How Canadian National Railway (CNI) Is Driving Efficiency Gains, But Tariffs and Weak Industrial Demand Cloud the Outlook!

Canadian National closed 4Q25 with strong operational execution, demonstrating the effectiveness of its cost discipline and network productivity initiatives despite a challenging freight environment. Revenue increased modestly as total traffic rose 3%, supported by record grain shipments and double-digit growth in international intermodal volumes following normalization at Canadian ports, while domestic intermodal also expanded on improved service reliability. Profitability was the key highlight, with adjusted EPS rising 14% year over year and the operating ratio improving to 60.1%, reflecting gains from labor productivity improvements, enhanced locomotive efficiency, and tighter mechanical cost control. Network fluidity improved as car velocity and terminal dwell both advanced, signaling stronger operational resilience even amid winter disruptions. Commercial momentum is gradually building, with approximately $100M in new business wins during the quarter and continued strength in energy shipments, particularly natural gas liquids. However, industrial end markets remain uneven, as forest products and metals shipments were pressured by tariffs and weak demand, creating a headwind that management estimates reduced revenue by roughly $350M in 2025. Looking ahead, Canadian National retains meaningful latent capacity, supported by recently completed network investments and strong access to key West Coast trade gateways, positioning the company to capture incremental freight flows once industrial activity stabilizes. If trade friction eases and industrial demand normalizes, can CN’s improved cost structure translate into sustained margin expansion and earnings acceleration?