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Canadian National Railway (NYSE:CNI)

Q1 2011 Earnings Call

April 26, 2011 4:30 pm ET

Executives

Jean-Jacques Ruest - Chief Marketing Officer and Executive Vice President

Keith Creel - Chief Operating Officer and Executive Vice President

Claude Mongeau - Chief Executive Officer, President, Director, Chairman of Donations & Sponsorships Committee and Member of Strategic Planning Committee

Luc Jobin - Chief Financial Officer and Executive Vice-president

Robert Noorigian - Vice President of Investor Relations

Analysts

Walter Spracklin - RBC Capital Markets, LLC

William Greene - Morgan Stanley

Allison Landry - Crédit Suisse AG

Garrett Chase - Barclays Capital

David Tyerman - Canaccord Genuity

Jacob Bout - CIBC World Markets Inc.

Steven Sherowski - BofA Merrill Lynch

Christian Wetherbee - Citigroup Inc

Michael Weinz

Benoit Poirier - Desjardins Securities Inc.

Elliott Waller - Jefferies & Company, Inc.

Scott Group - Wolfe Trahan & Co.

Unknown Analyst -

Matthew Troy - Susquehanna Financial Group, LLLP

David Newman - National Bank

Cherilyn Radbourne - TD Newcrest Capital Inc.

Operator

I would like to remind you that today's remarks contain forward-looking statements within the meaning of applicable securities laws. Such statements are based on assumptions that may not materialize and are subject to risks described in CN's first quarter 2011 financial results press release and analyst presentation documents that can be found on CN's website. As such, actual results could differ materially. Reconciliation for any non-GAAP measures are also posted on CN's website at www.cn.ca.

Welcome to CN's First Quarter 2011 Financial Results Conference Call. I would now like to turn the meeting over to Mr. Robert Noorigian, Vice President, Investor Relations. Ladies and gentlemen, Mr. Noorigian.

Robert Noorigian

Hi, good afternoon. Thank you for joining us for CN's first quarter 2011 conference call. I'd like to remind you about the comments that have already been made regarding the forward-looking statements and the information that you can find on the Web. With me today is Claude Mongeau, CN's President and Chief Executive Officer; Luc Jobin, Executive Vice President and Chief Financial Officer; Mr. Keith Creel, Executive Vice President, Chief Operating Officer; J.J. Ruest, Executive Vice President and Chief Marketing Officer.

And after the presentation, as we've mentioned a number of times, we'll be taking questions from all of the participants or a number of the participants that are listening.

[Operator Instructions]

With that, it's now my pleasure to introduce Claude Mongeau, CN's President and Chief Executive Officer.

Claude Mongeau

Thank you, Bob, and thank you, all, for joining us for our first quarter call. I think it's a very good set of results that we want to discuss with you. We've obviously had a challenging environment to deal with during the winter. But our level of preparation and our focus on execution really put us in good stead. I think, as you will see, when you hear some of the details from Keith, we were able to maintain a very good service overall and continue to make progress in terms of running a solid railroad for our customers and actually did well from an efficiency standpoint. If you step back and look at it with enough perspective, most of our metrics are better than where we were in 2009. So solid operating performance, continued focus on engaging our customers. J.J. will report on some of that in more detail, but really, I'm very pleased with the growth that we've been able to achieve across all of the commodity groups.

So overall, 9% revenue growth, if I look at it on a constant-currency basis. The solid efficiency allowing us to deliver a 69% operating ratio in a tough winter. Good EPS growth, CAD $0.90 on an adjusted basis, CAD $0.55 more if you add the gain that we made on the sale of a corridor here in Toronto. And solid, solid performance in terms of the free cash flow. Luc will give you some more detail, but -- to be able to deliver solid earnings, but also monetization of the corridor for just under CAD $300 million once again this year, is testament to our focus on all levers of value creation. So overall, I'm very, very pleased with the first quarter. It's a solid, solid start to the year, and we believe that we have a solid -- a potential to continue to deliver solid shareholder value throughout the year.

With that, I'll let for Keith to give you some details on our operation.

Keith Creel

Okay, thanks, Claude. As you said, first quarter was certainly a solid start for 2011. Granted, there's always room for improvement, but overall, I'm very pleased with the way our operating team delivered on service and productivity for us during what was by most objective measures clearly a tough winter. As you're aware, well before the snow fell and the cold weather set in, we identified many of the unique challenges that winter presents, and we immediately began to act on specific actions and initiatives with an objective to mitigate those challenges during the winter operation. In summary, investment, prior planning, execution, all key cornerstones for our success. I think the financials will give you a pretty good indication of how successful we were in our effort. But let's turn to slide -- next slide to drill down a bit more detail.

As all of you know, anyone that's associated with railroading, railroading's an outdoor sport that winter brings broad new challenges to, especially with extreme cold temperatures and heavy snowfall. Extreme cold temperatures historically meant we were forced to run shorter trains, which drives more train starts, consumes more assets, be they people, cars or locomotives, and equates to more train needs and mainline capacity consumption. Extreme cold temperatures and heavy snowfall typically means more mechanical failures and associated congestion on the line of [ph] road, making it extremely hard to keep your mainlines fluid. And finally, extreme cold temperatures and heavy snowfall typically makes it challenging to process cars efficiently to our terminals, for cars will build up quickly, resulting in not only congested yard operations and increased cost but mainline operations as well.

So accordingly, our winter operating plan had three primary objectives: we're going to maintain train links, maintain train speed and keep the yards processing efficiently. As you can see from the GTMs per train mile chart, we were able to maintain train size quite well and, in fact, increase it over first quarter of last year, which was by most comparisons a mild winter. We did this through our continued deployment of distributed power, which we've talked to you about often in previous calls. By and large is an example of our 50 trains per day operated DP this past winter versus about 15 same quarter last year. And we did it through our ongoing roughshod [ph] infrastructure investment and, of course, our intense focus on equipment and plant quality. You can also see from the terminal dwell charts, we're successful in our efforts to keep the yards clear and processing efficiently. We did this through our focus on our operating plan, continual right-sizing of our car fleet and execution of our snow-fighting recovery plans, to name a few of the key areas. Our results on the other velocity and productivity metrics are, by and large, flat to mostly down year-over-year against the backdrop of higher volumes and much tougher winter conditions compared to first quarter of last year.

So I'd say, overall, winter planning and execution efforts delivered very respectable results. But what's most important to me or more important than what we've done is what we still have left to do as we prepare for 2011, 2012 winter. We've got lessons that we have identified that we'll convert to opportunities for the next bout of winter, and rest assured, internally, we started down that path. Finally, as we transition out of winter, I'm pleased to share with you, Claude, and for those of you on the call that the railroad is running extremely well so far second quarter of this year.

Now let's talk about going forward. Let's talk about the initiatives. Most of you who know this company well know that we're always pushing to manage expenses, improve productivity and accelerate our assets, all against a foundation of safety. You can see a number these operational initiatives listed on the chart in front of you. We've spoken about many of them before. But let me speak for a moment on the exciting things we're doing externally on the service front with our customers and the ways we're engaging internally with our employees. Under Claude's leadership and working closely with J.J.'s team, we continue to reach out to customers and supply chain partners to establish mutually beneficial service-level agreements. These innovative agreements allow us to jointly measure key performance indicators all along the supply chain and develop improvement plans based on communication, hard facts and mutual respect and benefit. Now I was recently asked, "How much are these agreements going to cost you?" My answer is pretty simple. They don't cost us anything. The fact they help us improve reliability and velocity while connecting with our customers in positive ways. With our precision railroading mindset, we translate these improvements into higher asset utilization, fewer surprises, both internally for CN and externally for our supply-chain partners and customers, and as a result, lower costs. So, J.J., I love it. We're going to keep selling [ph] customers up.

On the employee front, we work every day to engage with our people through direct discussion and entering training safety summits and our RTC excellent initiatives, which is showing our employees that we're listening to them and acting on their suggestions in concrete ways. We continue to hire a significant number of new employees to deal with attrition in business, close to 1,000 year-to-date. Where we're investing quality time on the front end to ensure we get the right folks, and then, once we secure them, we're taking steps to ensure we bring them into the CN family in a professional, welcoming way with an objective of making them safe and productive as quickly as possible. And obviously, in line with the volume growth -- effectively, that we're dealing with, we have to make sure we stay diligent and continue to stay ahead of our T&E demands, hiring to match the volume where it's coming to us on different parts of the region. So this franchise has the infrastructure, we've got the plan, the assets and the people to continue to improve service while we grow in a controlled manner. And with our precision railroading mindset and about 21,000 of the best railroaders in this business, I don't see that changing any time soon.

Now I'll turn it over to J.J., who will tell you what he and his team has accomplished in the marketplace.

Jean-Jacques Ruest

All right, thank you, Keith. And I'd like to welcome the many customers who often join us on the webcast or webcast replay. The first quarter revenue increased by 6% or 9% on a FX-adjusted basis. Our revenue ton-mile volume, the RTM, increased about 5%. Our financial model [ph] established a company RTM record for a winter. We ended the quarter with a backlog in some market, namely Canadian coal, pulp, finished vehicle, and non-ferrous concentrate. However, having said that, the first quarter RTM volume for CN was a company record for wintertime. Hats off to Keith's team to do this in very adverse condition. Our consumers have appreciated and noticed the result. Same-store price increased 4%, in line with our service plan. Q2 chart [ph] revenue increased about 2%. The mix was about neutral, and exchange reduced our revenue by about 3%.

Now let's look at our first quarter in detail. I'm on Page 9, and all my revenue comments will be on a FX-adjusted basis. Starting with petroleum and chemical, the revenue was up 10%, the RTM was up 5%. Industrial production is what drives chemical plant operating rates. Those were in the range of 90%. We also had increased shipment of refined products, such as diesel and jet fuel.

Metals and minerals revenue, excluding of iron ore, was up 4%, and RTM was up 1%. Increased drilling activities resulted in strong performance in oil and gas material. Non-ferrous metals declined because of two of our smelters had permanent closure last year. However, nickel and zinc concentrate volume are on the rise on the CN network. Iron ore was up 2% on revenue but down 22,000 car load. One of the mines switched production grade and used another dock, not on CN. However, we redeployed our fleet of rail carts with all [ph] rail winter program, and we ended the quarter with an overall RTM up 1% from 2010 for iron ore.

Forest product revenue was up 8%, RTM down 1%. Chinese demand for lumber continue rising. Lumber shipment to export terminal, that is, to the West Coast, were almost up 60%. Pulp mill continue to operate at very high production rate and record price. But carloads were somewhat limited by availability of our box car supply. Strong European demand continued to increase our West Coast wood pellet carload export.

Automotive Revenue was up 5%, and the RTM was up 1%. Many of the CN served plant enjoyed larger production increase in the first quarter.

Our coal revenue was up 10%, the RTM was up 7%. Our U.S. coal franchise had a historical high for first quarter in RTM volume, with strong offshore export via the Gulf Coast terminal that we serve. However, we did account through difficult terminal supply chain operating condition in Canada, which reduced Canadian coal and petrol volume below the quarter of last year. Grain and fertilizer revenue were up 12%, RTM in that segment was up 7%. We leveraged the winter challenge to showcase our service to Canpotex and helped them set a first quarter company record on tonnage export. Whole grain markets supported very strong export of canola over the BC port, and our corn and soybean export over Louisiana terminal also did very well.

Intermodal. Intermodal overseas revenue was up 13%, the RTM was up 6%. The Intermodal domestic revenue was also up 13% as well, but the RTM was up 8%. Both our overseas and domestic customers definitely experienced the best winter service in many years, thanks to our level of service agreement with the waterfront terminal that Keith referred to earlier and the fine-tuning of our domestic services.

In overseas, CN continued to outpace the market in Vancouver. In domestic, our service focus and our capital investment in the temperature-sensitive service, like grocery and consumer goods, is yielding very strong growth in the long-haul market.

Finally, other revenue were up 4%. The primary driver of that was our stronger bulk export via the Louisiana bulk terminal. We also had higher finished vehicle activities in our Autoport facilities, and that was partly offset by lower freight forwarding business.

Now let's look at the review market by market. Let's go on Page 10 and cover intermodal. But before I get into intermodal, I'd like to make a few comments about oil price. High oil prices result and caused headwinds for railroad, including CN. But for CN, it is also a midterm tailwind to grow our book of business. Our universally-applied fuel surcharge tariff are cost revenue-neutral to fluctuating oil price after the impact of the 2-month lag. Because of CN fuel efficiencies, we have the industry-leading, most cost-effective fuel surcharge tariff. For example, in April, at USD $0.32 per mile, CN had the best mileage base tariff of the rail industry. And it is even more compelling when you compare that with the long-haul trucking cost fuel surcharge program. Our outlook for the domestic intermodal business is we believe we would be improving our volume in the consumer and manufacturing goods segments. We're also investing in roughly 1,000 containers, mostly insulated containers, to renew and expand our domestic container fleet and grow the long-haul segment.

On the overseas market, we have an ever-growing franchise that produce a lot of container export to the Asian economies. We generate a lot of export of western pulp, export of BC lumber, export of private [ph] specialty crop and a fast-growing intermodal ramp in Prince George, BC. We are also welcoming new shipping line services in 2011. Rupert [Prince Rupert, BC] will see the addition of two new weekly services before the next peak season, we also have one new vessel service in Vancouver. Vancouver import and export growth also looks positive due to the CN superior supply-chain operation.

Bulk outlook on Page 11. On coal, export met coal [metallurgical coal] as well as export terminal coal is strong and steady. We are working with a Rupert coal terminal to develop [ph] a capacity pinch point. This will pay dividends sometime later this year, and especially in 2012. We are working a backlog of coal and grain on the Canadian side. We concluded our service demonstration with Canpotex, and now we'll be focusing our effort on the North American potash in the coming quarter with our North American customers.

On Page 12, manufacturing outlook. The North American steel operating rates are about 75%. The chemical plant are holding steady at 90%, and our iron ore car loading are now flat versus the quarter of last year, the mine came back by using the CN network. Condensate will continue to be eroded by the new pipeline to Southern Light. Lumber and pulp export will remain very strong. Asia is driving increased carload to the BC port. Non-Ferrous metal will stay down because of the shutdown of the two smelters, but the non-ferrous concentrate will continue to grow in our line.

All in all, the volume looks positive for 2011. We have sustainable same-store price, sustainable fuel surcharge program and our engagement with our customers and our supply chain partners will help us help them win in their own market. Luc?

Luc Jobin

Okay, thanks, J.J., and good afternoon, everyone. I'm pleased to report on CN's financial performance for the first quarter of 2011. Let me cover the highlights starting on Page 14. First, as J.J. mentioned, our performance was strong across all business sectors. Our RTMs went up by 5%, while revenues for the first quarter came in just shy of CAD $2.1 billion. And that's up 6%, or 9% on a constant-currency basis, versus last year. Now this was achieved in the midst of a very demanding environment, and so we are pleased with the operating income generated of CAD $645 million, up 7% versus last year. We also completed the disposal of a segment of the Kingston subdivision during the quarter, which resulted in a gain of CAD $288 million. Now this is part of our ongoing strategy to monetize non-core assets as we reposition them to their highest and best use, and in the result, we generate shareholder value and free cash flow. On the strength of our operating performance, and this gain translated into a net income of CAD $668 million, up 31% versus last year. The reported diluted EPS, therefore, stood at CAD $1.45, and that's up 34%. Excluding the rail at the line sub-division sales recorded in each of 2010 and 2011, our adjusted diluted EPS in the first quarter of the year stood at CAD $0.90. That's a 12.5% increase over 2010. Now to put these results in perspective, keep in mind that we faced in the quarter several headwinds, not to mention weather. From a currency standpoint, the strength of the Canadian dollar reduced our EPS by some CAD $0.02, while the significant increase in oil prices also caused an adverse fuel lag of roughly CAD $0.05 on our first quarter EPS. So excluding these two items, actually our EPS is up 21%. Quite impressive for a rough winter. The operating ratio and turns stood at 69%, and that's an improvement of 30 basis point versus 2010. This highlights the industry-leading performance delivered by our railroading team, as they balanced protecting service for our customers versus managing costs tightly while keeping operational metrics in check.

Let's turn to Page 15 for the expenses, the operating expenses, now. Expenses came in slightly above CAD $1.4 billion, and that's 6% higher than last year and 9% more on a constant-currency basis. The majority of the increase was attributable to fuel, up 36%, mostly due to higher prices. The WTI averaged some CAD $94 in the quarter versus CAD $79 in 2010. We still managed to squeeze out a 1% improvement in fuel productivity.

Meanwhile, purchased services and material increased by 14% as we incurred higher repairs and maintenance, utilities and snow removal costs in dealing with the harsh winter conditions. Labor costs were up 3%, higher than last year, as a result mostly of wage inflation and more employees on the payroll. This was partly offset by more capital projects and lower benefit costs in the quarter.

Our casualty and other expenses were lower than last year by some 26%, but pretty well on target for the year. Last year, we had higher expenses, mostly due to an adjustment to our personal injury claims liability in Canada and some higher G&A costs.

Now let's turn to free cash flow on the next page. Free cash flow, we continue to generate some very solid results. In fact, we produced CAD $445 million of free cash flow in the quarter. That's slightly lower than last year by some CAD $48 million as we paid CAD $138 million of cash taxes in the quarter, and that's CAD $113 million more than last year. We also invested CAD $220 million in CapEx from our $1.7 billion program, and this was $86 million ahead of last year. We've increased also our dividends by some 20% earlier this year, which was our 15th consecutive annual increase. We also achieved 30% of our CAD $16.5 million stock buyback program in the first quarter. Our balance sheet is strong, and our net debt position stood just above CAD $5.3 billion.

Now, in closing, let me now turn and address the 2011 financial outlook. First, we continue to see a gradual economic recovery unfolding. We anticipate good fundamental demand for most of our business segments as we continue to work with our customers to help them maximize their growth opportunities. This should translate into solid single-digit carload growth for the year, and we also maintain our pricing policy at above inflation. Meanwhile, Keith and the team continue to have a full pipeline of productivity initiatives. Let me remind you that we do have some headwinds to contend with in 2011, a few of which are the continued strength of the Canadian dollar versus the U.S. greenback, some higher depreciation costs resulting from our depreciation studies, rising fuel costs and higher cash taxes. Now it's early in the year, and while there's still some volatility around the global pace of recovery, we, however, on the basis of our solid performance in the first quarter and a positive outlook for continued improvement in economic conditions for the balance of the year, are revising upwards our 2011 guidance. From our original guidance of aiming for double-digit growth in adjusted EPS versus last year, we now expect EPS growth of up to 15% in 2011 on an adjusted basis over the CAD $4.20 achieved in 2010. In addition, based on our solid results for the first quarter, including the proceeds from the sale of our Kingston subdivision and our higher earnings forecast for the balance of the year, we're raising our free cash flow guidance from CAD $850 million to CAD $1.2 billion. I should mention as well that this amount is net of CAD $200 million that we're setting aside for potential additional voluntary pension contributions should we deem this desirable as we reassess the situation based on conditions which will prevail in the fourth quarter of the year.

So as you can see, this team maintains a very strong shareholder value focus at all times. On that note, back to you, Claude.

Claude Mongeau

Well, thank you. As you can see, there's a lot to be proud in those results. And I think we have solid momentum going our way in the marketplace at the moment, solid focus on execution in terms of running an efficient railroad. As Keith mentioned, we're into Q2, and all of our metrics are improving, and that's despite the significant volume growth. So in terms of 2011, I feel very good about this revised guidance and our ability to deliver on it. And more broadly, in terms of our strategic agenda, I am very pleased at how this team of railroaders' coming together. Our initiatives are sound and they're working, they are clicking, I would say. Our customer engagement, our innovation, our supply-chain collaboration, all with an eye to maintain operational and service excellence, are delivering clear results. The proof points are in front of you, and we look forward to continue on this momentum for the balance of the year and well into the future.

With that, we will take your questions.

Question-and-Answer Session

Operator

[Operator Instructions]

The first question is from Walter Spracklin, RBC Capital Markets.

Walter Spracklin - RBC Capital Markets, LLC

Thanks so much. Well, good stuff. It sounds like you're limiting us to 1 question here, so I'll try to make it a good 1. It sounds like you had -- your volume growth did have some market share gains. You guys did a great job in the quarter on managing the winter weather. That led to some share gains. I don't know if, J.J., you can speak to this or -- is there any sense that on a go-forward basis, this is going to help you either -- is there any stickiness to some of those volume gains? And how does that help -- when you talk to your customers about the tremendous job you did do during the winter, how does that allow you to hold on to some of those share gains?

Jean-Jacques Ruest

I think, if you look at some segments, for example, if you're looking at the model, the stickiness of what we've done has started to really appear in the third quarter last year, so started way before the winter. Same thing in domestic intermodal, we started in the fourth quarter of last year. I think we had, also, a very good run last fall on grain. So yes, we're feeling positive that the model we put together as of last spring is actually generating solid result quarter-by-quarter, winter or not. And we believe that we have a good thing going. At least that's what the customer tell us.

Walter Spracklin - RBC Capital Markets, LLC

Is that why you got some of that Rupert business up there? Is that up to 500,000 now with the 2 new weekly vessels that you're adding?

Jean-Jacques Ruest

I think, again, when you look at the line, if you're looking at import and export. I did make some comment how strong the export is. For example, for a product coming out of northern BC, pulp, lumber and some specialty crop from the prairies. And it is attractive for a line in Asia to capitalize on that market. Right now, that market is underserved. There's a shortage of containers for export of BC and Alberta. And it is 1 of the things that is very appealing, what we've been able to become [ph] as a franchise. But also, obviously, our service to the East and how we work very closely with the terminal operator to move these boxes not only on the railroad, but, as Keith mentioned, as soon as they hit the dock, we start the clock.

Walter Spracklin - RBC Capital Markets, LLC

Great. Thank you very much.

Claude Mongeau

Yes, thank you, Walter. I would just add that we are indeed helping our customers win in the marketplace. So we're helping them succeed. And we get a lot of interest, a lot of people are interested in trying to understand and feel out what this customer engagement of CN is all about. And they know we have a great product. They know about the velocity. They know about our resiliency and our focus on serving them day in, day out. And it is paying, as J.J. said, pretty much across the board, dividends that will stick with us for a long time.

Operator

Thank you. The following question is from Cherilyn Radbourne from TD Newcrest.

Cherilyn Radbourne - TD Newcrest Capital Inc.

Thanks very much. I want to ask a question with respect to, I guess what I'd call employee engagement. Claude, when you started in the role of CEO, you spent a lot of time with customers, and I guess historically CN's had a reputation of difficult relations with those customers and employees. So I just wonder if you could talk about whether you're doing anything differently from an employee perspective and what implications that may have for the labor negotiations that you've got coming up later this year.

Claude Mongeau

Yes. Well, I think it's a natural evolution. We've made an awful lot of change in the way we manage our business. And obviously, as I said before, this impacted our customers. We've also made a lot of changes in the way we operate, and that impacted our employees. But we're -- from where we sit now, we have an opportunity to take our game to the next level. There's a tremendous amount of attrition in our workforce which will allow us to bring in new railroaders that are stepping in to replace those who have had a great career with us. And we are doing everything to make them feel part of the success of CN. And they feel it, and it's working. And we're very pleased we were able to do 2 collective agreements recently with our -- in the fall with our running trains and this winter with our CW mechanical and clerical employees, and we intend to continue on this path going forward.

Cherilyn Radbourne - TD Newcrest Capital Inc.

Thank you. That's my 1.

Operator

Thank you. The following question is from Bill Greene, Morgan Stanley.

William Greene - Morgan Stanley

J.J., I'm wondering if you can talk a little bit about the market on the intermodal side relative to the opportunity to take off the highway. The U.S. guys, I think, are a little bit behind you in this, perhaps, in that they sort of talked about an addressable market being measured in millions of trucks that can come off the highway. How do you think where the opportunity for you -- or is the length of haul sort of something that you've already captured that, and now it's just organic growth?

Jean-Jacques Ruest

There's still business to be gained in the length of the haul. When you look at the distance between, say, Eastern Canada, Toronto, Montréal and Alberta, which is a major corridor, this is really where railroad should be king, and especially the price of oil. Same thing from the U.S. Midwest, Ohio, going west, we do that typically with our DRP [ph] program, meaning using 40-foot containers that needs to go back to back to West Coast anyway to eventually get back to Asia. And we do have -- the traction that we have in the domestic intermodal is more than just organic growth. It's organic growth plus some gain with for-the-road [ph]. Some of time we do it with our trucking partners, sometime we do it directly with our own retail product.

William Greene - Morgan Stanley

How big would you say that market is?

Jean-Jacques Ruest

I think we -- time will tell. Because we -- I think, when you look at the cost of fuel, when you look at the issue of drivers, when you look at the imbalance, the freight wants to go west and it's not really coming back east. And we could do that without the imbalance with our DRP program of overseas box. I think we have quite a bit of a good run to go, and we'll see how far that could be. But...

William Greene - Morgan Stanley

But you've never talked about a number of trucks that you think you could take off the highway, et cetera?

Jean-Jacques Ruest

No.

William Greene - Morgan Stanley

All right. Thank you.

Operator

Thank you. The following question is from Jacob Bout, CIBC.

Jacob Bout - CIBC World Markets Inc.

Can you talk a little bit about the flooding that you've seen so far this quarter, what type of impact you're expecting there?

Keith Creel

Well, I can tell you we have not had any significant impact to date. We have had some high-water situation or conditions between Winnipeg and Superior that we've had to mitigate -- nothing that's taken us out of service for any significant amount of time. In fact, in that corridor, we're helping some of our counterparts to navigate some of their trains over corridors where they do not have access. South of us, south of Chicago, we are experiencing, with the recent huge amount of rain that -- we've all gone through some flooding. But to this point, we've had some lines, again, impacted, but as far as our core routes, we still have access across our network. So no material impact to CN, and in fact, we're able to help some of our counterparts, as I mentioned earlier.

Claude Mongeau

Thank you, Jacob.

Operator

Thank you. The following question is from Gary Chase of Barclays Capital.

Garrett Chase - Barclays Capital

Wanted to see if I could just quickly follow up on a comment that you made, Luc, in your prepared remarks about the labor expense, which came in a decent bit better than we were expecting. You mentioned reduced benefit payments. I don't see anything in the pension expense that would be material from your disclosure, so could you elaborate a little bit on that? And then just more importantly, is this -- is the traction you experienced in the quarter likely to continue as you roll through the year?

Luc Jobin

Yes. In terms of the benefit cost, there was a combination of certain -- not just the pension, but other benefit elements. But on the pension, we do have a slightly better situation than we expected, and we had a pension income in the order of CAD $20 million in the quarter, which I do expect to be the run rate for the balance of the year. So that's 1 component of that, and the other component, as I said, is a mixture of different things. In terms of the overall labor and fringe benefit cost for the year, I would expect it to be higher. As we do continue to have -- we recruit and increase the employee count to deal with both issues of attrition as well as hiring and training folks ahead of time to make sure that we have them productive to meet the increased demand. So I would expect the labor and fringe to run higher than this on an ongoing basis through the year.

Garrett Chase - Barclays Capital

When you say higher, you mean in terms of year-on-year growth, right?

Luc Jobin

Yes, that's correct.

Garrett Chase - Barclays Capital

Thanks, guys.

Claude Mongeau

Thank you.

Operator

Thank you. The following question is from Tom Wadewitz, JPMorgan.

Michael Weinz

It's Michael Weinz in for Tom this afternoon. Let's see. Just following up on the headcount question there and kind of leading into capacity. How should we think about sequential head count from the level of 22,304 employees that you put up in first quarter? And what's your view of capacity in the network and how much room you have to expand before you have any constraint there aside from head count?

Claude Mongeau

Let me tackle the first part of the question. In terms of the total employee base, we were 3.8% up quarter-on-quarter. And on a sequential basis, we were up about 1%, from -- more importantly, from a T&E standpoint, quarter-to-quarter we were up 5%, which is roughly in line with the RTM growth. And on a sequential basis, we were actually up around 7%. So that's just the body count. In terms of capacity, I'll pass it over to Keith.

Keith Creel

Overall, as far as capacity, our story's not changed. We are not experiencing any huge constraints or demands on our physical plant. Certainly, we do have areas that are more used than they have been in the past, which is a good thing. We're sweating those assets. We continue to invest strategically. Where we see noise in the system, where we see an opportunity to improve productivity and asset turns, train speed, et cetera, we invest. And those investments are paying dividends for us. All of our major yards continue to be very fluid, even in the dead of winter, which should tell you it would be quite a proxy for what capacity is still left, especially in non-winter operating months.

Jean-Jacques Ruest

I would just add to this. We are working hard despite our supply chain approach to create capacity from a supply chain standpoint end-to-end. A very good example is what we're doing in coal. We have a lot of coal demand, we have an opportunity to move more coal. CN has a lot of opportunity to handle that business. But we're facing waterfront capacity bottlenecks, and we are addressing them in a supply-chain manner with our partners at RTI [ph], for instance. We have had what we call at CN a proverbial scrum around this issue to make sure that we understood what were the bottlenecks, how we could get throughput at really a terminal to increase. And I'm pleased to report, we -- the month of March was a record amount of coal tonnage for CN in our history. And April so far is targeting to be about 10% higher, because not only CN, but also how we come together with RTI is allowing us to get a higher level of capacity. So we're doing this in coal, we're doing this with our terminal partners on the West Coast, for instance, for intermodal, in preparation for what we believe will be a very strong fall peak. And we feel good about the capacity of our railroad and are working with our partners to create end-to-end supply-chain capacity.

Michael Weinz

Yes, that's great color. Just for a clarification on the head count comment earlier. How should we think about head count going forward, though? Are you already at levels that -- you have the employees in the training programs ready for further vine growth in the year? Or would you have to have a step function with new hiring later in the year to handle more volume?

Jean-Jacques Ruest

We want to continue to hire ahead of time to be able to handle the business that's coming our way. And we've done this consistently, and it's put us in good stead. So we want to continue to do that, and as long as we see strong demand going forward, we'll make sure we don't have crew shortages. The good news is we have enough attrition that if we are wrong, it's going to be wrong for a couple of months. Because we can always dial down on hiring and wait for attrition to fix and put it back into balance.

Michael Weinz

All right. Great. Thank you very much. That's great color.

Jean-Jacques Ruest

Thank you.

Operator

Following question is from David Newman, Cormark Securities.

David Newman - National Bank

Just a quick question on the J. It's been some time since we've had an update. Where do you stand right now on the sort of the terminal year rationalization? I think at 1 point it was kind of ticketed to pay for itself. Some of the consolidation that you've had there, mitigation I see announced another 1 last week. And are you seeing any metrics across the U.S. system where you're seeing U.S. car miles per day improve?

Claude Mongeau

I'll let Keith comment, because the J was actually a big asset for us this winter. We've started to see the benefit in the middle of the weather issues. But I'm very, very pleased with the way the J integration is coming, and those connections -- actually, I was visiting them a week and a half ago -- are being constructed, and I can't wait to be able to run trains across those connections, to get the fluidity and get the transit time advantage. But Keith, you want to add to the terminal and how you would actually use the J through the winter?

Keith Creel

I can say this -- I'll just give you a comparison. We had 1 of the largest snowfalls ever in February in Chicago, which effectively crippled the Midwest. With our ability to get in and around Chicago, get through Chicago on our own route, controlling our own destiny, effectively, we were out for about 12 or 13 hours. We were able to, using the J, using the reduced stress on our terminals, recover from that quite quickly. So short term, lot of capacity there. Long term, as we rationalize, we get these connections done. We convert some of the existing traffic that still runs through the inner city to that outer arc. You'll see additional step benefits. But certainly, it's paying dividends and exceeding my expectations and what I thought we'd be able to do and convert from a productivity standpoint.

David Newman - National Bank

And where do you stand, Keith, in just -- in terms of timelines, in terms of full execution of the plan? And what metrics are you sort of using to track? Are you seeing the U.S. car miles per day go up across the system? Or ultimately, where are we in terms of the full benefits of it?

Keith Creel

Car miles per day is a pretty good proxy, and certainly, not all cars go through Chicago that are in the U.S. region. A large percentage -- we've seen about a 15% improvement. There's still more to be garnered as a result of the terminals. The main terminal that we're going to build in Chicago, that we're retrofitting in Chicago, is Kirk Yard. That's probably 18 to 24 months out before we convert, and once we convert and we get cars out of market into Kirk, you'll see another stepped improvement. The infrastructure improvements with the connections, we're, towards the end of this year, beginning of next year, having all those done so that we can turn out high rates of speed getting onto the J so that we can go through the communities, mitigating adverse impact to those communities and go in and through Joliet Yard. That track, effectively, is done. We're getting that signaled up now, so that speed will increase. And then finally, the large project that Claude talked about down at Madison, third, fourth quarter this year we'll be transversing through there. So it's very, very, very close. You can see the light at the end of the tunnel. But more to come as we convert the yard operations.

David Newman - National Bank

Excellent. Thanks, gentlemen.

Claude Mongeau

Thank you, David.

Operator

Thank you. The following question is from Matt Troy of Susquehanna.

Matthew Troy - Susquehanna Financial Group, LLLP

Yes, thanks. I wanted to ask a question about export coal. It's obviously a topic du jour for the U.S. rails. But was interested in your comments about the export opportunity out of Rupert. We've all seen that place when we took that trip you were kind enough to bring us on a few years ago. Well, I would just ask, what are the bottlenecks? It's a pretty rural place. What, in your control, in terms of bringing the capacity up versus RTI at Ridley? And what do you see -- if you could move all the coal that you could, what kind of tonnage could you see, long term, through that facility? And then as a side note, is Vancouver a growing opportunity as well? Thanks.

Jean-Jacques Ruest

Thank you, Matt. Both of them are growing fortunately. But if we start with Rupert, our work with the coal terminal is really to find ways to make sure the terminal always has coal on hand. That with the train, the way we get that is actually reduced their workload inside of terminal. Then when they finish with a set, then we pull the set out. Currently, they're better handled. They've been more efficient when they handle steel sets. We try to give them more steel sets where and when we can. So we do everything we can to try to make them more efficient. However, RTI does have a plan to help themselves through capital investment. First thing they're going to do, they're going to change the -- they're going to modify their rotary dumper in December of this year. What that will do is they will then have increased unload, especially with aluminum as of 2012. Next step they want to do also, they want to spend some money on the reclaimer or cycle reclaimer, which also will increase the capacity. And eventually, if they have the funding and the business is then robust, they also have an option on a piece of land right behind them to increase their footprint, which eventually could make them to make [indiscernible] the terminal rates today is what? Better than 9-million, 10-million-ton terminal. Could become a 12 million, should really be a 25-million-ton terminal in 2 or 3 years if it's run well. And it could do actually more than that if they do exercise that option on that export footprint. In Vancouver, Westshore has some project involving the terminal. In Neptune, the 1 that we serve in North Shore, also is doing some work on their indexer as well as some other work that they've talked to us about that will also increase the capacity of these 2 terminals. What that means for CN is, at Rupert, we can serve all the Canadian coal business coming from BC, coming from Alberta and some of it from Kamloops, and potentially also coming from the PRB.

Matthew Troy - Susquehanna Financial Group, LLLP

Okay. Thank you very much for the specifics.

Operator

Thank you. The following question is from Scott Group, Wolfe Trahan.

Scott Group - Wolfe Trahan & Co.

Thanks. First, J.J., I missed that breakout of pricing fuel and mix. Can you give that again real quick, please?

Jean-Jacques Ruest

Yes, the same-store price was in the range of 4%. The fuel was about 2% increase, and the mix was neutral. And the exchange took away about 3% of revenue.

Scott Group - Wolfe Trahan & Co.

Okay. Great. Thanks. Want to ask about the potash. Is there any way to quantify the benefits you had in the quarter from moving export potash for Canpotex? And then thinking longer term, is there anything you learned from moving that volume? Is there anything you learned that you think could help you as that contract comes up for bid sometime next year?

Jean-Jacques Ruest

Yes. Let me tell you that we were there to step up to help an important potential customer, Canpotex, but also an important supplier in the Canadian supply chain that serves the world. And we did it through the first quarter. I think the main opportunity was our chance to showcase our service and also to showcase to them the value of diversity. When you go through tough times, it pays to have outlets. It pays to have diversity in your supply chain. And there's no surprise that they actually were able to do a record volume in their history at Canpotex. So I think the value will come in the future as Canpotex assesses its option on a go-forward basis.

Scott Group - Wolfe Trahan & Co.

That makes sense. Is there any way to quantify the volume or revenue in the quarter from that Export move?

Jean-Jacques Ruest

It was a nice piece of business. And we ended that in the end of March.

Scott Group - Wolfe Trahan & Co.

Fair enough. Okay. Thanks for the time, guys.

Operator

Thank you. The following question is from Chris Wetherbee of Citigroup.

Christian Wetherbee - Citigroup Inc

Just wanted to touch on pricing a little bit. Looks like the core number was up sequentially, it was a solid number. Just curious to kind of -- your thoughts on pricing as you progress through the quarter here, as you have a tailwind at your back here. Does it seems like you have potential to continue to keep that core number in that kind of 4% range going forward?

Jean-Jacques Ruest

The run rate that we have right now for first quarter is -- we're quite satisfied with it in terms -- it relates to the level of service. It's reasonable, it's sustainable, it's somewhat better than what we had last year, and it's above inflation. So I think it's -- for 4%, it was satisfactory.

Christian Wetherbee - Citigroup Inc

Okay, fair enough. And then 1 quick follow-up, just a clarification. I just wanted to make sure I heard it right. On the casualty line there was an add-back there of about CAD $30 million of pension income in the quarter? I just wanted to make sure I understood that correctly.

Luc Jobin

No. On the casualty and other, really that was -- last year we had an adjustment, which was relating to our workman's comp. So the personal injury liability. So we put through an adjustment, and we also have some higher G&A. So that's what's causing the difference in the casualty and other. With respect to the pension, just to clarify again, this is the change. This is part of the -- a little bit of the favorable change, which offset some of the inflation cost as well as the higher headcount in the quarter. We had some increased pension income versus last year, which was really in the neighborhood of about CAD $4 million or CAD $5 million. So it's not huge, but we did have a CAD $20 million or so pension income in the quarter. So that, along with some other capital projects, we did carry out a few more capital projects than last year. And so that also was a bit of an offset to the increased cost on the labor side.

Christian Wetherbee - Citigroup Inc

Okay. That's very helpful. And just to make sure, going forward, the pension income. Does that just immediately go away in the second quarter? Is there any sense that a piece of that continues going forward?

Luc Jobin

No, that's a pretty good run rate.

Christian Wetherbee - Citigroup Inc

Okay. That's very helpful. Thanks for the time, guys.

Claude Mongeau

Thank you.

Operator

Thank you. The following question is from Ken Hoexter, Bank of America Merrill Lynch.

Steven Sherowski - BofA Merrill Lynch

This is Steve Sherowski in for Ken Hoexter. I was just wondering, you obviously faced a difficult winter, although maybe not as difficult as some of your competitors. I was hoping that you could quantify the impact of weather during the quarter and maybe talk about the lessons learned that you referred to earlier in your opening remarks and whether or not those lessons are more weighted towards infrastructure build-out or primarily process-oriented.

Jean-Jacques Ruest

I'll let Keith comment on what we're focusing on for next year. When it's all said and done, I don't think that it's worth it to quantify the first quarter impact. It was a very difficult winter. I mean, just to give you a few statistics. We have 3x more cold days in this Q1 than the previous quarter. And by that I mean days that are minus 25 or below. And we have 4 to 5x more snow in much of our network across the west. But at the end of the day, there's winter every year. And you take the good and the bad. And we are very pleased that our service stood up and that we were able to maintain operating efficiency throughout the quarter. Keith? In terms of lessons learned for next year.

Keith Creel

Just a couple of or comments. When it comes to infrastructure, huge capital spend. That's not what we're talking about. We're talking about blocking and tackling stuff. There's no silver bullet, but this railroad -- you got a bunch of railroaders that have a passion for operational excellence. And you've got a bunch of railroaders that use very, very efficient IT systems to understand and measure the key components of the way we do our business day in and day out. So we quickly see noise in the system that adversely impacts our velocity, our terminals, et cetera, et cetera. I could talk about it more time than you or I have. But a couple of key things I'll leave is opportunities for us next year, process as well as reliability. And when I say reliability, mechanical reliability with our locomotives, with our cars and even our track. And once again, no silver bullets, but things such as working with locomotive manufacturers to ensure that the DP, which we've deployed across our system, works properly together from a communications standpoint. We did have some issues. There's some learning lessons, marrying up, say, EMD locomotives or GE locomotives. It's not a fault of either the manufacturers, but certainly an opportunity through the year, through experience that we've identified, and we've got it corrected and will be corrected even to a higher degree for next winter. Process-wise, inspections. That's something that we invest heavily in when it comes to broken rails. We do quite a bit of RFD, rail flaw defect protection testing across our network. Our core network, we've invested quite a bit in. We effectively try to do the core network about once every month. From a process standpoint, some of our branch lines, which we feel are in pretty good shape reliability-wise, we did not inspect as much and just as recently, coming out of winter, we had a derailment that I'm certain with the process change, instead of us inspecting it just before winter and after winter, we'll add a couple more frequencies to those type lines, and we'll see a reduction in those type of derailments that adversely impact the network. So in summary, it's not any 1 single thing. It's a list of a multitude of things, but you've got to have the passion. You've got to have the railroads and the knowledge and ability to do something about it and go out and execute it. It's not sexy. It's just what's necessary to be effective in this business.

Steven Sherowski - BofA Merrill Lynch

Okay. Thank you.

Operator

Thank you. The following question is from Jeff Kauffman, Sterne Agee.

Unknown Analyst -

It's actually Consha [ph] in for Jeff. Just had 1 quick question. Are there any supply-chain concerns in the automotive industry? And do you serve any of the affected suppliers?

Claude Mongeau

Yes. We serve all of the major automotive carrier, to a degree. But in particular, GM and Ford. And for sure, with the winter and the success of their business. For sure, there was industry car supply issues during the first quarter, partly winter, partly demand and network issues. But we are -- we stepped up, and I'm pleased to say that it's only 3 weeks into April. We have made significant headway in terms of recovering the vehicles that were on the ground waiting to be loaded. And I think we at CN, and we as an industry, will learn of the issues, and we'll be much better next year.

Unknown Analyst -

Got it. So there shouldn't be any major impact in the second half of the year?

Claude Mongeau

I don't think so. No.

Unknown Analyst -

Got it. That's all I had. Thank you.

Operator

Thank you. The following question is from Chris Ceraso, Credit Suisse.

Allison Landry - Crédit Suisse AG

This is Allison Landry in for Chris. I guess, as a follow-up to the autos question. Toyota and Honda have announced some plant shutdowns in North America, and I believe that you guys serve some of those. Are you aware of that? Are you guys expecting any impact from those shutdowns or even a timing issue?

Jean-Jacques Ruest

We have limited exposure to these 2 producer. As it turns out, GM and Ford are the 2 companies which CN do most business in North America. Also a Nissan plant, and then we also do import rather through coast [ph]. So it just turned out our portfolio is more toward the North American ones. We do have, see an effect up to a point because of the import parts. All in, as Luc [ph] mentioned, we're working through backlog already in the month of March and April, so it's not like we're short of vehicles to move right now. And there may be an impact in the second quarter. It will probably be very small from what we can see. And eventually, if somebody's not producing vehicle, it doesn't mean the consumers will not be buying something. If they buy the product that's maybe in North America, we may end up having second half more gain than what we may have lost in the first half.

Allison Landry - Crédit Suisse AG

Okay. That's helpful. Thank you.

Operator

Thank you. The following question is from Peter Nesvold from Jefferies.

Elliott Waller - Jefferies & Company, Inc.

It's Elliot Waller in for Peter. Quick question. With oil prices moving up, how much conviction do you have that the reported OR improves year-over-year? Or is most of the earnings growth that you're speaking of, is that going to be from the top line? Thanks.

Claude Mongeau

I think we're working on all levers to help us create earnings and create the cash flow. And so it's top line, top line above the rate of economic growth. If the quality of our service and the ability to support market share gain and also solid pricing. And there's no question that in the short term, higher fuel prices is a small headwind as we have fuel lag between what we charge and what we have to pay on the spot market. But it's constructive for the railroad industry going forward. As long as the economy is not impacted, higher fuel prices helps us shine versus the trucking industry, and it should help us accelerate top line growth over time.

Elliott Waller - Jefferies & Company, Inc.

Okay. Very good. Thank you.

Operator

Thank you. The following question is from David Tyerman, Canaccord Genuity.

David Tyerman - Canaccord Genuity

I'd like to take another crack at the head count question. So when we're thinking about modeling for the rest of this year, should we be thinking in terms of flat, 1/2 of RTM growth or full RTM growth? Any insights there, please?

Claude Mongeau

As we've said, we have opportunities to gain productivity in all of the areas where we can make attrition work for us. That means that for most of our trade, if we have attrition, we don't necessarily replace 1 for 1. So you have productivity gains in the mechanical and engineering functions, for instance. In the transportation sector, if you have more coal to move, if you're introducing new trains to handle the business out of Prince Rupert, you have to have train starts and you have to have additional crews. And you'd never want to be short on crews, so we are hiring ahead of the game. And we are hiring 1 for 1. And we expect that the more business growth we have, the more head count will be increased. Overall, though, the pattern that you've seen, that Luc described to you, in terms of the year-over-year growth and head count for the first quarter and the sequential growth, is not a bad -- it's as good a baseline for you to judge in terms of on a go-forward basis.

David Tyerman - Canaccord Genuity

Okay. That's helpful. And just on the tax rate. Any thoughts on the tax rate for the remainder of this year?

Luc Jobin

No, I mean it continues to be around, I'd say, roughly around 29%. I mean, that's a good place to peg it.

David Tyerman - Canaccord Genuity

Okay, thank you.

Operator

Following question is from Benoit Poirier, Desjardin Securities.

Benoit Poirier - Desjardins Securities Inc.

Yes. Thank you very much. You ended the quarter, obviously, with a very solid balance sheet. When we look at your guidance, free cash flow guidance is improving, CapEx is unchanged as well as dividend, and share buyback is well advanced. So what are the opportunities you're looking at right now? And are there things you're waiting to see before making further moves on balance sheet initiative?

Luc Jobin

Yes. I think, I mean, just to restate the way in which we approach that. I mean, first and foremost, we have a CAD $1.7 billion capital plan that is crucial for us to maintain our network, safe and fluid. And so that's the first place that we're going to be investing the free cash, then we'll look at other opportunities if and when they come along. And we're not envisaging to raise the guidance in terms of capital spending. But if the appropriate circumstances warranted it, we could review it. After we've done that, we basically look to dividends. And we've put through, as you know, a 20% dividend increase earlier this year. So we want to maintain a good, solid growth on the dividend front. And last but not least, we typically look at stock buyback programs to round up the picture. So I mean, we have been generating some very good cash. We should keep in mind that we do have -- and we keep an eye on the pension issue, which we have a very large pension liability. So it can be sensitive to discount rates, and that's something that, as I mentioned, that we have set aside a few hundred million dollars [Canadian dollars] to potentially address that. And that's kind of where we are in terms of free cash. The debt position is also -- has been helpful for us, because it's all in U.S., mostly in U.S. currency. So the strength of the Canadian dollar has worked to improve that, and so we keep an eye where the Canadian dollar is going to go, because if it wants to come down a little bit, then we'd see our debt position creep up a little bit. So those are some of the things that we keep in mind as we look at our balance sheet and the use of cash.

Claude Mongeau

And it's a pretty good story, Benoit. I think you put your finger on it. It provides a lot of support for our shareholders to know that we're generating strong cash flow and have a strong balance sheet.

Benoit Poirier - Desjardins Securities Inc.

Okay. Thanks for the time.

Claude Mongeau

You're welcome.

Operator

The following question is from Mike Baudendistel of Stifel, Nicolaus.

Michael Baudendistel

Thank you. Just had a question on the operating metrics. It seems like you're making great progress on the length, kind of despite the weather. And when I think about the last few years, it seems like it was do well in speed where you made kind of the most progress. So I'm just wondering if train length is where you see kind of the most opportunity going forward for improvements in the network? Or is that more a function of mix and other things?

Keith Creel

Train length is definitely an opportunity for us. Any time we can absorb additional business without any additional train starts, you do it through the length and tonnage, which DP is giving us an opportunity to convert. But we've had other opportunities as well that we'll invest in that will add additional abilities to drive our metrics. Roughshod [ph] investments may be assigning extension here, assigning extension there. There's several things still left on our plate, so to speak, that if I had time and resources to convert now, I know that I can drive improvements in those metrics. And once we do that down the line in due time, the noise will pop up in the system and we'll convert those opportunities as well. That's sort of the beauty of the way we approach our business. It's a constant improvement culture. Once we fix 1 issue, another 1 comes up, another opportunity and we address that 1.

Claude Mongeau

The beauty of the team dynamic is that, J.J., sees a lot of demand out there, and he wants us to have more velocity so we can create capacity to handle it. So you can rest assured that, whether it's train length, whether its car velocity, whether it's recovering on our train speed, all of those levers are expected to improve as we come out of winter. And that's the way we're going to be able to grow at low incremental cost.

Michael Baudendistel

Thanks very much.

Claude Mongeau

Okay. Well, thank you very much. It was a good call. Not that we want to cut it short, but we have some Montréal Canadian fans here that want to see the Canadians get back on top. So hope you have a good day. We, as I said, we are very pleased with our results, and we feel we have good momentum. And we look forward to report on strong second quarter results in a couple of months. Thank you very much.

Jean-Jacques Ruest

Thank you all.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.

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