Canadian National Railway revenue climbs 11% as freight mix boosts profitability

Canadian National Railway Company raised its full-year 2026 guidance after stronger grain and energy shipments helped drive an 11% increase in second-quarter revenue and an 11% rise in adjusted diluted earnings per share. The railway, which trades as NYSE: $CNI and TSX: $CNR, now expects low-single-digit growth in revenue ton miles and mid-to-high-single-digit adjusted earnings growth, improving on its earlier assumption that freight volumes would remain broadly flat. Revenue ton miles increased 5% during the quarter, while first-half free cash flow rose 19% to C$1.84 billion, giving management greater financial flexibility for capital spending, dividends and share repurchases. The stronger outlook suggests freight demand is holding up better than previously expected, but rising operating expenses, weaker efficiency ratios and deteriorating safety indicators explain why investors did not respond with unqualified enthusiasm.

Canadian National Railway reported second-quarter revenue of C$4.75 billion, up from C$4.27 billion a year earlier. Net income increased 7% to C$1.25 billion, while diluted earnings per share rose 10% to C$2.06. Adjusted diluted earnings per share reached C$2.08, compared with C$1.87 in the second quarter of 2025.

The earnings performance exceeded the C$1.96-per-share analyst expectation reported following the release. Yet Canadian National Railway shares traded around US$129.81 in New York during the July 24 session, down approximately 0.6%, after reaching an intraday high of US$132.28. That muted reaction suggests the market had already priced in some freight improvement or was concentrating on the costs required to move the additional volume.

How grain, petroleum and automotive freight powered Canadian National Railway’s revenue growth

The clearest strength in Canadian National Railway’s second-quarter performance came from the composition of its freight traffic. Grain and fertilizer revenue increased 18% to C$980 million, while revenue ton miles for the category rose 11%. Petroleum and chemicals revenue climbed 16% to C$941 million, supported by an 11% increase in revenue ton miles.

Automotive revenue also increased 18% to C$285 million, with automotive revenue ton miles rising 11%. Intermodal revenue advanced 8% to C$1.09 billion despite a 1% decline in revenue ton miles and a 5% reduction in carloads, indicating that pricing and traffic mix contributed significantly to the revenue increase.

Across the network, total freight revenue rose 11% to C$4.56 billion. Total revenue ton miles increased from 59.22 billion to 62.25 billion, although the number of carloads was essentially unchanged at approximately 1.41 million. Freight revenue per carload increased 12% to C$3,236, while freight revenue per revenue ton mile rose 6%.

That combination is important. Canadian National Railway did not need a large increase in total carloads to generate double-digit freight revenue growth because the company carried heavier, longer-distance or higher-priced traffic. Railways earn based on a combination of volume, distance, commodity mix and pricing, making revenue ton miles a more revealing measure than carloads alone.

Grain volumes benefited from Canadian and United States crops that were above their respective five-year averages for the 2025 to 2026 crop year. Management now assumes the next Canadian and United States grain crops will be in line with their five-year averages, meaning the company is not building another unusually strong harvest into its updated guidance.

Energy traffic provided another source of growth. Canadian National Railway said strong overall volumes were driven primarily by grain and energy products, while its petroleum and chemicals results showed both volume and revenue expansion. The company continues to assume that West Texas Intermediate crude oil will average between US$80 and US$110 per barrel during 2026, a wide range that reflects the volatility affecting global energy markets.

Higher crude prices can increase fuel expense, but they can also support petroleum shipments and fuel-surcharge revenue. This creates a more complicated relationship between oil prices and railway profitability than a simple assumption that expensive fuel is automatically negative.

The revised freight outlook therefore rests on several markets rather than a single temporary increase. Grain, petroleum and chemicals, automotive and intermodal revenue all delivered meaningful gains, giving Canadian National Railway a more diversified base for its full-year guidance.

Why Canadian National Railway’s higher operating ratio tempered the earnings optimism

The main weakness in the quarter was the operating ratio, which measures operating expenses as a percentage of revenue. A lower ratio generally indicates stronger railway efficiency.

Canadian National Railway’s reported operating ratio increased from 61.7% to 62.5%, while its adjusted operating ratio rose to 62.2%. Operating income still increased 9% to C$1.78 billion because revenue grew faster in absolute terms, but the railway retained a slightly smaller percentage of each revenue dollar as operating profit.

Operating expenses increased 13% to C$2.97 billion. Fuel expense surged 60% to C$659 million, while purchased services and materials expense increased 11% to C$641 million. Labor and fringe-benefit expense rose 3% to C$889 million.

The average fuel price paid by Canadian National Railway increased from C$3.55 to C$5.67 per United States gallon. Fuel efficiency improved 3% to 0.836 gallons per 1,000 gross ton miles, limiting some of the financial impact but not enough to prevent the large increase in total fuel expense.

The operational data were mixed. Gross ton miles increased 3%, train length rose 1% and employee productivity improved 9%. Network train speed increased 1%, and Canadian National Railway reported record second-quarter and first-half fuel efficiency.

However, through dwell increased 4% to 7.1 hours, car velocity declined 1% and operating expenses per gross ton mile rose 9%. Those figures indicate that the railway successfully handled stronger demand, but the network did not become uniformly more efficient while doing so.

Safety metrics also weakened. The injury frequency rate increased to 1.01 from 0.83 per 200,000 employee hours, while the accident rate rose to 2.30 from 1.56 per million train miles. These indicators can fluctuate between quarters, but the movement is material enough to require attention, particularly as Canadian National Railway adds volume and operates longer and heavier trains.

The quarter therefore deserves a constructive rather than euphoric interpretation. Revenue, earnings and productivity improved, but higher costs and weaker safety measures show that execution risks have not disappeared. The raised outlook will be more convincing if Canadian National Railway can translate freight growth into operating-ratio improvement during the second half.

Can higher free cash flow support Canadian National Railway’s capital and shareholder plans?

Canadian National Railway generated C$942 million in second-quarter free cash flow, compared with C$922 million a year earlier. First-half free cash flow increased 19% to C$1.84 billion as lower investment outflows more than offset a modest decline in operating cash flow.

Net cash provided by operating activities was C$2.88 billion during the first half, while net cash used in investing activities declined to C$1.03 billion from C$1.36 billion. Gross property additions also decreased to C$1.13 billion from C$1.32 billion.

Canadian National Railway continues to plan approximately C$2.8 billion of net capital investment during 2026. The company said it expects free cash flow conversion to improve through the remainder of the year, which would help finance network maintenance and expansion without placing excessive pressure on leverage.

The railway repurchased approximately 2.9 million shares for C$454 million during the second quarter. First-half share repurchases reached C$1.32 billion, more than three times the C$407 million spent during the comparable period of 2025.

Canadian National Railway also approved a quarterly dividend of C$0.915 per share, payable on September 29 to shareholders of record on September 8. The company’s adjusted debt-to-adjusted EBITDA ratio stood at 2.61 times at the end of the quarter.

The increase in repurchases demonstrates confidence in cash generation, but management must balance near-term shareholder returns against the railway’s long-term infrastructure requirements. Cutting investment too aggressively could improve free cash flow temporarily while creating congestion, reliability or maintenance problems later.

The reduced first-half capital outflow does not appear to represent a retreat from the C$2.8 billion annual program. It does, however, imply that spending will need to accelerate during the second half if Canadian National Railway is to complete its planned investments.

A stronger freight environment makes disciplined capital deployment more important, not less. Grain, energy and automotive demand can only become durable earnings growth if the network has sufficient capacity, locomotives, terminals, crews and track resilience to handle the traffic reliably.

How Union Pacific agreements could expand Canadian National Railway’s cross-border growth

Canadian National Railway’s updated outlook arrived two days after the company announced two binding agreements with Union Pacific Corporation that could reshape its North American connectivity.

One agreement gives Union Pacific Corporation expanded operating rights over Canadian National Railway’s Elgin, Joliet and Eastern corridor around Chicago. In return, Canadian National Railway would receive new rights over Union Pacific Corporation’s network between Memphis, Tennessee, and Eagle Pass, Texas, supporting additional freight movements between Canada and Mexico.

The arrangement could strengthen Canadian National Railway’s north-south franchise without requiring a major acquisition. Greater access to the Eagle Pass gateway would provide customers with another option for moving goods between Canadian markets, the United States and Mexico, where manufacturing investment and cross-border supply chains remain important sources of rail demand.

A separate agreement relates to Union Pacific Corporation’s proposed acquisition of Norfolk Southern Corporation. Subject to approval and completion of the merger, Canadian National Railway would gain access to certain shipper facilities where the number of competing Class I railroads would otherwise decline. Canadian National Railway would also acquire Norfolk Southern Corporation’s interests in the Kansas City Terminal Railway Company and the Terminal Railroad Association of St. Louis.

These agreements reduce some of Canadian National Railway’s competitive concerns surrounding the Union Pacific Corporation and Norfolk Southern Corporation combination while creating new commercial opportunities. They do not eliminate regulatory uncertainty because the wider merger still requires approval from the Surface Transportation Board.

For Canadian National Railway, the strategic appeal is clear. The railway already connects Canada’s Atlantic and Pacific coasts with the Gulf of Mexico. Improved access toward the Mexican border would make its network more relevant to manufacturers and shippers looking for alternatives across the United States-Mexico-Canada trade corridor.

The near-term earnings contribution is likely to be limited because the agreements require implementation and, in the merger-related case, regulatory approval. Their larger value lies in protecting Canadian National Railway’s long-term competitive position as the North American railroad industry considers structural consolidation.

What the Canadian National Railway stock reaction says about investor sentiment

Canadian National Railway shares slipped approximately 0.6% in New York despite the earnings beat and upgraded guidance. The stock traded between US$128.49 and US$132.28 during the session, showing that the initial reaction included both optimism and profit-taking.

The cautious response is understandable. Adjusted earnings growth was strong, but the operating ratio deteriorated, operating expenses rose faster than revenue and safety indicators moved in the wrong direction. The updated guidance also assumes low-single-digit freight growth rather than an exceptional demand surge.

The weaker Canadian dollar assumption could support reported results because Canadian National Railway earns a substantial portion of its revenue in the United States. Management now assumes the Canadian dollar will average US$0.71 in 2026, compared with its previous assumption of US$0.73. However, currency translation is not the same as underlying operating improvement, and investors may discount earnings gains that depend heavily on exchange rates.

Sentiment toward Canadian National Railway remains moderately constructive. The company is producing higher revenue, rising earnings, stronger free cash flow and improved freight guidance while returning significant capital to shareholders. The concern is whether rising costs will prevent those advantages from translating into sustained margin expansion.

The second half will test whether the quarter represented the beginning of a stronger earnings cycle or merely a favorable combination of traffic mix, pricing and currency. Canadian National Railway has given investors a better outlook, but it must now deliver cleaner operating leverage to justify a more decisive share-price response.

Key takeaways from Canadian National Railway’s raised 2026 guidance

• Canadian National Railway raised its 2026 outlook to low-single-digit revenue ton mile growth and mid-to-high-single-digit adjusted earnings growth, signaling that freight demand is proving stronger than management expected at the start of the year.
• Second-quarter revenue increased 11% to C$4.75 billion, while adjusted diluted earnings per share rose 11% to C$2.08, showing that stronger traffic and pricing more than offset substantial fuel and service-cost inflation.
• Grain and fertilizer revenue rose 18%, supported by an 11% increase in revenue ton miles, making agricultural freight one of the most important drivers behind the railway’s upgraded forecast.
• Petroleum and chemicals revenue increased 16%, giving Canadian National Railway additional exposure to stronger North American energy movements while also increasing sensitivity to volatile fuel prices.
• The operating ratio deteriorated to 62.5% as operating expenses rose faster than revenue, indicating that the company still needs to convert freight growth into stronger margin efficiency.
• Fuel efficiency improved to a second-quarter record, but total fuel expense surged 60% because the average price paid per gallon increased sharply, illustrating the limits of operational savings during an energy-price spike.
• First-half free cash flow increased 19% to C$1.84 billion, supporting Canadian National Railway’s C$2.8 billion capital plan, dividend commitments and accelerated share-repurchase activity.
• Safety indicators weakened during the quarter, with higher injury and accident rates adding an operational concern that deserves attention as train weight, length and network activity increase.
• Agreements with Union Pacific Corporation could expand Canadian National Railway’s access to Mexico and protect customer competition if the Union Pacific Corporation and Norfolk Southern Corporation merger proceeds.
• The slightly negative stock reaction suggests investors welcomed the upgraded guidance but remain focused on the operating ratio, cost inflation and whether the railway can produce stronger margin expansion during the second half.