CN earned C$1.209 billion ($866 million), or $1.43 per diluted share, in the three months ended Sept. 30, compared with $816 million, or $1.31 a share, a year earlier. Revenue increased 15% to $3.42 billion from $2.98 billion.
Adjusted diluted earnings rose 18% to approximately $1.55 a share, excluding a software impairment and rail-merger-related advisory expenses. That exceeded analysts’ expectations of about $1.50 a share, according to FactSet figures reported by Dow Jones. Revenue also topped the approximately $3.34 billion forecast.
Freight revenue increased 15% to approximately $3.28 billion. Grain and fertilizer revenue rose 19% to $661 million, petroleum and chemicals revenue increased 17% to $716 million, and automotive revenue jumped 31% to $203 million.
Revenue ton-miles increased 4%. Grain and fertilizer traffic rose 12% on that basis, while automotive traffic increased 20%. Those gains helped offset declines in coal, forest products and intermodal traffic. Total carloads were essentially unchanged, while freight revenue per revenue ton-mile rose 10%.
Chief Executive Tracy Robinson credited service execution and productivity improvements for the results.
“Their relentless focus on safely executing the plan across our unique network continues to strengthen service, enhance productivity, and support our customers’ success,” Robinson said of CN employees in the earnings release.
Operating expenses increased 19% to approximately $2.18 billion, outpacing revenue growth. Fuel expense rose to $474 million from $299 million, even as CN reported a 2% improvement in fuel efficiency and record third-quarter fuel-efficiency performance.
The quarter also included an approximately $84 million impairment after CN discontinued development of certain components of its dispatching and back-office technology projects. Another $10 million in advisory costs related to regulatory proceedings concerning the proposed Union Pacific (NYSE: UNP)–Norfolk Southern (NYSE: NSC) merger.
CN’s reported operating ratio — operating expenses as a percentage of revenue — deteriorated to 63.7% from 61.4%. Excluding the impairment and advisory costs, the adjusted ratio improved to 61.0%. Operating income rose 8% to approximately $1.24 billion, while adjusted operating income increased 16% to $1.33 billion. The adjusted figures are non-GAAP measures.
CN continued to forecast low-single-digit growth in revenue ton-miles for 2026 and mid-to-high-single-digit growth in adjusted diluted earnings per share, with earnings growth tracking toward the upper end of that range. It maintained its capital investment plan at approximately $2.00 billion, net of customer reimbursements.
Free cash flow for the first nine months increased 25% to approximately $2.09 billion. Operating cash flow over that period was slightly lower, but cash used in investing activities fell to $1.33 billion from $1.78 billion. CN repurchased approximately 3.9 million shares for $484 million during the third quarter.
The railway cautioned that volatile economic conditions, geopolitical conflicts and global trade tensions continued to pose risks to demand.
Why it matters: The earnings report suggests CN is generating more revenue from modest freight growth while improving underlying operating efficiency.
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