Canadian National (CNI)

The Ratio Fell, the Return Held

Canadian National's FY2025 shows why a railroad's efficiency and its return on capital are read together. Its operating ratio, operating expenses as a share of revenue, fell 150 bps from 63.4% in FY2024. Adjusted ROIC slipped from 13.1% to 13.0%. A lower ratio lifts operating profit, but ROIC rises only if invested capital grows more slowly than that profit.

CN runs a transcontinental Canadian network. It is one of five listed Class I railroads, the top revenue tier of North American freight rail, and one of two that publish both an operating ratio and a ROIC; the ROIC guide uses CN's and Union Pacific's to show how a return is set against the cost of capital. The 13.0% adjusted return (12.9% reported) was earned on average invested capital of C$41,978 million. Earnings figures here are in Canadian dollars unless noted.

On reported FY2025 ratios CN's 61.9% was second lowest of the five, after Union Pacific's 59.8%. On adjusted figures it was third, because Canadian Pacific Kansas City (CPKC) removes more costs from its core adjusted measure. The operating ratio guide shows how the choice of line reorders the table.

Why Intermodal Pulls the Average Down

Intermodal traffic, containers and trailers riding on flat cars with each counted as one carload, is 40.9% of CN's carloads but only 22% of its revenue. The reason is revenue per carload (RPU): an intermodal car earned C$1,742 against the C$3,056 average. CN moved 2,234 thousand intermodal carloads out of 5,458 thousand and took C$3,892 million from them.

Average revenue per carload was flat as reported and down 1% in constant currency; the intermodal figure fell 2%. Freight revenue per revenue ton-mile (RTM, one ton of paying freight moved one mile) was 7.00 Canadian cents, up 1% reported and flat in constant currency. Before setting C$3,056 against CSX's $2,234 or Union Pacific's $2,749, convert the currency and match the unit, per carload or per RTM; CN and CPKC report both. The RPU guide does this with the currency labelled.

Buybacks and Free Cash Flow

Buybacks of C$2,047 million compare with FY2025 free cash flow of C$3,336 million on the company's own non-GAAP definition. They retired 15.25 million shares under the normal course issuer bid (NCIB, the Canadian form of an open-market buyback, capped in shares and time) that ran to 22 January 2026. A new NCIB of up to 24 million shares started on 4 February 2026.

The market value in the box, roughly US$73.4 billion on 10 June 2026, multiplies the 613.5 million shares filed in January by the US$119.62 NYSE close, so the June count may differ.

What to Watch in the Financials

The first test is whether FY2026 holds the 61.9% ratio, or improves on it, without losing volume on the transcontinental corridor.

The second is pricing. Exchange rates and fuel surcharges are moving headline revenue per carload. Management says rate increases partly offset lower fuel surcharges, but it has filed no comparison of pricing against inflation, so the filings do not show whether rates beat cost growth.

Valuation Framework

After operating ratio and return on capital, CN's EV/EBITDA on normalised earnings needs a currency step. EBITDA is in Canadian dollars and the NYSE market value in US dollars. One has to be converted at a stated date, and currency moves alone can shift the multiple. No filed peer EV/EBITDA table exists.

Key Risks

Mix is the first. Intermodal at 40.9% of carloads is mid-pack, below CSX's 48% and Norfolk Southern's 57.7% of units. Faster intermodal growth at C$1,742 a car would dilute the average.

Labour and regulation are the other. Wage settlements and federal policy flow straight into operating expenses, and the FY2025 improvement has to hold against wage rises already locked into collective agreements.

Peer Context

CPKC, the only railroad whose own track runs through Canada, the US and Mexico, reported a core adjusted ratio of 59.9%, with bulk at 36% and intermodal at 18% of freight revenue (FY2025, CAD). Union Pacific published 16.3% adjusted ROIC in US dollars. CSX headlines operating margin and Norfolk Southern omits ROIC; the Railroads Sector Primer works through lining those disclosures up.