Ms. Tracy Robinson reports

CN ANNOUNCES THIRD QUARTER RESULTS

Canadian National Railway Company today released its financial and operating results for the third quarter ended Sept. 30, 2023.

"Our 'make the plan, run the plan, sell the plan' approach continued to perform well, delivering strong customer service despite weak consumer demand as well as external challenges. As volumes continue to improve, we are well positioned to deliver incremental operating leverage. We remain confident in our ability to accelerate sustainable, profitable growth in 2024 through 2026."

- Tracy Robinson, president and chief executive officer, CN

Financial results highlights

• Revenues of $3,987-million for the third quarter of 2023, a decrease of $526-million, or 12 per cent, and $12,357-million for the first nine months of 2023, a decrease of $208-million, or 2 per cent.
• Operating income of $1,517-million for the third quarter of 2023, a decrease of $415-million, or 21 per cent and $4,779-million for the first nine months of 2023, a decrease of $149-million, or 3 per cent.
• Operating ratio, defined as operating expenses as a percentage of revenues, of 62.0 per cent for the third quarter of 2023, an increase of 4.8 points and 61.3 per cent for the first nine months of 2023, an increase of 0.5 point or an increase of 0.7 point on an adjusted basis.
• Diluted earnings per share (EPS) of $1.69 for the third quarter of 2023, a decrease of 21 per cent and $5.27 for the first nine months of 2023, a decrease of 1 per cent or a decrease of 2 per cent on an adjusted basis.
• Free cash flow was $581-million for the third quarter of 2023, a decrease of $775-million, or 57 per cent, and $2,274-million for the first nine months of 2023, a decrease of $650-million, or 22 per cent.

Operating performance

• Injury frequency rate of 1.07 (per 200,000 person hours) for the third quarter of 2023, a deterioration of 6 per cent and 1.02 (per 200,000 person hours) for the first nine months of 2023, an improvement of 11 per cent.
• Accident rate of 1.86 (per million train miles) for the third quarter of 2023, a deterioration of 10 per cent and 1.76 (per million train miles) for the first nine months of 2023, an improvement of 16 per cent.
• Through dwell of 7.1 (entire railroad, hours) for the third quarter of 2023, a deterioration of 1 per cent and 7.0 (entire railroad hours) for the first nine months of 2023, an improvement of 10 per cent.
• Car velocity of 209 (car miles per day) for the third quarter of 2023, a deterioration of 1 per cent and 212 (car miles per day) for the first nine months of 2023, an improvement of 10 per cent.
• Through network train speed of 19.7 (mph (miles per hour)) for the third quarter of 2023, a deterioration of 2 per cent and 19.9 (mph) for the first nine months of 2023, an improvement of 7 per cent.
• Fuel efficiency of 0.832 (United States gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs)) for the third quarter of 2023, an improvement of 1 per cent and 0.874 (U.S. gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs)) for the first nine months of 2023, less efficient by 2 per cent.
• Train length of 7,927 ft (feet) for the third quarter of 2023, a decrease of 3 per cent and 7,870 (feet) for the first nine months of 2023, a decrease of 5 per cent.
• Revenue ton miles (RTMs) of 55,640 (millions) for the third quarter of 2023, a decrease of 5 per cent, and 171,478 (millions) for the first nine months of 2023, a decrease of 2 per cent.

Outlooks and shareholder distributions

CN continues to expect flat to slightly negative year-over-year growth in adjusted diluted EPS in 2023. CN reiterates its longer-term financial perspective and continues to target compounded annual diluted EPS growth in the range of 10 per cent to 15 per cent over the 2024 to 2026 period driven by growing volumes more than the economy, pricing above rail inflation and incrementally improving efficiency, all of which assumes a supportive economy.

In January, 2023, CN announced the board's approval for a new normal course issuer bid permitting CN to purchase for cancellation, over a 12-month period, up to 32 million common shares. The board has now approved an additional $500-million, increasing the budget from approximately $4.0-billion to approximately $4.5-billion.

Third quarter 2023 revenues, traffic volumes and expenses

Revenues for the third quarter of 2023 were $3,987-million compared with $4,513-million for the same period in 2022. The decrease of $526-million, or 12 per cent, was mainly due to lower fuel surcharge revenues as a result of lower fuel prices, lower volumes of intermodal, crude oil and forest products, primarily as a result of lower demand for freight services to move consumer goods and the negative impact of the pacific coast dock workers strike, unfavourable crude oil price spreads and weaker market conditions for lumber and panels as well as lower ancillary services including container storage; partly offset by freight rate increases, higher volumes of Canadian grain and potash and the positive translation impact of a weaker Canadian dollar.

Operating expenses for the third quarter of 2023 were $2,470-million compared with $2,581-million for the same period in 2022. The decrease of $111-million, or 4 per cent, was mainly due to lower fuel prices; partly offset by the negative translation impact of a weaker Canadian dollar.

2023 key assumptions

CN has made a number of economic and market assumptions in preparing its 2023 outlook. The company now assumes flat North American industrial production in 2023 (compared with the July 25, 2023, assumption of negative North American industrial production in 2023). The company continues to assume that the 2023/2024 grain crop in Canada will be below its three-year average (also below when excluding the significantly lower 2021/2022 crop year) and the U.S. grain crop will be above its three-year average. CN continues to assume pricing above rail inflation upon contract renewals. CN also continues to assume that in 2023, the value of the Canadian dollar in U.S. currency will be approximately 75 cents, and now assumes the average price of crude oil (West Texas Intermediate) will be approximately $80 (U.S.) per barrel (compared with the July 25, 2023, assumption of being approximately $75 (U.S.) per barrel). Additionally, CN continues to assume that in 2023 there will be no further significant impact from Canadian wildfires.

2024 to 2026 key assumptions

CN has made a number of economic and market assumptions in preparing its three-year financial perspective. CN assumes that the North American industrial production will increase by at least 2 per cent CAGR (compound annual growth rate) over the next three years. CN assumes continued pricing above rail inflation. CN assumes that the value of the Canadian dollar in U.S. currency will be approximately 75 cents and that the average price of crude oil (West Texas Intermediate) will be approximately $80 (U.S.) per barrel during this period.

About Canadian National Railway Company

CN is a world-class transportation leader and trade enabler. Essential to the economy, to the customers and to the communities it serves, CN safely transports more than 300 million tons of natural resources, manufactured products and finished goods throughout North America every year. CN's network connects Canada's Eastern and Western coasts with the U.S. South through an 18,600-mile rail network; CN and its affiliates have been contributing to community prosperity and sustainable trade since 1919. CN is committed to programs supporting social responsibility and environmental stewardship.

Free cash flow

Free cash flow is a useful measure of liquidity as it demonstrates the company's ability to generate cash for debt obligations and for discretionary uses such as payment of dividends, share repurchases and strategic opportunities. The company defines its free cash flow measure as the difference between net cash provided by operating activities and net cash used in investing activities, adjusted for the impact of (i) business acquisitions and (ii) merger transaction-related payments, cash receipts and cash income taxes, which are items that are not indicative of operating trends. Free cash flow does not have any standardized meaning prescribed by GAAP (generally acceptable accounting principles) and therefore, may not be comparable with similar measures presented by other companies.

The attached table provides a reconciliation of net cash provided by operating activities in accordance with GAAP, as reported for the three and nine months ended Sept. 30, 2023, and 2022, to the non-GAAP free cash flow presented herein.

We seek Safe Harbor.