Canadian National Railway (CNI) Claude Mongeau on Q4 2015 Results - Earnings Call Transcript

| About: Canadian National (CNI)

Canadian National Railway Co. (NYSE:CNI)

Q4 2015 Earnings Call

January 26, 2016 4:30 pm ET

Executives

Janet Drysdale - Vice President-Investor Relations

Claude Mongeau - President, Chief Executive Officer & Director

Jim Vena - Chief Operating Officer & Executive Vice President

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

Luc Jobin - Chief Financial Officer & Executive Vice President

Unverified Participant

Analysts

Kenneth Scott Hoexter - Bank of America Merrill Lynch

Fadi Chamoun - BMO Capital Markets (Canada)

Walter Spracklin - RBC Dominion Securities, Inc.

Brandon Oglenski - Barclays Capital, Inc.

Cherilyn Radbourne - TD Securities, Inc.

Jason H. Seidl - Cowen & Co. LLC

Chris Wetherbee - Citigroup Global Markets, Inc. (Broker)

Steve Hansen - Raymond James Ltd. (Broker)

Allison M. Landry - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Matt Troy - Nomura Securities International, Inc.

Benoit Poirier - Desjardins Securities, Inc.

Brian P. Ossenbeck - JPMorgan Securities LLC

Bascome Majors - Susquehanna Financial Group LLLP

J. David Scott Vernon - Sanford C. Bernstein & Co. LLC

Turan Quettawala - Scotia Capital, Inc. (Broker)

Operator

Welcome to the CN Fourth Quarter and Full-Year 2015 Financial Results Conference Call. I would now like to turn the meeting over to Janet Drysdale, Vice President, Investor Relations. Ladies and gentlemen, Ms. Drysdale.

Janet Drysdale - Vice President-Investor Relations

Thank you, Eric. Good afternoon, everyone, and thank you for joining us. I would like to remind you of the comments already made regarding forward-looking statements.

And in order to be fair to all to participants, I would like to ask you to please limit yourselves to one question.

With me today is Luc Jobin, our Executive Vice President and Chief Financial Officer; Jim Vena, our Executive Vice President and Chief Operating Officer; and JJ Ruest, our Executive Vice President and Chief Marketing Officer.

I'm also very pleased that our captain has rejoined the team and will be leading today's call with his very attractive new voice. And so more officially, it is my pleasure to turn the call over to CN's President and Chief Executive Officer, Mr. Claude Mongeau.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you, Janet. I'm not sure about the attractive voice, but it sure feels good to be back on the job. I thank you, all, for joining us today. I have to say that CN team did such an outstanding job closing out on the year, and I could not resist coming back to be on this call today with you.

I have a new voice. It is a bit squeaky, but I'm full of energy and I'm looking forward to lead CN to new heights in the future.

Let's talk about the results quickly. We had very strong Q4 result. We had declining volume trends. Our RTMs were down 5%, and our carloads were down 8%. But we continue with our swift response, and we're balancing operational and service excellence in a way that is quite remarkable given the challenges that we face. Jim will give you more details about that.

We ended up delivering a diluted EPS of CAD 1.18, which is up 15% for the quarter given the volume environment. I'm proud of the team and what they were able to achieve. And this capped a very solid 2015 performance. We stayed on top of our key market, chasing carloads in tough markets and keeping with the momentum of the markets that were going better, with a keen eye on keeping price where it should be given our service. JJ will give you more on that.

Our efficiency, if you look at it for the full year, allowed us to deliver an operating ratio which is at a record level 58.2%. It's 3.7 percentage points lower than last year. Now, I would not want to take credit for the impact of lower fuel prices that gave us a full 2 points on a year-over-year basis. If you look at it another way, the guidance that we had given you in 2013 at our Investor Day in Toronto that we would reach a low-60% operating ratio, given what we knew about fuel then, we deliver on that performance.

In overall financial results, Luc will take you through those, but we finished the year with CAD 4.44, that's up 18% on a year-over-year basis, and very solid free cash flow at almost CAD 2.4 billion.

Now, in terms of guidance, we are facing an uncertain environment, but we will share with you constructive guidance, and we have confidence in the future. And this is why our board supported management's recommendation to give our shareholder a bit of a gift for our 20th year anniversary of the IPO. We announced today a 20% increase in our dividend. That reflects our confidence and the strength of our balance sheet, so we are pleased with those results.

I will let the team go over them, and we'll be back with the question-and-answer at the end. Jim, over to you.

Jim Vena - Chief Operating Officer & Executive Vice President

Well, Claude, thank you very much. And listen, thank you very much. Nice to have you back on a full-time basis, so away we go. If we could start on the operating highlights page, so the scorecard in front of you clearly displays the results of how we managed the railroad using a long-term view when necessary and executing at all levels. We take a holistic view of capacity, asset utilization, railroad optimization and safety, and a lot of decisions to be made at the correct level within the operating group.

JJ will provide more details. But in the quarter, we faced a high-single-digit carload drop and a mid-single-digit drop in workload. But even with those challenges, our trains were more efficient. Train velocity increased by 5%. Train productivity, or put another way, the number of cars on a train, increased by 3%. And even more important, our gross ton miles per crew hour worked increased by 3%. Therefore, each train handled more freight, moved faster, and our employees were more efficient in getting them from origin to destination. So a great job by the team on moving the trains.

Looking at the cars, our cars spent less time in our terminals by 15%, and the number of cars switched per hour paid increased by 9%. So, on the cars, we also showed a significant improvement in our productivity and our handling.

We do have 250 stored locomotives. But even with them stored, we're able to use the locomotives that we had and improve our utilization of our fleet by 2% and improve our fuel efficiencies for the year at 2%. So, great results on the use of the locomotives and the fuel efficiency that we work hard every day to improve.

Our engineering and mechanical departments both delivered results in line with the overall results on a productivity and cost efficiency basis which helped us deliver a car velocity improvement of over 16% in the quarter and in the year of 13%. So, if I could summarize that page, very satisfying results in the face of some headwinds that made some of the results difficult to deliver.

If we can just quickly turn to the next page, which is operational and service excellence, our agenda in 2016 does not change. Safety continues to be the foundation of everything we do, and we want to build on the strong result we have in 2015. We will continue to align our resources and react quickly to changing factors and deliver productivity gains across all the operating departments.

So, overall, good quarter, good year in 2015, and we will continue to operate with an end-to-end view and deliver on both operating and service excellence so that JJ can go out there and deliver us every piece of business as possible with this model we have. So JJ, over to you.

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

Thank you, Jim. And Jim, your team have reason to be proud. 57 points of operating ratio the last quarter, that's quite an industry achievement.

So now, turning to the business. Overall, the fourth quarter revenue went down 1% from last year broken down as follow. We had lower volume, and the lower volume reduced our revenue by 6%. 70% of the CN reduced carload was a drop in short-haul iron ore. Coal, crude by rail, frac sand for drilling, and U.S. grain were also very weak.

Overseas intermodal, Canadian grain, manufactured product from natural gas feedstock, automotive, and potash were among the positive business. Same-store price was up 3%. If you remove the Canadian grain cap price reduction, our same-store price would have been about 3.5%. Our gross margin upscaling program also continue to trend upward. The pricing story is resilient.

As crude collapse, the fuel surcharge application reduced our revenue by 6%, but crude also brought down the Canadian dollars towards CAD 0.75 average for the last quarter. Therefore, exchange increased our revenue up by 9%. We do have similar dynamic at play entering 2016.

So now let's turn to some of the fourth quarter highlight. At the same time, I'll cover some outlook for the first part of 2016. The improving U.S. housing start and the end of the Canada-U.S. softwood lumber trade agreement this past October drove our Canadian lumber and panel export, and it also helped our U.S. container import. With such a weak Canadian dollar, the Canadian lumber producers are in very strong position right now.

Record U.S. and Canadian automotive sales produced solid result for our finished vehicle business unit and for the container import into assembly plants. The automotive industry feels constructive about the prospect of vehicle sales for the first half of 2016.

The crude market caused a 32% drop in crude by rail carloads and a drop of 43% in frac sand for drilling. And steel is suffering the cutback of the energy sector capital program. This same segment will be major headwind for this year.

CN Intermodal continued to do well. We had a 5% increase in volume. We had very good growth out of Port Halifax on the East Coast and good growth at the Port of Prince Rupert on the West Coast.

Our grain operation is excellent, and we have the fluidity to meet demand on our network.

North American natural gas is a very competitive feedstock in the world. And our carloads for petrochemical, plastics, nitrogen fertilizer, and natural gas liquid have generally trended upward and that trend should continue.

Coal was in retreat. And in 2016, that will continue. Coal was only 4.5% of our fourth quarter total revenue, the lowest of any railroad.

Looking ahead, you would remember last year, the first quarter volume was still strong, so we expect negative volume against our first quarter 2015 comparable. And that will be mainly in crude by rail, in sand for fracking and in coal, as those were still very strong last year at the same time.

We continue to produce pricing above inflation which, at this point, we would define as 3% inclusive of the impact of the negative Canadian grain cap. We are in position to support those shippers for whom the weak Canadian dollars has become a cost advantage like the manufacturers, like the service industry that are selling into the U.S. market, for example the forest product industry and the Canadian port terminal industry.

In conclusion, CN's strengths are deep. We rely on our portfolio diversity, in our profit margin management, our leading operating ratio, which Jim can produce and his team, our excess capacity in Chicago. And all of these things are very supportive, doing more trade for the long term.

I will now turn it to Luc, who will peel the financial result for you.

Luc Jobin - Chief Financial Officer & Executive Vice President

All right. I'll try to do that. Thanks, JJ. Starting on page 12 of the presentation, I'll summarize first the key financial highlights of our solid fourth quarter performance and then comment on our full-year 2005 (sic) [2015] as well as our guidance for 2016.

As JJ pointed out, revenues were down 1% in the quarter versus last year at just under CAD 3.2 billion. Fuel lag represented a revenue tailwind of CAD 14 million in the quarter, but was CAD 0.02 of EPS lower than last year. While I'm on the subject of fuel lag, you should keep in mind that while we do expect a positive fuel lag in the first quarter this year, it is more likely to be in the CAD 10 million to CAD 20 million range, so much smaller than last year's lag of CAD 60 million favorable in the first quarter.

Operating income was CAD 1.354 billion, up CAD 100 million or 7% versus last year. Our operating ratio in the quarter was 57.2%, and that represents a 350 basis points improvement over last year. Net income stood at CAD 941 million, up 11%, and the diluted EPS reached CAD 1.18, and that's up 15% versus last year. The impact of foreign currency in the quarter was CAD 87 million favorable on net income or CAD 0.11 of EPS.

Turning to page 13, as Jim pointed out, we continue to make significant progress in the quarter in terms of safety, productivity and cost management. Operating expenses were lower than last year by about CAD 135 million or 7% favorable at CAD 1.8 billion. Expressed on a constant currency basis, expenses were actually 15% lower than last year. At this point, I'll refer to the changes in constant currency.

Labor and fringe benefit cost was CAD 608 million. Excluding FX, this is a 5% decrease from last year. Now, this was a product of three elements. First, overall wage cost decreased by 4% versus last year, as wage inflation and lower capital credits were more than offset by lower overtime and a reduction of 7% or 1,700 employees versus last year in our average head count. At the end of the year, we had about 1,150 employees laid off, and we finished 2015 with 9% fewer employees or 2,300 less than last year. The second element was a lower stock-based compensation for CAD 8 million. The third and last element of the labor variance was due to higher pension and fringe benefit expense for CAD 15 million.

Fortunately in 2016, our pension expense situation will improve, and our defined benefit plans are expected to be in a credit position of approximately CAD 120 million. This is primarily due to lower current service and interest costs, as we improve the accuracy of these estimates and the benefit of coming from an increase in the year-end discount rate that moved from 3.87% to 3.99%.

Purchased services and material expenses were CAD 437 million, 8% lower than last year, as we incurred lower third-party cost in the quarter which were partly offset by increased cost for materials.

The fuel expense stood CAD 304 million or 42% lower than last year. Fuel price was 38% lower versus last year, while volume reduction accounted for CAD 19 million betterment, as fuel productivity came in 2% better. Casualty and other costs were CAD 70 million. This is roughly CAD 40 million lower than last year, and for the most part, this is the result of lower accident-related costs versus 2015.

Now, full-year results. We wrapped up 2015 with over CAD 12.6 billion of revenues, a 4% increase. This sets a company record in terms of revenues. Our operating income grew by CAD 642 million or 14% to reach CAD 5.3 billion.

The operating ratio stood at 58.2% versus 61.9% in 2014. And as Claude indicated, that's a 370 basis points improvement and a new all-time record, which is quite an achievement when you consider what we faced in 2014.

I think this really demonstrates how effective the team has been in recalibrating resources to drive efficiency. It's equally important to point out that we achieved this while continuing to balance operational and service excellence in a manner that's consistent with our end-to-end supply chain focus.

Net income was up CAD 371 million or 12% at just over CAD 3.5 billion. This translated into a 14% increase in the reported diluted EPS at CAD 4.39.

Excluding the impact of a major asset sale in 2014 and income tax adjustments in respective years, the adjusted diluted EPS for 2015 stood at CAD 4.44. That's an 18% increase over 2014.

Moving on to free cash flow. For the full-year 2015, our free cash flow generated stood at just under CAD 2.4 billion. That's approximately CAD 150 million higher than in the prior year. This was mostly driven by higher cash from operating activities, partly offset by higher capital expenditures and lower proceeds from property sales. Meanwhile, our balance sheet remains strong with debt and leverage ratios well within our guideline.

So finally, let me turn to our 2016 financial outlook. We're positive in terms of CN's prospects for the year, notwithstanding the fact that we are experiencing high volatility and weaker condition in a number of commodity sectors.

As we look to the future, North American economic conditions were still favorable. Consumer confidence remains solid and should support continued progress in housing, automotive and intermodal sectors. One of our core strength that supports our ability to perform in good and bad times is leveraging the diversity of our franchise. We have a very low exposure to coal, while our network allows us to serve key U.S. consumer projects. This, along with a stronger U.S. currency, provides us with a natural hedge that helps to mitigate the weak commodity environment.

Now, this should translate into carload volume for the full year to be slightly down versus 2016 with pricing in line with our inflation plus policy. Therefore, we expect to deliver mid-single-digit EPS growth over the 2015 adjusted diluted EPS of CAD 4.44. We're also expecting our capital investment program for the year to be approximately CAD 2.9 billion which entails continuing to harden our infrastructure.

And therefore, we will allocate CAD 1.7 billion for network investments in 2016. Doing this in 2016 will allow us to take full advantage of market conditions that provide easier access for working on the tracks, availability of external contractors and low commodity costs. The envelope also includes CAD 600 million for equipment, including our commitment to secure 90 new locomotives.

We also have CAD 400 million investment on PTC as we continue to advance our implementation program. Now keep in mind that a good part of the increase versus 2015 is actually attributable to the weaker Canadian dollar versus the U.S. currency.

Furthermore, we continue to pursue, more importantly, our shareholder return agenda. In 2015, we returned to shareholders 80% of net income through dividends and share repurchases. Our current share buyback program is approximately CAD 2 billion for 2016.

And we're pleased to announce, as Claude mentioned, that our board of directors has approved a 20% dividend increase for 2016, reflecting our strong performance in 2015 and our confidence in future prospects as we gradually move towards a 35% dividend payout ratio.

In closing, we remain committed to our agenda of operational and service excellence, and so CN continues to manage its business to deliver value for our customers and shareholders today and for the long term.

On that note, back to you, Claude.

Claude Mongeau - President, Chief Executive Officer & Director

Well, thank you, Luc. And thank you, guys. Well, as I said, it's an uncertain environment out there, but we have a constructive view about our ability to manage in a weaker volume environment. We're going to leverage our franchise, our diversified portfolio and our ability to gain efficiency in good and bad time.

We are truly committed to our agenda. It's working for us, and we are focused to deliver long-term shareholder value. As I say to my team, it's a marathon and we are good runners.

With that, Eric, I'd like to turn it back over to questions-and-answer.

Question-and-Answer Session

Operator

Thank you, Mr. Mongeau. We will now take questions from the telephone lines. The first question is from Ken Hoexter at Merrill Lynch. Please go ahead. Your line is open.

Kenneth Scott Hoexter - Bank of America Merrill Lynch

Great. Good morning. Claude, welcome back. Great to hear you again. I guess if I could just start out, given your outlook for mid-single-digit growth, can you maybe talk a bit about what you expect on the employee side a little bit. It accelerates the down 7%. Are there still more cost you look to pull out on the employee side? I guess on a resource side, it's amazing what we see on cost. I'm just wondering your thoughts there.

Claude Mongeau - President, Chief Executive Officer & Director

Jim, I'll let you answer this question. But we manage resources and we manage them in line with volume. And we don't know where the volume will be, but we are, as we did in 2015, committed to keep our efficiency levels up. But Jim?

Jim Vena - Chief Operating Officer & Executive Vice President

Okay. So, Ken, we work on the framework of looking at the operation and be able to react quickly. So, there's some things that are – as you've seen in 2015, we reacted in the right way and took into account where the business level was and where the efficiency and what kind of assets we need to operate.

We see that we're going to be able to react positively or negatively. Hopefully, we get surprised positively. But if it's different than what we expect, then we have some things going for us. We will do what we have to do with locomotives.

And on the people side, we have an attrition rate that's a natural attrition rate that's running close to 8%. So it gives us a hedge there that we'll be able to deal with on whether we hire or we don't hire or we let the attrition handle itself as we drop the number of people we need. So, I think it's the same story as we've done in 2015 and the previous years into 2016, Ken.

Kenneth Scott Hoexter - Bank of America Merrill Lynch

Thank you very much for the time. I appreciate it. Thanks, Claude. Thanks, Jim.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you. Thank you, Ken, and thank you for your kind words. I'm really pleased to be back.

Operator

Thank you. The next question is from Fadi Chamoun at BMO Capital Markets. Please go ahead. Your line is open.

Fadi Chamoun - BMO Capital Markets (Canada)

Yeah. Good evening. And yes, great to have you back, Claude, on the call. So a question on the opportunities in the market. So I mean, you keep sort of reducing the cost curve year after year. And obviously, now, you have a little bit of a tailwind from the Canadian dollar. I was wondering whether these factors sort of can help you go after market or opportunities that would not have been the case before.

I know you touch based on a couple of markets where you think you can sort of get some help from the Canadian dollar. But is there other things that are not necessarily just a factor of the Canadian dollar, but also a factor of your cost curve and your service improvement that you can potentially sort of begin to exploit that you haven't yet start going after them? Maybe if you can answer that, JJ.

Claude Mongeau - President, Chief Executive Officer & Director

Yeah, JJ. JJ has his eye on the future.

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

Yeah. I mean the tailwind of the Canadian dollar is also coming with a headwind. The reason why the Canadian dollar is down is we suffer on the energy side of the commodity. It came in as a couple, not separate.

Our role is really to exploit what the economy offers. The economy is not offering strong energy right now. It's offering a weak Canadian dollar. What do we do with that? The economy is still offering very cheap natural gas, so what do we with that? There was an announcement earlier this month of AltaGas who are starting to do more serious work about putting a propane export terminal in Rupert. This can only take place because the gas is North America. It's cheaper here than other places in the world. There's also a benefit from that on a petrochemical industry, plastics and the like.

So we're looking for the strength when there is strength, and we want to be sure that we can help capitalize our partners for the people who wants to export, for people whose cost is (26:48) positively by the weak Canadian dollars. I mentioned the port, and the reason I mentioned the ports is the Canadian economy is no longer as much manufacturing as it was 20 years ago, and we do a lot of services today and many of these services are export services. If you could think of ports – the export services, you could think of a waterfront logistic warehouse.

We do container or come in one side, 40 foot comes out the other side going into different cities. Pick and pack is also another export product. Maybe we can also exploit our CNTL fleet which is Canadian-based, Canadian driver cost, Canadian overhead into how we exploit that in cross-border business and the like. So, I think it's important to see what we have right now and how we exploit that, not just focus on the fact Canadian sector is weak.

Claude Mongeau - President, Chief Executive Officer & Director

All right. Thank you, Fadi.

Fadi Chamoun - BMO Capital Markets (Canada)

Thank you.

Operator

Thank you. The next question is from Walter Spracklin at RBC. Please go ahead. Your line is open.

Walter Spracklin - RBC Dominion Securities, Inc.

Yeah. Thanks very much. And Claude, I'd like to echo everybody's comments. It's great to have you back here. I guess my question is for JJ. I'm getting a lot of uncertainty and concern a lot of investors – on the part of a lot of investors with regards to the outlook on the economy and the demand level in general. I know you mentioned that first quarter is going to be another tough quarter on a comp basis. But you've got a real dichotomy in your volumes where you've got – it seems that the consumer is doing well, but anything industrial or bulk related is still struggling.

When you look out beyond Q1 and you point to your slightly negative volume guidance, are you building in a rebound in the economy? Do you think the consumer – are you building the expectation that the consumer holds in that bulk recovers? Is there anything that is in that slightly negative that would be anything different from the kind of trend that we're going on right now, or would you consider kind of conservative and still focusing on more of the same in terms of the rest of the year beyond Q1?

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

So, maybe we can start with Q1. Q1 2015, you remember, our volume is still very strong because I guess the economy has not yet fully recognized where energy was going to go. So we're still moving a lot of carload of frac sand, crude, coal, and iron ore. In our first quarter result, you will see that these four commodities are now really reality has set in. We had an iron ore mine that shut down. We have some coal mine that shut down. Crude-by-rail is moving at this volume. It's partly back in the pipeline industry. And frac sand, obviously, you don't realize more it's for crude as you did actually at the same time.

But the other segment, the manufacturing side is doing okay. The side that has to get the benefit of cheap gas is doing good. The U.S. consumer is doing good. The Canadian consumers, we're not sure. We're not really counting on that. And automotive sales and manufacturing are good. But these are, at this point, at least to our first quarter, they're not really quite big enough to offset the big carload change in short-haul iron ore and the longer-haul carload of crude-by-rail and frac sand.

So we're not counting on a rebound in commodities. I'm not so sure anybody already is cutting a rebound in commodities that's a little bigger than what North America can.

Claude Mongeau - President, Chief Executive Officer & Director

Yeah. That would be a brave assumption if you were counting on it. Does that do the trick for you, Walter. Thank you.

Walter Spracklin - RBC Dominion Securities, Inc.

Yes, yes. Thank you very much, guys

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

Thank you.

Operator

Thank you. The next question is Brandon Oglenski at Barclays. Please go ahead. Your line is open.

Brandon Oglenski - Barclays Capital, Inc.

Well, good evening, everyone. And Claude, same from us here at Barclays, great to have you back.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you, Brandon.

Brandon Oglenski - Barclays Capital, Inc.

And it's an exciting time in the industry to be back, too, dealing with some pretty negative economic outlooks. But Luc, I wondered if you could comment on the CAD 6 billion shelf that you guys filed back in December or January. Is it common for you guys to file one that big? And I'm just wondering, are there big debt maturities that you guys are looking to refinance right now?

I know you talked about a CAD 2 billion share repurchase. Is this an opportunity where maybe that could be upsized throughout the year? I saw you took the dividend up a lot. And frankly, is there any strategic alternatives that you're also thinking about here, just given some of the noise that's coming out of Calgary recently?

Luc Jobin - Chief Financial Officer & Executive Vice President

Yeah, Brandon, okay, just to pick up on your question, the CAD 6 billion, you have to look – first of all, it's a shelf that's in place for just a little bit over two years. So our financing requirement is just on the basis of maturities over those two years. Plus the financing necessary to fulfill our stock buyback program and the like is significant.

So in this year, we'll be looking to raise probably about CAD 2 billion worth, and I would probably look at a number not too dissimilar in 2017. On top of that, obviously, keep in mind that a lot of our debt is financed in U.S. dollars. And with the FX, obviously, this puts a little bit more pressure. So, it's really with that in mind that we've put the shelf – we've put the pin at CAD 6 billion just in terms of giving us a little bit more flexibility.

Obviously, should some opportunities come along, we've always said that we wanted – and we have a great balance sheet and that we would be prepared to use it, but there's nothing imminent. And I think it's just in times where there perhaps is a little bit more uncertainty in the marketplace, we'll be looking to make sure that we've got sufficient liquidity and that we can deal with our maturities and continue to support the business. Thank you.

Brandon Oglenski - Barclays Capital, Inc.

Thank you.

Operator

Thank you. The next question is from Cherilyn Radbourne at TD Securities. Please go ahead. Your line is open.

Cherilyn Radbourne - TD Securities, Inc.

Thanks very much, and welcome back, Claude. I wanted to ask how you're thinking about mix in 2016. I would think that with the difficult comparables in crude-by-rail and frac sand. In Q1 at least, the mix would be a headwind. But how are you thinking about mix for the full year as you start the cycle with easier comps?

Claude Mongeau - President, Chief Executive Officer & Director

JJ did stuff in the current environment to figure out volumes. So it makes it even more difficult. But JJ's on top of his game. What do you see out there?

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

So, for what we could see and now that all of it is obviously clear, it is likely that our RTM will be weaker than our carloads at this point in time. So, if you're doing a model, RTM will probably be weaker than the carloads at least for the year.

Cherilyn Radbourne - TD Securities, Inc.

Okay. Thank you. That's my one.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you so much, Cherilyn.

Operator

Thank you. The next question is from Jason Seidl at Cowen & Company. Please go ahead. Your line is open.

Jason H. Seidl - Cowen & Co. LLC

Thank you very much. And Claude, welcome back from everyone here at Cowen. You mentioned that if you adjust for FX and fuel, you guys met your low 60%s or our guidance that you gave a while back. Looking forward, if you just normalize fuel and normalize FX, talk about the improvements that you would expect for CN beyond, I guess, some of this economic turmoil that we're seeing now.

Claude Mongeau - President, Chief Executive Officer & Director

I'll let Luc answer that one. But we certainly hope that the fuel price over time will be a headwind. That would be good for the business. We're not managing for ratio. We're managing for profit dollars. But Luc, you want to take that one?

Luc Jobin - Chief Financial Officer & Executive Vice President

Sure. I mean I think, Jason, leaving aside for a second the fuel side, which is obviously very volatile, I mean what we're really focusing is on rightsizing the resources, managing tightly to continue to deliver great results, but not at the expense of growing our top line and pursuing these opportunities that JJ pointed out.

So, I wouldn't necessarily look for something that has a five-handle on it. I think we've always said that we were intent on managing the business well and for the long term, and I think we've achieved, ex-fuel, the target that we thought was reasonable.

Having said that, we're always looking for opportunities for productivity improvement. I mean Jim is always there on the prowl, and I think everybody on the organization is conscious of that need. So, I would still say that we intend to stay the course, and we intend to be both opportunistic in the short term but with an eye on the longer term.

So, we don't want to just – we're not going to get medals by, in the short term, trying to achieve a lower OR at the expense of our ability to continuing to grow the business and create value for both our customers and obviously our shareholders. So, it's an industry-leading ratio. And I think from that standpoint, we continue to focus on excellence.

Claude Mongeau - President, Chief Executive Officer & Director

I would add to what Luc just said that we clearly intend to continue to be the industry leader in terms of efficiency. And even though 2 percentage point of our OR is due to fuel this year, 170 basis points was due to efficiency and other initiatives, and that was in a pretty difficult environment. So, we're managing to maximize every lever, and we will continue to do that and lead the industry going forward.

Jason H. Seidl - Cowen & Co. LLC

You definitely had some impressive operating statistics. Gentlemen, thank you for your time, as always.

Luc Jobin - Chief Financial Officer & Executive Vice President

Thanks, Jason.

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

Thank you, Jason.

Operator

Thank you. The next question is from Chris Wetherbee at Citi. Please go ahead. Your line is open.

Chris Wetherbee - Citigroup Global Markets, Inc. (Broker)

Hey. Thanks. Good afternoon and again, welcome back, Claude. Good to have you on the call. I wanted to touch a little bit on pricing, if I could. Maybe as you think about 2016 and the outlook, putting aside the grain cap for a minute, just wanted to get a sense kind of how you're thinking about pricing and maybe what the competitive dynamic might be looking like, specifically in Canada in 2016?

Claude Mongeau - President, Chief Executive Officer & Director

If I could say something before JJ gives you a more valuable or focused answer on your question, it's quite remarkable you have CN that is leading the industry, achieving new records in terms of efficiency. You have CP which, over the last four years, has done a remarkable turnaround and is in every core respect in terms of operating metric, is getting very close to our level of efficiency. There's something to be proud here. We have two Canadian railroad really leading the way in terms of performance.

I hope that going forward, we will protect that profitability and use it to generate a capacity to invest in our networks and to grow the business and grow it against drops (39:01), grow it through innovation and not chase volume for the purpose of chasing volume. It's precious that we are able to achieve the efficiency level, and it's incumbent on us to manage for the long term. JJ.

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

Well said, Claude. Yes, so, Chris, as I said in my notes, we're targeting – including the impact of the Canadian grain cap roughly 3%, we would definitely at this point see 3% as above inflation as we see it for 2016. And remember, the Canadian grain cap as well as some of these index that are some railroad contract are likely to stay weak because the crude and the diesel right now is still very weak. So, we even think that the Canadian grain cap might be slightly negative for the 2015-2016 season. So, 3% including this index would be – it would produce well for the railroad for CN. That would be above inflation.

Chris Wetherbee - Citigroup Global Markets, Inc. (Broker)

All right. Thanks for the time, guys.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you so much for your question.

Operator

Thank you. The next question is from Steve Hansen at Raymond James. Please go ahead. Your line is open.

Steve Hansen - Raymond James Ltd. (Broker)

Yes. Good afternoon, guys. I think one of the clear distinctions between you and your closest competitor of late has been the direction of the CapEx budgets. I think you suggested CAD 2.9 billion which is up roughly 7% I believe. And I know you broke it up by some of the three major buckets, but I'm just wondering if you could perhaps elaborate a little bit more on the need to stand that kind of capital in this macro environment and what you're going to get out of that specifically.

Claude Mongeau - President, Chief Executive Officer & Director

I will let Luc give you some more color, but we managed for the very long term. We are a very profitable company. We have an opportunity to do the work at the right time. There is no better time to work at our infrastructure than now. We can do it cheaper. We can do it faster and more productively, and we can gain long-term advantage that way. That's our mindset.

Much of the increase is because of exchange. We're assuming CAD 8 that will be in the CAD 0.70 to CAD 0.75 with the U.S. currency, and the rest is long-term investment that we believe will pay dividends for many, many years to come. Every company has a different agenda, but we see the strength in our long-term view.

Luc, you want to add some more color?

Luc Jobin - Chief Financial Officer & Executive Vice President

Yeah, maybe just a couple of additional comments. I mean I think if you look at our track record, we consistently look to CapEx in the range of, I'd call it, around 20% of revenues. Of course, there's a limited noise in there as of late with the fuel surcharge disappearing from the revenue line.

But nevertheless, I mean I think what we see is, as Claude pointed out, we look to the longer term. And so, we pace ourselves. And we'll dial up and dial down on certain types of activities when we feel that the need arises. So, as an example, we actually want to look to do a little bit more on our basic capital on the track, on the bridges and so on and so forth because it's a great moment to do so.

And arguably, as we look to the short term, our needs for capacity investments are not as prevalent. So, we tend to try to be opportunistic. The conditions are right, as I mentioned and Claude reaffirmed, for us to take the long view. And so, we're not – with the great balance sheet we have, we can be smart. We can actually do these things while people that are under pressure are going to look to reduce their capital budget in order to maintain their free cash flow.

So, we can still generate good solid free cash flow, and we continue to invest behind the network. And we talked about safety, we talked about the velocity of the network and the productivity of the network. And these are the reason why we clock in these performances that are industry-leading year in, year out, is that we're continuously mindful of reinvesting in the plant in a thoughtful way to deliver both the productivity and the service excellence.

So, I think that may strike some people as a little bit counterintuitive because the normal tendency would be to go and cut CapEx. We take a different look at things, and we see this as an opportunity to continue on our journey to make this a great franchise for the long term.

Claude Mongeau - President, Chief Executive Officer & Director

If I could add, Jim, that when you're looking at your pinch points and you're looking at investing and getting to permits and getting motion to solve issues, which we were in the growing environment last year, you get that momentum and that focus, and it's paying huge dividends. Maybe, Jim, you want to talk about some of those initiatives that we are leveraging as we speak and will continue into the next year.

Jim Vena - Chief Operating Officer & Executive Vice President

Absolutely, Claude. You guys have done a great job of explaining why we – and where the capital envelope is. But it takes a while for us to be able to get permitting, to get the authority to be able to deal with the pinch points. And in every railroad and in ours, specifically, there's some points where if you spend the right capital at the right time, it increases capacity through the whole corridor, not just in one place. And that's exactly what we've been doing.

And I'll tell you, we spent a lot of money to double track up to Steelton Hill. And for a few miles of railroad, you start to wonder, what the heck are you doing? I'm sure Luc asked me a few times, well, that's a lot of money for that three miles of railroad. But we've noticed the advantages already. In this winter, through December and January, we've had events happened above and beyond what we normally would foresee, and the reaction and the recovery is so much quicker. So that's why it's smart to spend the money in the right places at the right time and have a view of what it does over the long term. And what that specific expansion on the Steelton Hill did, it opened up capacity all the way from Winnipeg to Chicago for us, not just in that one mill pinch point.

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

We're building – the company is in advantage.

Claude Mongeau - President, Chief Executive Officer & Director

Yes. So, we think it's going to differentiate us in the long term. And we feel it's the right time to do so. Thank you for your questions, Steve. It's very good one.

Steve Hansen - Raymond James Ltd. (Broker)

Appreciate it. Thanks.

Operator

Thank you. The next question is from Allison Landry at Credit Suisse. Please go ahead. Your line is open.

Allison M. Landry - Credit Suisse Securities (USA) LLC (Broker)

Good afternoon. And Claude, great to have you back. I wanted to ask a question on grain. So given that the last year's harvest, the Canadian crop came in better than your initial expectations, while also considering the impact of depressed commodity prices and elevated inventories, how do you see grain shipments playing out over the course of 2016? In other words, at what point do you think the grain has to move such that you would start to see positive year-over-year comps?

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

So, thank you. It's JJ. The final result of the crop side, the one that came out in December were actually showing that the crop was bigger in what we thought it was going to be in August or in October. But right now as we speak, the volume of grain that we move in Canada is slightly below last year. That is because probably the attractiveness of the export price is not quite what is at the liking of the owner of the grain, whether the farmer or the grain company who buy from the farmers and sell overseas. So that's basically revenue that eventually will come through. It might partly come true in the second quarter or before the next crop.

Remember last year, the carryover was very small, and we had very weak revenue on Canadian grain for August and September at CN because the inventory in Canada were very, very low. So some of these increased crop that we saw last year – meaning, a little bigger than what we thought at first place – might just turn out to be that we will finish this year, this crop year with a higher carryover, and those revenues will come in maybe late in the year or to 2017.

But one thing is for sure, when grain is harvested, eventually it'll be sold. And in Canada, the population is such that it will be be sold overseas. So, it will get to the port. It's a question of time.

Allison M. Landry - Credit Suisse Securities (USA) LLC (Broker)

Thank you.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you, Allison. I look forward to see you on the West Coast again for a trip this year.

Allison M. Landry - Credit Suisse Securities (USA) LLC (Broker)

It sounds good. Thanks.

Operator

Thank you. The next question is from Matt Troy at Nomura. Please go ahead. Your line is open.

Matt Troy - Nomura Securities International, Inc.

Yeah. Thank you. I wanted a question about intermodal. Quite a divergence, your growth 5% versus your competitor down in the low-teens. I just wanted to get a sense of what's driving that growth. I know you provided some detail earlier. Is it primarily highway-to-rail conversion, or is there some market share gain in there? And then as an extension, if I think about the margin profile of intermodal historically being dilutive from a mix perspective, it was your largest growing category and it's the largest portion of your traffic base.

Have you reached a critical mass now where the margin business is better than average? I just would like to understand, one, where the growth is coming from ahead of peers; and two, is the margin profile of this business, should we think of it differently going forward? Thanks. And Claude, welcome back.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you for that. And it's a very good question. You're making a full impact with that one question. Now, let me say that following the – for many years now, we've had intermodal's profitability very much in the average of our book of business. We have added new approach that allows us to be profitable in that business. And a lot of the growth, JJ will give you some colors.

But it's the building blocks of all the initiative that we have put together over the last five years there to our innovation, the supply chain collaboration, the extension of reach, the chasing of opportunities, one container at a time. And we are in many markets with a great, great franchise, and that's what's allowing us to grow.

But JJ, where do you see the growth into 2016?

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

Well, Matthew, we'll probably more on the overseas side than the domestic side, partly because the Canadian economy maybe will only offer so much opportunity in 2016. While the overseas market is a bigger pie and (50:22) what our initiative in Mobile, Alabama, we hope that when that open up sometime in May and the Panama Canal open up sometime in May-June, Mobile will start to produce some fruit for CN.

Also because the U.S. Midwest is a market that over the last many years, as Claude had mentioned, we opened a number of terminal, either on our own line like Joliet, Illinois our partners like in Indianapolis. And as we're opening more destination, we have more to offer sort of shipping lines.

So, the opportunity over the next little while, let's call it 2016, is maybe more on the overseas side and with destination more in the U.S. Midwest. And earlier this – late in 2016, we had new cars at the Port of Halifax, and it produced some growth for us in the fourth quarter. I think they will produce some growth for us also in 2016.

Some of those containers are finding their way in Canada, but some are also U.S. Midwest. And also late last year in the fall, we had merged. We joined the Port of Prince Rupert. Obviously, they have strategies of their own to use that port to their advantage because of the type of service they can get there that no other port can offer. The way DP World and CN provide create that service together.

We also have some other line. We start to do some business in Rupert by getting slot on other company's vessels, CMA and Evergreen. So the choice of options and the players coming into ports where we play should do well for us.

We do have some challenges in Vancouver with some terminal capacity. That will be because of the construction is taking place right now. So we'll see how that play out, especially over the next three months, four months. Hopefully after that, we will have clear sailing and have all the capacity we need.

But roughly, it's about those different things and all of those are tied in as Claude mentioned, the supply chain offering just a good price. Because you have a good operating cost, it's not what attracts the traffic because anybody can offer a good price. You don't have to be a good price. It has to be a good price with better service than what others offer.

Claude Mongeau - President, Chief Executive Officer & Director

Yeah. And as this environment improves and as the consumer sector gets better over time, maybe back end of the year into 2017.

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

Yeah. And on margin, we do have a very strong up-scaling program. We're focused on round-trip economics. We're focused on balance. We're focused on having the right fuel surcharge for the business. And these are levers that typically they don't show up in same-store price. They show up in our internal report that we call round-trip RCRs and the likes, train density, using the right car, the right port; a lot of small levers that generate big bottom-line dollars.

Claude Mongeau - President, Chief Executive Officer & Director

Yeah. What I was saying is that we hope that domestic will pick up eventually after overseas into the back end of the year or 2017. Thank you for the question, Matt.

Matt Troy - Nomura Securities International, Inc.

Thank you.

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

Thank you, Matt.

Operator

Thank you. The next question is from Benoit Poirier at Desjardins Capital Markets. Please go ahead. Your line is open.

Benoit Poirier - Desjardins Securities, Inc.

Yeah. Good evening, gentlemen, and great to have you back, Claude. On the intermodal side, your carloads are up 1.5% quarter-to-date. So could you maybe give some color on what we should expect this year in terms of volume growth given the soft economy but also given the port expansion you just talked about? And maybe also discuss whether the weaker Canadian dollar favors Canadian ports over U.S. ports. Thank you very much.

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

Okay. So we don't provide guidance for a business unit one at a time. The Canadian dollar, as I mentioned earlier, when you look at ports, they are a service provider for the U.S. Midwest. And if everybody plays their card properly, they should have a cost advantage versus the competing ports. The opportunity is more on overseas than on domestic.

And the first three weeks of the year – we would like to see more growth in the first three weeks of the year, but it's only three weeks. Remember, last year, fourth quarter results showed that really we finished the year very current. Jim's team really cleaned out any backlog we had in any segment. We were current.

So we've entered 2016 with a low backlog in the end. And I think our customers on the retail side also are – not necessarily replenished their warehouse right away. They're also looking at 2016 and wondering when is the time to stock up and put product in their warehouse. So first three weeks is only 3 weeks out of 52 weeks. We'll see how the rest of the year span out.

Benoit Poirier - Desjardins Securities, Inc.

Okay. Thank you very much for the time.

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

Thanks very much.

Claude Mongeau - President, Chief Executive Officer & Director

(55:32), Benoit.

Operator

Thank you. The next question is from Brian Ossenbeck at JPMorgan. Please go ahead. Your line is open.

Brian P. Ossenbeck - JPMorgan Securities LLC

Great. Thanks for taking my question and welcome back, Claude. Just had a quick one on EPS, especially related to FX. Clearly, foreign exchange, Canadian dollar/U.S. dollar, it's been a big driver of volumes, a big driver of mix. And so Luc, when you talk about mid-single-digits growth for next year EPS off the adjusted base, I was just wondering is that attainable without a bit of a tailwind from FX? Maybe you can just tell us how much of that growth you're expecting from the currency market as you see them right now. Thank you.

Claude Mongeau - President, Chief Executive Officer & Director

Yeah. Luc, you want to handle that one?

Luc Jobin - Chief Financial Officer & Executive Vice President

Yeah. Sure. Listen, Brian, the guidance that we provided of course, and we've laid out the assumptions so you can look at those, for FX, we're assuming a Canadian dollar to U.S. in the range of CAD 0.70 to CAD 0.75. So, that's the range that we have assumed in our guidance. And of course, we'll have to see how that goes.

As a further – perhaps just to help you out a little bit, I mean I'll remind you that for every penny of FX change, that has an impact of roughly CAD 0.04 on the EPS. So, with that in mind, of course, there's still a fair bit of volatility in there. I think currently, the Canadian dollar is closer to CAD 0.71 and you've got forecast all over the place. But we have provided you with the range that we have for the full year, and that's CAD 0.70 to CAD 0.75.

Brian P. Ossenbeck - JPMorgan Securities LLC

Okay. Great. Sensitivity is helpful, too. Thank you very much.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you so much, Brian.

Operator

Thank you. The next question is from Bascome Majors at Susquehanna. Please go ahead. Your line is open.

Bascome Majors - Susquehanna Financial Group LLLP

Yes. Good afternoon. Towards the end of the year, not just you guys, but a number of rails, saw volumes close the quarter fairly weakly. And clearly, there were some destocking there driving that. I'm just curious what you're hearing from your customers, and maybe you could separate it by retail and oriented and industrial. Where are they looking at their inventory levels today? Do you think the destocking continues well into the first quarter, or do you think we've done a lot of what we've needed to do and things can stabilize short term?

Claude Mongeau - President, Chief Executive Officer & Director

It's clear that, as you would expect, when things are uncertain, people are trying to find the right level in the last couple of months of the quarter. But in particular, in November-December are weaker. We are generally constructive. We may be wrong, but we think that things will stabilize and that beginning of the year will continue to be difficult. But that things will stabilize in the second quarter and the back end of the year.

But JJ, you want to give a sense of what the customer feedback is in terms of that dynamics?

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

So, yes, Claude. In an environment where – let's say if we were to talk about commodities, in an environment where price tomorrow might be a little better than the price today, the buyer of the product might not want to carry inventory if he thinks he can get, say, potash next month at CAD 10 cheaper than this month. So that creates an impact on people, how much they want to gamble with inventory because once they've bought the product, they own it at that cost.

But eventually, many commodity pricing are a lot lower, fairly low already. We're going to hit the bottom depending on each segment, where the buyer – whether he's in China or he's in North America – doesn't believe he can buy iron ore or potash at a cheaper price which will eventually be the signal. But as things start to reach bottom or eventually go back up, whether it's late this year or early next year, then they'll be tempted to buy a little more of what they need for the same reason as to why they may be tempted to deplete inventory right now because they think they can buy a little cheaper six weeks from now than currently.

In people who play with big inventories, there's how much they need. And whether or not now is the time to buy and stock up or the time to buy less and destock, I think we're not sure exactly right now where we're at, but we're close to bottom potentially.

Claude Mongeau - President, Chief Executive Officer & Director

Very good question. Thank you.

Bascome Majors - Susquehanna Financial Group LLLP

Thank you.

Operator

Thank you. The next question is from David Vernon at Bernstein. Please go ahead. Your line is open.

J. David Scott Vernon - Sanford C. Bernstein & Co. LLC

Hey. Thanks for taking the question. I think you talked a little bit about this on the intermodal side. But I was just wondering if there was some more granularity you could talk about in terms of helping to dimension some of the volume opportunity. You mentioned some pre-selling up in the West Coast ports as well as kind of what you're hearing about or thinking about the Gulf. Have you had any kind of more in-depth conversations that would help us put numbers on either the amount that you pre-sold on the West Coast or what you think could be coming in through the Gulf?

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

So, I don't have specific to offer to how much we pre-sold, but I can just remind everybody of the capacity that's going to be available for CN. So definitely, the Mobile rail yard would be ready sometime in the month of May. So, we start from zero. So everything from there's an upside where a new player, a new kid on the block, if you wish, in that part of the world. In the case of DP World, they've refined their construction schedule, and they believe they can have an extra 50,000 TEU available, extra capacity available for sale sometime in the spring.

And they believe also eventually, construction schedule, they will have another 50,000 TEU over and above the spring 50,000 TEU that will come out available for us to go and sell jointly sometime in October of this year.

And then in Vancouver, Jim is working extremely hard with our rail service operation on the South Shore, because some of the capacity of the South Shore, Vancouver today is not probably utilized. And obviously lots of capacity in Halifax and Montreal.

So, the long-term investment made by our partners, whether the Port of Mobile or the guy from the Canadian West Coast, is basically the reason why we also invest because we're in this for the long run, it takes time to deploy these assets. The best time to build the ice cream – to build it. Ice cream shop is in winter time because when you try to open up in July, it typically is chaos.

We're building right now for the next cycle. That was the way the Chinese look at the market.

Claude Mongeau - President, Chief Executive Officer & Director

Yeah. I told you that JJ has his eyes on the future. He's looking at the ice cream on the sideline.

J. David Scott Vernon - Sanford C. Bernstein & Co. LLC

Thanks for the time. And Claude, all the best for a speedy recovery.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you. And I'm trying to continue with – difficult at first with the voice, but the brain is working very well and the voice will get better over time.

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

Exactly.

Operator

Thank you. Our last question for today is from Turan Quettawala at Scotiabank. Please go ahead. Your line is open.

Turan Quettawala - Scotia Capital, Inc. (Broker)

Yes. Good evening, everyone. And Claude, congratulations and great to have you back on the call.

Claude Mongeau - President, Chief Executive Officer & Director

It looks like, Turan, that you were able to squeak in at the end.

Turan Quettawala - Scotia Capital, Inc. (Broker)

Yeah. Just the caboose in here, right? I guess one, just one question on the domestic intermodal business here. JJ, is it possible to break down how much of the 5% growth came in in domestic versus maybe the overseas? I'm assuming it's probably all overseas.

And then also, you talked a bit about the Canadian economy here being weak. I'm wondering if you can give any color and whether you're seeing signs of broad weakness across the board, or is it still pretty much isolated in certain provinces?

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

The domestic intermodal is definitely much weaker than the overseas. I won't give you a specific number. And the cross-border is a bit of a challenge with the competition, with the truck. And the cross-border is fairly stiff. There's more driver than there was. And the fuel prices, the diesel price is not what it was years ago.

And in terms of the east west, I mean Calgary, Edmonton, Saskatchewan, they're not quite the booming economies today than they were 18 months ago, especially as it relates to how much capital investment there is there. And eventually, that find its way into even down to consumer. So Canadian domestic intermodal business is a little weak right now, and it might be a little weak for a while until we find a new level.

Claude Mongeau - President, Chief Executive Officer & Director

Thank you, JJ. And I believe that closes the question-and-answer period for us. We try to stick to that one-hour timeframe.

Let me just close by saying two things. We're very proud of how we finished the year. It was not an easy year, but we were able to meet our guidance and deliver, nevertheless. We're entering 2016. It's still an uncertain environment, but we feel confident that we have the right agenda, the right focus and the right theme to deliver.

On a personal note, I have to say five months is a long time, but it allows you to step back. I was so impressed by how the team reacted. The leadership team, first and foremost, they stayed connected and they delivered as a team. The broader team of CN, I must have received a couple thousand e-mails of very personal supporting me, encouraging me.

Many of you on this call, analysts and shareholders, reached out to me. I was looking forward to get back. I am very pleased I could not resist coming on this call. I will work on my voice. I have the energy. I feel good about our franchise, and we are marathon runners. We're investing for the future. I hope to be part of it for many years to come, if you will allow.

Thank you and be safe. We will see you or talk to you on the second quarter call.

Unverified Participant

All right.

Operator

Thank you, Mr. Mongeau. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

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