Paul Butcher: Thank you. Good afternoon, everyone. And thank you for joining us for CN's First Quarter 2019 Earnings Call. I would like to remind you about the comments already made regarding forward-looking statements. With me today is JJ Ruest, our President and Chief Executive Officer, Mike Cory, our Executive Vice President and Chief Operating Officer; and Ghislain Houle, our Executive Vice President and Chief Financial Officer.

Also joining us on the call today for the Q&A session is Keith Reardon, our Senior Vice President of Consumer Products, Supply Chain and James Cairns, who was just recently appointed Senior Vice-President, Rail Centric Supply Chain. Once again, I do want you to remind you to please limit yourself to one question, so that everyone has the opportunity to participate in the Q&A session. The IR team will be available after the call for any follow-up questions. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, JJ Ruest.

JJ Ruest: Thank you, Paul and good afternoon everyone.

And welcome to our earnings conference call. After a very, very cold bitter winter, we delivered good results and have a positive outlook to report. In the first quarter, we produced adjusted EPS growth of 17%, revenue growth of $350 million and the adjusted operating ratio was 67.2. Our volume and cost was impacted by extreme and prolonged cold weather down to minus 35, minus 40 degrees Celsius, which impacted train costs and restricted revenues on mile volume growth 3%. Our CapEx and winter operating plans, which include our air railcars produced good results at temperature as low as minus 25 degrees Celsius, which we call the Tier 1 train restriction.

But when temperature dropped to Tier 3 and Tier 4, which is up minus 35 Celsius minus 40# Fahrenheit for about seven weeks, we were losing significant train capacity and in some instance, we could not operate during part of the three or four nights. In order to protect customer service and to manage the regulatory risk as we know them, we had decided to operate this winter with some additional resource in terms of locomotive, railcars and train crews. Given the extreme winter condition that we experienced that was the right decision. As we do after every winter, we are now taking the opportunity to right size our asset base, including the return of leased locomotives and putting railcars into storage. In addition, we are also taking to account the current softness of crude by rail, following government imposed crude production cutback.

Now, a quick review of the top line for first quarter. We had our best ever first quarter at over $3.5 billion of revenue or $350 million of top line growth. During Q1, CN's carloads were up 1.5%, the best Class 1 performer. Intermodal revenue was up 4%, automotive revenue was up 7%, coal revenue grew by 15%, cranes and grain revenue was up 8%, CN cranes and grain export tonnage is now up 1.9 million metric ton ahead of the last year to-date crop. Our CN railroaders are already getting the job done for the grain industry.

U.S. grain revenue was also up 14% in the quarter. On crude, we move on average 250,000 barrel per day back in December, but demand took a nose dive in February to less than 100,000 barrel per day after deduction in production was imposed by the province of Alberta. But CN has the capacity to move more crude. It is a national priority to get our natural resource to market, so as to protect the country's economic GDP and create jobs.

Our CN railroaders are ensuring that we have the infrastructure to move any and all natural resource to world market. Looking to the balance of the year. We have a diverse pipeline of growth opportunities ahead of us. For example, short-term during Q2, the start up of the Coalspur Vista project, a coal mine -- a coal export mine in Alberta is to start up soon. We also have the startup of the AltaGas propane export terminal in Rupert and the introduction of the new container service by ZIM Line in Rupert.

We also have immediate capacity to move more crude. In April, we are running at 145,000 barrel per day but we do have the capacity to quickly ramp up to 300,000 barrel per day. Mid-term we have some other coal business, Alberta chemical business and automotive business coming our way. At the upcoming June Investor Day, we will give you an update on our growth opportunities for the next three years. In the meantime, we are reaffirming our guidance for the year.

With that, I will turn it over to my team for them to give you an update on the winter operations and the financial details. Over to you, Mike.

Mike Cory: Thank you very much, JJ. And first as always and especially after the challenging weather conditions they tackle day-in and day-out, I want to sincerely thank all the railroaders of CN for their efforts. Now from my perspective, the operating challenges that they face were nothing short of some of the toughest that I've seen over my career.

But their overall efforts allowed us to fight through and continue to provide service to our supply chain. So with the tough weather conditions, GTMs were up 3% versus volumes in Q1 2018. And looking specifically at Q1 operating highlights, our network train speed was down 8% versus Q4 but essentially flat versus Q1 of 2018. Our car velocity was down 15% versus Q4 but up 8% versus Q1 2018. And our through to all was up 15% versus Q4 but down 12% versus Q1 2018.

The extreme weather started to really affect our operation initially in our Winnipeg to Toronto corridor. When I say clement, I'm referring to consecutive nights of minus 40 to minus 50 degrees Celsius, which as you know at 42 degree below zero Celsius, it's the same as Fahrenheit. This type of weather then started to set hold in Winnipeg to Wisconsin corridor and by the last week of January, our Western Canadian franchise began to feel the same effects right through the beginning of March. Under Tier 1 restriction at around 25 degrees Celsius or minus 13 degrees Fahrenheit, our operating performance was much like in Q4 as evidenced by our velocity, train speed and productivity. Under those harsh conditions, the capacity improvements we made in our network and in our equipment, such as increasing our fleet of AC locomotives and air cars really paid off.

When temperatures dropped below minus 30 to minus 35 and even colder at minus 40, we deployed more air cars and DP locomotives per train. However, we could not keep up with the demand as the freezing temperatures did not subside and the customer demand remained strong. As well when temperatures dropped minus 40 and colder, we ceased operations on the nights until the temperatures warms in the morning, something closer to as minus 25 to minus 30. So to give you an example of the effect of the most severe weather, at minus 25, we effectively ran our trains at our normal run rate with one air car and or DP configuration with the air sources between 4,000 to 5,000 feet apart. At minus 35 and colder, our train length was almost cut in half.

This results in the need for an additional air source in order to maintain train length as the between length was reduced down to as low as 1,500 to 2,000 feet. In with this inclement weather, our overall service to our customers was less impactful than the year before. While [indiscernible] did increase at times, overall, we were able to work with our partners to ensure fluidity was maintained. And our grain movement has seen record volume year-to-date. With the addition of centerbeams and boxcar fleet, we're able to stay relatively current with our forest product customers through the worst periods of cold, as well our Alberta petrochemical customers stayed fluid.

Now, this was purely a result of our overall investment strategy, specifically more resiliency in key areas in Western Canada sourcing of crews, mainline capacity and the investment in equipment I spoke to you before. To effectively shut down over some of the nights in very dense volume corridors as we did and recover each day as quick as we did could only have come through -- come about through these investments. By mid March the recovery started and right now all of our supply chains are very current. Our operating metrics for Q2 have come back into line and our volume is at record pace. With good weather we're seeing the payoff of our track capacity project and we are very-very active in rightsizing our asset base as we're looking to drive velocity, productivity, through the short-term reduction of cars, locomotives and people.

With record volumes in April and normalized weather we see a significant opportunity to gear up for the demands for the year ahead and improve our overall productivity. As JJ spoke for our growth opportunities, we’re commencing another round of capacity improvement. In all, our engineering team will be delivering another big program in 2019. 22 projects are planned including segments of double track, new siding and siding extensions and yard investments. Two projects have already been completed and put in service in Q1 and for 2019 to be specific we're looking at nine projects between Winnipeg and Edmonton, five projects between Edmonton and Vancouver, four projects between Taverna which you would know as Jasper and Prince Rupert.

Two projects between Winnipeg and Chicago, one project south of Chicago, a project east of Winnipeg. The rest of the remaining 140 locomotives will come online and we're building new air cars and also installing equipment inspection portals. What's also going to help us is a further rollout of our scheduled locomotive maintenance program where we start to already experience more availability and reliability of our locomotive fleet. As these projects are completed, we’ll continue to move in more of our customers business at low incremental cost. Finally, we struggled with our safety performance in the last quarter, specifically in the latter part of January as temperatures started to decrease dramatically.

However, while our FRA accident and injury ratios increased in the quarter, our significant injuries and accidents were well within our fiveyear average. We continue to focus on the value we place on safety as being instrumental to our success as we move forward in our journey of being the best in class transportation provider. With that over to you, Houle.

Ghislain Houle: Thanks Mike. Starting on page 9 of the presentation I will summarize the key financial highlights of our first quarter performance.

As JJ previously pointed out, revenues for the quarter were up 11% versus last year, at over $3.5 billion. Fuel lag on a year-over-year basis represented a tailwind of $27 million, or $0.03 of EPS driven by a favorable lag this quarter of $17 million versus an unfavorable lag of $10 million for the same period last year. Operating income came in close to $1.1 billion, up $50 million or 5% versus last year. Our operating ratio came in at 69.5%or a 170 basis point higher than last year. During the quarter we booked a charge of $84 million in depreciation and amortization related to the replacement of our Positive Train Control PTC back office system.

Excluding this item our operating income was 1.164 billion with an adjusted operating ratio of 67.2%,60 basis point lower than last year. Net income stood at $786 million or $45 million higher than last year with reported diluted earnings per share of $1.08 versus $1 in 2018, up by 8%. Excluding the expense related to the replacement of the PTC back office system, our adjusted diluted EPS was up a solid 17% versus last year. The impact of foreign currency was favorable by $30 million on net income or $0.04 of EPS in the quarter. Turning to expenses on Page 10, our operating expenses were up 14% versus last year at $2,464 million.

Express on a constant currency basis, this represented an 11% increase. At this point, I will refer to the variances in constant currency. Labor and fringe benefit expenses were $798 million, 10% higher than last year. This was mostly the result of higher wages driven by increased headcount and higher stock based compensation expense. I would also highlight that the sequential increase in headcount is mainly attributable to the on-boarding of slightly over 1,300 TransX employees in March.

Purchase services and material expenses were $558 million, 14% higher than last year. This was mostly the result of higher outsourced services and repair and maintenance expenses including higher snow clearing costs mostly due to the difficult winter conditions. Fuel expense came in at $398 million or 4% lower than last year. Lower fuel prices accounted for $30 million of the reduction while higher volumes were at $9 million unfavorable variants versus 2018. Fuel productivity was unfavorable by 1.6% or $6 million in the quarter versus last year.

Depreciation stood at $440 million, 33% higher than last year. This increase was mostly driven by a charge of $84 million for the replacement of our PTC back office system and net asset addition. The equipment rents were 3% lower than last year. Casualty and other costs were a $156 million, which was 8% higher than last year mostly due to higher incident costs, which was driven by a crude oil trend derailment partially offset by lower legal provisions. Now moving to cash on Page 11, free cash flow was $286 million excluding net casts from the acquisition of TransX.

This is $36 million lower than in 2018 and mostly the result of higher capital expenditures driven by the upfront deliveries of new locomotives partly offset by higher net cash from operating activities. Finally, let me turn to our 2019 financial outlook on Page 12. Although, there are signs of slower growth in certain markets and volatility improved by rail, we continue to see a broadly positive economic backdrop in North America and consumer spending remains healthy. We have seen specific opportunities that will drive further growth, such as the new coal mine from Coalspur and the new propane terminal in Prince Rupert that will start shipping in the second quarter. This environment should continue to translate into high single digit volume growth in terms of RTM for the full year versus 2018 in a favorable pricing environment.

As JJ mentioned, we are taking the opportunity to right size our resource base and we will remain confident in achieving our EPS guidance of low double digit growth versus 2018 adjusted diluted EPS of $5.50. On the capital front as winter subsides, we are focused on delivering on our large capacity track expansion programs. We have received so far 63 new locomotives that helped us during the winter, and we expect another 52 to be delivered before the end of Q2. Furthermore, we continue to reward our shareholders with consistent dividend return, and we are on track with our current share buyback program of $1.7 billion, having repurchased 2.4 million shares for the amount of around $280 million at the end of January. In closing, we remain committed to our agenda of operational and service excellence with our supply-chain focus, as we continue to manage the business to deliver sustainable value for today and for the long-term.

On this note, back to you JJ.

JJ Ruest: Well, thank you, Ghislain. We are positioned to deliver solid results going forward, and we are investing for the long-term for growth, for efficiencies and resiliencies when there is harsh weather conditions, we are provision actively working to feed our network with growth, example our TransX, efforts on Canadian ports, efforts on exports of next natural resource. We have a proven ability to address short-term costs for a short-term demand fluctuation whether crews, locomotive or cars and we are committed to protect our core natural resource customers like the Prairie Grande, the Alberta oil, BC at Quebec lumber, and Canadian and U.S. coal export.

Our approach operating ratio and return invested capital, which stood at 15.7% in 2018, is also balanced and long-term focus. On this note, operator, I would like to turn it over to questions, which both James Strong and Keith Reardon will also join us.

Operator: Thank you. We will now takes questions from the telephone lines. [Operator Instructions] The first question is from Chris Wetherbee of Citigroup.

Please go ahead.

Chris Wetherbee: I guess I wanted to talk a little bit about the network and the OR potential of the business, and compared to this year maybe to last year. So, last year, this time you're coming out of some challenges, you had some congestion in the fall leading into a very challenging winter and I guess another challenging winter again this year. You added a significant amount of capital. Can you give us a sense as to what the OR potential of the business can be, if you get out of the weather, start to get some of that volume.

And is it as recoverable? Or is it recoverable today than it was I guess the year ago?

JJ Ruest: Chris, this is JJ. Just to give you a few elements of colors while I am getting into guidance for quality operating ratio. Last year -- this year, the winter has been actually been tougher than last because of the deep cold for about 7 weeks. And also last year when we ended the first quarter, we had backlog of business. You would remember that there was quite a few customers, especially in the world of natural resource who were waiting for us to get caught up.

This year we actually because of this also we had we actually did better. We actually were able to grow versus last year and we did not finish the first quarter with a backlog of way potash or lumber. We are fluid and we are coming at least at the CN side this is how we ended the winter. So therefore, right now the focus is on putting down resource, parking locomotive cars and crews still demand pick-up in line as expected that we have. And one of the factors that we're awaiting to see where things will go is crude by rail.

So crude by rail this month may now 145,000 barrels, which is better than what it was in March. But we do have capacity to ramp it up within the few weeks only to 200,000 barrels. So I think that will also be an element as to hard good operating, which will be the second quarter it will be on how much we can use the resource that we actually now have available for our natural resource customer.

Operator: The next question is from Steve Hansen of Raymond James. Please go ahead.

Steve Hansen: Look on the growth opportunity side I'm sure we'll hear a bunch more about it at the upcoming Investor Day. But I was hoping that you could perhaps give us a little bit of a color here on how the TransX acquisition is going thus far. And as a secondary part of that question is just how you view the internal opportunities for capital versus the external opportunities for capital, and how you're weighing those going forward? Thanks.

JJ Ruest: So Keith we'll do the TransX part…

Keith Reardon: So on the TransX piece, we have been integrating since the close. We see a lot of opportunities on the commercial side.

We see a lot of opportunities on the synergies with regard to our cost takeout on both sides. But we also -- one of the main reasons and we've talked about this is the talent and the entrepreneurial shift that TransX brings. We've already had several examples where we needed to find a solution to something. And within hours of talking to them and sitting down, we were able to come up with those solutions. So we're very, very pleased with how it's going.

We've actually seen some growth come back to the railroads through transact as Mike and his team are improving the service, that's also going to happen in the traditional domestic part of our business, as well as bringing it back to TransX. So we're very, very pleased.

JJ Ruest: Now maybe quickly, Steve, on the capital side, I think, I mean, we're just following our plan. I mean, we told the market that this year our plan was to be $14.9 billion. So we are following this.

We're receiving locomotives, we'll receive 149 and as I said in my remarks, we received 63 in the first quarter. We'll receive another 52 in the second quarter. Mike talked a little bit about the capacity projects that are out there. So we're well here. I think we've learned a little bit of how to deploy and how to execute on this capacity investment this year from last year.

So I think we're very optimistic and we're just following our plan of what we told everybody.

Mike Cory: And we continue to look for us inorganic growth opportunity, as well as they may come up.

Operator: Thank you. The next question is from Ravi Shanker of Morgan Stanley. Please go ahead.

Ravi Shanker: So pretty impressive that you were able to maintain your high-single-digit RTM guidance despite a tough 1Q. Can you help isolate maybe one or two drivers or what drives the ramp to get there in the back half? Certainly, you guys aren't counting on significant rail volumes until that actually shows up. So what's exactly driving that? And with the related note can you give us an update on the port of Halifax and how that process is going? And are you guys counting on additional volumes such that it'll be new projects to be able to hit that guidance? Thanks?

JJ Ruest: So definitely, as usual, it will be a combination of a number of factors. We always want to be working every aspect of our portfolio. So crude by rail is an opportunity that we expect at this point will produce growth in the second half.

We also expect that our focus on that model whether it's domestic overseas but also produce some volume growth. For the second quarter, automotive even though the North American market is all soft, should be a growth area for CN, because the OEM that works with us still have some product from the ground that is left over from the slow North American network on the TPX fleet. Frac sand will see what kind of drilling activities we have. On the forest product, you may have noticed that even though they've announced some shutdown of sawmill in DC, the price of lumber went up, which means that there's still good demand out there. So there's a number of factors.

And also what's happening here the second quarter, so if this goes for [woods pile up], they're actually shipping I think next week their [indiscernible] the train. We hope that at least at the beginning, they'll be able to run -- hit a 3 million ton a year run rate and that’s from the zero over what it was. And then also the first year carg of propane to the AltaGas export terminal in Rupert also started flowing. So there's little bit of slow delay versus our expectation on these propane exports, as well as the Vista project, but now they're finally gearing up. And in the case of the second half, hopefully, they should be in good position.

I think that's more or less of what we expect. And on the port of Halifax, so the port Halifax looks like it will be changing into a new owner, a company we can't share exactly who that is but a company that we know very well. And assuming it's those folks eventually take over the terminal, they're excellent world class operators and more to come on down. We are actually optimistic on how we, over the next few years and hopefully the transaction will proceed, how we can work with these people to make much better use of our East Coast port to serve the central part of the continent, so more to come on that.

Ravi Shanker: So just to confirm, you are so confident in the opportunity there with the -- whoever is winning this bid?

JJ Ruest: So it doesn't necessarily mean that we have to be a financial partners.

I mean, there's different scenarios. But what's important here is they have now selected who they want to sell the terminal to, we know these people. We're actually going to be having discussion with them. And at this point, I will leave it at that as to what our financial role will be. But one thing for sure is we see opportunity to grow the rail business out of Halifax into the hinterland, which is really the point of what we call feeding the beast using Rupert port of the east.

Operator: Thank you. The next question is from Cherilyn Radbourne of TD Securities. Please go ahead.

Cherilyn Radbourne: I thought I'd use my one to ask JJ about the recent management restructuring you undertook, which was then followed up with some pretty broad changes to the management team, particularly in the operating department. Just wondering if you could elaborate a bit in your thinking there?

JJ Ruest: If you go on the deck that we have for this call, the last page in appendix, Page 22, is where we highlight the most important fact of these management change that took place in the last few months.

So some involved our operating department, we did promote -- we have very solid schedule railroading operator, people have been doing this all their life even though they may be only in their 40s and 50s, namely James Thompson in -- I think the West, Derrick Taylor out in I think the South. And we've asked Dave Bradshaw to become the godfather, if you wish, of the operation by leading the network center. And we've also asked Doug McDonnell. Doug McDonnell has a very strong career on the commercial side. And I've asked Doug to -- myself and the board have asked Doug to lead the East and learn operation but at same time Doug has always been very close to the operating team.

So we are really giving the chance to those who are the next generation of scheduled railroaders to take these very senior jobs. By doing that, then also we were also given the chance to promote some people in commercial side. People are very good top line hunters with strong track record, like James Cairns and Foster, and our friend Buck Rogers. And we've also beefed up the Department of Technology. So we're increasing the number of people who are either coming from outside to help us redefine the possible in the rail industry.

And we're giving the chance to our people who've been worked real hard producing very solid results the last 15-20 years to be given opportunities of very senior level or in area, which are new to them but then to finish their overall learning as to how to become some of the best of the best. We do have a strong bench and we're developing it.

Operator: Thank you. The next question is from Turan Quettawala of Scotiabank. Please go ahead.

Turan Quettawala: I was wondering if you could talk a little bit about CapEx this year. Obviously, another big year with regard to CapEx going into the summer and with the winter being so tough. Just maybe talk a little bit about the level of preparedness here with regard to the CapEx program going into the summer? A - JJ Ruest In terms of preparedness, first I'd just like to go back. If you look at the results we produced in December and through the first couple of weeks of January, that was a direct result of the capacity, especially through Western Canada and especially the yards of Edmonton and Winnipeg. And so we are -- as just mentioned earlier, we've learned how to better logisticate, I would say, between our material procurement, our material delivery.

In fact, our engineering department has become one of our big customers for transportation. And whether straight communication has developed tool so that we can refine the process, get more done with less. And with that capacity we've added allowed us to get a better unit cost. You remember in -- go back to '16 and '17 when volumes were lighter, we had the capacity. We produced a lot more in terms of what we got done in the hours we have.

It was very difficult the last year and a half, doing not just the special capital but the basic capital under such stress and traffic, while we're able now -- we've already got some good results for the first month or so, so big gang that we have out there on all three regions. We're starting the unit cost back in line. So we are prepared. We learned from last year. We've developed better communication, better tools.

But really we're going to stretch that dollar as far as we can.

Operator: Thank you. The next question is from Allison Landry of Credit Suisse. Please go ahead.

Allison Landry: So I just wanted to gauge your confidence in hitting the high-single digits RTM growth this year.

And whether it has changed at all given the combination of the slow start to the year and stopped your crude volume. And if it hasn’t changed, if you could maybe speak to whether the Q2 RTM growth will accelerate from what you are seeing now? Or if you think the full-year hinges more on a step-up to maybe 9% or 10% growth in the back half of the year? Thank you.

JJ Ruest: So maybe I can start. So I mean we would rather had an easier winter with the demand that we have back in December and early January when the railroad was running really well and there was some business out there, but it is what it is. So we're starting with bit of a slow start.

But yes, at 3% revenue come out growth, I think we're one of the leader in the industry here from volume growth. I think we are the leader in industry volume growth. And I'd just point, we're very current but we are also very fluid. And we will have some assets that we're parking, which is our good asset and good qualified people that we can easily bring back into it as things picks so it will partly be what's happening in natural resource, what's happening with consumer product, what's happening with intermodal. And I think we are only in the fourth quarter fourth month of a 12 month season, and there is still a lot of time left to go in the clock just like last year the same situation.

So I think we are looking the future are at this point in very good position. And if we have little help from the demand side, we will do it. I don’t know if you want to add something, James, on what you see in the natural resource and manufacturing side.

James Cairns: I think, certainly, JJ, we're coming off a tough first quarter weather wise in February. But even if you drawback crude by rail, you look at how we came out of December.

We handled 250,000 barrels a day of crude by rail. Clearly, line of sight leading December and move about 300,000 barrels a day. The only thing that stopped us was government curtailment. And if you look at some of the positive things going on and moving forward here in the province of Alberta, whether it's crude by rail and what might happen with curtailment in the future, or some of these new clients coming onboard. We really are very optimistic about that how we are going to finish up this year.

Operator: Next question is from Benoit Poirier of Desjardins Capital. Please go ahead.

Benoit Poirier: Could you please comment about what you see in terms of pricing environment? I know that you don't disclose any precise number. But if you could comment overall in light of the current market environment?

James Cairns: We continue to see opportunities at price ahead of railway cost inflation. Our customers are come to expect that from us.

We need to be able to price ahead of railway cost inflation. So we can invest back in our network. So we can invest in hiring people buying locomotives, investing in our rail infrastructure. So we can handle our customers' goods to market in a very expeditious manner. Our goal is to be there to grow in lockstep with our customers, and pricing is a key component to that.

Operator: Thank you. The next question is from Ken Hoexter of Bank of America Merrill Lynch. Please go ahead.

Ken Hoexter: JJ, pretty solid job and I've been in Western Canada for one of those minus 42 degrees. But just some thoughts on the projects, maybe dig into this a little bit.

Are we talking about capacity expansion on the network or is it equipment? I guess I want to understand are you at full network capacity so you could see squeezing if volumes start popping up in certain areas? And maybe talk about how you target those projects after the 22 last year. How do you figure out where you're going to need that that growth target?

JJ Ruest: Essentially, Ken, it's in the same -- I would say, almost the same location as last year. We still would you look at our what we'd call the breadbasket between -- and I'll go as far as Jasper Alberta to Chicago, or just take Edmonton and the Winnipeg for that matter that 800 miles. We started a couple years. We've got 15% of it only double track.

And then first tranche we did for us up to maybe 25%. We don't have the luxury of having 800 miles of straight double track like others do. So a lot of the infrastructure is going to go in that corridor. At the same time, we know we have growth to the West Coast, especially the Vancouver and especially with Coalspur starting up. So from west of Edmonton towards Vancouver, we see pinch points that will take place as the volumes grow.

Grain will continue to be strong. Keep center mobile is very strong, going to both Rupert and Vancouver. Around going to Rupert, we have more capacity in there. And then we still have that area that Winnipeg to Chicago that crude get more commodities that are going in that direction. But really it's not a lot different than last year.

The locomotives there, it's a big year for us this year, as we just mentioned 140 of another 80 to come but we spoke about that last year. And really other than that, we're talking technology and that's where the rest of our capital is going but really similar to last year, same areas. We still got work to do in that Winnipeg and Edmonton corridor.

Operator: Thank you. The next question is from Jason Sidon of Cowan Company.

Please go ahead.

Unidentified Analyst: This is Adam on for Jason. I want to follow-up on the TransX acquisition and potential future M&A. And just ask if there are other types of non-traditional rail or non-rail companies that you guys could potentially look at. What types of companies and how could you see these types of companies maybe fitting into your network, or fitting into your business in a broader sense?

JJ Ruest: So it's basically businesses that would bring about more carloads than old networks.

So you look at our rail lines, our main line rail line and you look at businesses who would contribute to increase the amount of carload or container on that rail line. So it's something that would feed the beast. So in the case of TransX, it's a national company. They move containers. They also move also freight over the road.

We're looking for them to help us grow the container business at a higher pace and also looking for them to help us convert more customers on the road to the rail road. We talked about port business, the exemplary of Halifax, it's the same thing. When we use a port very, very well like in the case of Rupert, I think this is a proven recipe that it does create a lot of volume on the railroad when port and railroad really work together in a very connected way. So these are two example or things, which are good long-term for franchise.

Operator: Thank you.

The next question is from Fadi Chamoun of BMO. Please go ahead.

Fadi Chamoun: So I wanted to ask you, when you look at your network. Is this, at this point, resource fully for the ramp up in volume that you're expecting in the second half of the year? And really I'm trying to understand that you're guiding for strong volume I guess as we go into the second half. But the operating leverage implied in the guidance is a little bit more muted.

How should we think about that H2 outlook?

JJ Ruest: So maybe I'll start and then anybody else who wants to complete my answer. But in the western network, our network the last few years have been under stress on the capacity resiliency point of view, especially when we hit harsh condition. And we want to invest for the long-term just enough for a quarter or the year. We want to be sure that we can handle growth when growth come-in in the West. We want to be sure that we can run efficiently, so we can produce good KPI from a scheduled railroading point of view.

And we also want a network that when tough time come in that we can show resiliency for our customers and up for the country into our time. And with 3% revenue from our growth in the first quarter, which most of it was in the West, we've proven that we were there for the Natural Resource customers. So in the east, we've got lots of capacity on the network, which is underutilized that's why we're interested as to what we can do in domestic capital in the east. When I see the east, I mean Chicago to Halifax and also what we could do with any other eastern port. So looking forward, we just need to be mindful of keeping a balance between capacity as in railcar and locomotive and crude and which is fluctuating.

And right now, the biggest aspect of fluctuation was crude, which went up 250,000 barrels. We were basically ready to do 300,000 at the time, we went down over 9,000 barrels per day and now slowly coming back, it went from [90 to 95]. And we hope that we can help Alberta remove the curtailment production and getting back up to what it was expected to be a few months back.

Operator: The next question is from Scott Group of Wolfe Research. Please go ahead.

Scott Group: So can you give us maybe just some revenue and operating re-share numbers to think about for TransX. And then just bigger picture with the guidance, so if RTMs end up mid-single-digits instead of high-single. Are we still confident we can do double-digit earnings growth? I know we did in the first quarter. Or do you think given the amount that we're spending here that we need the volume growth to come in where we want it to be to get to double-digit earnings growth for the year?

Ghislain Houle: Obviously, we're not going to start splitting the OR TransX versus the OR of CN. I mean, we're not offering segmented information and the financial data of now and results of the TransX, it will be embedded into CN and that's what it is.

I think on the guidance side, I think we're comfortable, very comfortable and we looked, and as we do every quarter we look. We do a detailed bottom up top down with the team. And we did reaffirm the guidance today. And as JJ mentioned, there's -- it was a tough quarter. And frankly, it was a tough February and March, because January was pretty solid actually.

And I think we had another nine months to go and stay tuned. But we're comfortable with our high-single-digit volume growth and our double-digit -- our low double digit EPS growth and that's our guidance and we're comfortable with it.

JJ Ruest: Yes, we're going to work the lever of the cost, lever of volume and lever of price as we always do, we adapt.

Scott Group: I understood you don't want to give a OR on TransX, that's fine. Can you at least give us a revenue sense, so we know how to model the other revenue line, going forward?

Ghislain Houle: Yes, I mean this was -- before we bought TransX, if you go on their Web site, there was 400 give or take revenue company.

So that's what it was. And I know now Keith is working, he is working with Mike Jones, who was their COO there closely. And those revenue was going to be embedded into the intermodal revenue numbers on our financial statement. And stay tuned. But I think, Keith, as we mentioned, we are pretty optimistic about some of the opportunities and some of the learnings that on both sides that we will get from TransX.

Keith Reardon: Yes, we are. I mean, we were going to work as a team to help them be able to drive more revenue, more profitable revenue at TransX. And they in turn are teaching us to be a little bit more entrepreneurial and be able to get things done little bit quicker, little bit more nimble.

Operator: Thank you. The next question is from Justin Long of Stephens.

Please go ahead.

Justin Long: So maybe to follow-up on TransX as well. Just curious if you have any thoughts around the revenue growth for that business, going forward even if it's longer-term over the next three to five years. And then for the model, also wanted to see if you had any updated thoughts around headcount, I guess, excluding the TransX adds and then the tax rate as well any of your assumption or range on that front has changed at all?

JJ Ruest: Maybe I could start with your last one, because that's what we will remember -- that's what I remember, because there were three questions in one. But on the tax side, again, if you look in the quarter the effective tax rate came in about 24% and some of this is due to some of the higher excess tax benefit that is resulting from the settlement of equity settled awards in this quarter.

But when you look at the tax, if you remember, Justin, we at the beginning of the year gave a guidance of 26% to 27%. And as we look forward, we think we're going to be more in the range of 26% going forward on our tax rate this year. So that's on the tax side. Keith, you want to touch upon the revenue for TransX?

Keith Reardon: Well, we’re going to be looking at all opportunities. They have quite a large book of business already, a lot of customers that we don’t have in our book of business.

And then we have some customers that we deal with that they don’t. So there is a lot of opportunity to help each other out there. As well as they are in the cold supply chain and they do a very good job there. And as you know, we've been working on investment in the coal supply chain, whether it's exports overseas or domestically. So we will be working together with them and our other wholesalers in the business to be aggressive and grow that business.

There is a lot of opportunity in the coal supply chain as food safety becomes more of an emphasis in North America. We want to be right there, because it is a differentiator for us in the marketplace.

James Cairns: And then, Justin, I think the last piece on headcount. I think as JJ mentioned, we are rightsizing our resources. And the volatility of crude right now is such that we are reducing somewhat our headcount on a short term basis.

We're hopeful that the crude, as James mentioned, will come back and then we'll get these people back but the catch up on headcount and on hiring has been done. We're normalizing and we're now right sizing our resources in light of the business that's coming at us. And if you look at headcount, at the end of the first quarter versus the fourth quarter of last year if you exclude TransX then we were flat essentially.

Operator: Thank you. The next question is from Walter Spracklin of RBC Capital Markets.

Please go ahead.

Walter Spracklin: So JJ, just on some of your growth aspects, coal is coming on pretty fast here, and as you pointed out in Alberta. But I know that the terminal in Prince Rupert Ridley is having some trouble having gone through a couple unexpected shutdowns or pretty significant, I think there's certainly more to come. Does that interrupt your opportunity in coal? Is there other avenues for that coal to find its way into the market, and how sustainable is that fix if there is one there?

JJ Ruest: Walter, there is other avenue for that coal to get to market if Rupert Ridley can't get it done. We're not getting into confidential information of how these different contracts work between a terminal operator and its customers.

If they can't perform some of that indefinitely go a little more south to the other coal terminal and still go-to-market. So I think from that point of view, we as a railroad have the capacity and the corridor and the crews in the two different corridors, to get the new mines to be able to serviced and to ship overseas. And just talking about the Vancouver, I know you wrote a piece back in the days on the CTA. It was almost head-hooping, Walter. You'd asked me a question of that.

We want to be sure that people understand that we disagree to this, this is done by the CTA. Regarding Vancouver, we will be appealing the decision. In our view, we did a great job of moving 10% volume growth during the month that they were talking about. We moved 1.9 million more metric ton of grain this year versus last year. This is solid performance.

And as I said, we will appeal the decision. However, looking at long term, Vancouver is a very busy place. There's not that much industrial land left in the city. And as you could from our Page 17 in the appendix, we have significant capital plan to serve both the south shore and the north shore Vancouver for the next three years. And we want to be part of the solution and we will be part of solution for the export terminal in Vancouver.

Operator: The next question is from David Vernon of Bernstein. Please go ahead.

David Vernon: I would like to know if you can tell us what impact weather had on the cost lines. Obviously, the constant currency variance on labor and purchased services, surely weather had a big impact on that. But is there any way you can dimension how the first quarter margins, if the margins were negatively impacted by weather?

JJ Ruest: David, definitely the weather had an impact on cost, definitely had an impact on revenue as well.

It had an impact on volumes. I mean if you have to shorten your trains or in some cases can’t even move, because it's minus 40 and it's not safe to move then obviously there is impact on revenue and there is impact on cost. You'll have more re-crews, you'll have more deadheads, your trains are shorter, therefore, you need more locomotives, you need more cars and then there's snow clearance. I mean, if you look at my remarks, I said there were more expenses related to snow clearing related to repairs and maintenance and the likes. We're not going to give a specific estimate of the winter per se, because at the end of the day, it is what it is.

And obviously when it's very cold and you consume more fuel and therefore, from a fuel standpoint, it's more expensive. But I mean you can have the bits and pieces of our costs that are higher due to winter. And I'll let you do the math but these are the big pieces.

David Vernon: And then maybe just as a quick follow-up, if we think for the full year ex-PTC depreciation add back, depreciation is up about 10%. Is that a good run rate for the full year?

JJ Ruest: Yes.

Operator: Thank you. The next question is from Seldon Clarke of Deutsche Bank. Please go ahead.

Seldon Clarke: Thanks very much, and just getting back to the margins for a second with everything going on across the industry in regards to PSR. So this is like the floor for OR has been lowered at all from the high 50 level, high 50s level you guys have previously talked about.

And if so, do you think CN can return to being the industry leader there?

JJ Ruest: Well, where's the floor, it all depends how much risk you want to take the business. So one can have the lower floor and then take the risk of not being able to meet demand on being able to respond the pressure when demand and harsh conditions come in. So we have a blend and we want to be a cost leader. But the cost leaders also takes things in balance from how we serve our customers and move the economy, but also be a leader that's also looking at the return on invested capital as much as EPS growth, as much as operating ratio. So now the one trick pony of operating ratio only does not necessarily give you the best easiest growth.

And when we have investment that can generate a good return on investment capital, taking to cost of capital, we are inclined to do these things as opposed to sit on the sideline and shave off one more point of OR. So this is where we saw it evolving from what we were doing the last 15 years. And we're looking at cost efficiencies, organic growth, some acquisition strong focus on returning invested capital but also strong focus on operating ratio. So what you'll see -- what you're seeing from CN is a more balanced scorecard than strictly pure PSR.

Seldon Clarke: So that’s still at high 50s level is the right way to think about it longer term?

JJ Ruest: We don't guide on the -- we're not going to get drawn in into the PSR discussion and how low can you go on the limbo contest.

We'll leave that for others.

Operator: Thank you. The next question is from Brian Ossenbeck of JPMorgan. Please go ahead.

Brian Ossenbeck: Just want to go back to the Vancouver investments you called out in the slide deck.

Would you characterize these more improving fluidity and resiliency, or do you actually expecting to get some capacity expansion and growth off of that? And to you point you mentioned on the CTA. When do you expect the resolution of that appeal? And is this a signal that you might expect a more aggressive and more involved regulator as a result of what just happened early this year?

JJ Ruest: As it relates to the appeal, these things take time and they'll take whatever time it takes. It does not really -- that's not a concern for us. What's concern for us is that the process is fair and reasonable to all, including the railroad. Regarding the capital investment we're making in Vancouver and also I want to recognize that we're doing this transaction with others.

And we have -- in one case, it's about $80 million, it's between CN, the Port of Vancouver and the federal government. And it is to serve the expansion on the south shore of Vanterm or DP world is expanding the content of terminal. So when they're ready sometime in 2020, we will be ready with them as well. And the GCT who owns Vanterm is also planning some expansion. So these things are really in sync with other people and investment on the south shore and same thing on the north shore.

On the north shore it's even more capital money, it's about $200 million over three years, again, here with the funding from the Port of Vancouver, CN and the federal government of the 200 or roughly $85 million. And as really is to serve the export of natural resources in the bulk, so you're talking more coal going to the north shore Vancouver, the G3 grain terminal and a number of other items. So like the investment on the north shore and the south shore eventually are part of the CN long-term or mid-term growth plan. And we're investing in transaction with others. But again as I said earlier, we move 1.9 more million ton of grain this crop year than last year.

And we're not getting a whole lot of noise from the grain industry about performance on last winter even though we had some super cold condition. And back in November and December, which was a period when CN was criticized, we did move 10% more volume than the prior year. So from our point of view, these are very reasonable performance and this whole investigation was maybe uncalled from our own point of view.

Operator: Thank you. The next question is from Brandon Oglenski of Barclays.

Please go ahead.

Brandon Oglenski: JJ or maybe Mike, you guys have historically spent more than maybe some of your North American peers but you've also gotten more growth out of it. So I mean, I know there has been a lot of questions on capital this call. And I don't want to steal a thunder from your Investor Day either. But can you just talk through where you still see the pinch points in the network.

And if the outlook for 2020 was to be high-single-digit RTM growth. Would we have to be spending at a similar level, or is it really some upfront tech investments that have made the past couple years so much higher and that should come down looking forward?

Mike Cory: Its Mike here Brandon. Let's just go back to -- I think Ken asked the question and I didn't mention it. If you look at the corridor that we're putting the capacity into, Western Canada handles 50% of our volume. If you stretch that out through Wisconsin through the route to Chicago, you're not talking 65% to 70% and those are big growth lanes for us.

So we're in $0.01. We're picking up volume but we're catching up to different capacity we need to be efficient and reliable. There is a technology jump over the last few years at PTC. We've spent a good amount and that’s starting to come down. And then the other technology that we're really looking for effective capacity with that, so whether it's the train inspection portals, some of the things we're doing from equipping our crews with handheld devices, whether they're car mechanics or conductors and then autonomous track inspection --, those are things that really take advantage of the capacity, the hard capacity we're building in the ground.

I see that catching up this year with this next round. Again, it's all dependent on future volume growth but we've really hit hard the area that's the toughest. And JJ said whether it's the winter conditions across the Prairie. I would just remind you that we're still only at 35% double track capacity there, and that's not resilient as we need it to be.

JJ Ruest: And maybe Brandon to go to your question on CapEx for 2020.

As we said previously, I mean the big capacity, big CapEx program we said was for two years 2018-2019. We are now in our second year of our CapEx to catch-up. 2020, we’ve said we were going to go back, hit the range of historical levels. But obviously, we will look at the growth that comes at us. And again, I want to remind everybody that our use of cash policy has never changed.

The first use of cash is towards the business. And that's what we've done, and when you look at our ROIC that has delivered in space in the range of 15% to 16%. So we're continuing to do what we said we're going to do. And in next year, we've said that we will go back to historical levels but obviously, we'll look at the growth that comes at us and we'll assess as that growth and as we have better visibility of that growth.

Operator: Thank you.

The next question is from Tom Wadewitz of UBS. Please go ahead.

Tom Wadewitz: I know you touched on this topic quite a bit, so maybe I am just not understanding what's implied within the comments. But you clearly identified the capacity on crude and you've reiterated the high-single digit RTM guidance for the year. Are you assuming in that RTM guidance that you see the ramp-up towards that 300,000 barrels a day capacity in crude? Or are you assuming that you stay at the current level and you can get there other ways.

Or how do we think about linking those two together?

JJ Ruest: James, you want to talk about maybe how from the middle [indiscernible] certain crudes?

James Cairns: So as you think about how we're thinking about crude is we built the capacity for our customers. We are very hopeful if they're going to be using it from the second half of the year. We have some solid contracts that kick in starting in July, but that's not built-in that core guidance that we have. If you look at our core run rate, I think that's the bottom end of what we're going to achieve. I think when we talk about having capacity of 300,000 barrels a day that gets us to that next level, I would say.

And quite frankly if you step back and you just look at the supply-demand for crude, whether it comes in July of this year or January of next year, it will be there.

Tom Wadewitz: But you get to the high-single digits without a ramp in crude?

James Cairns: That's correct Tom.

Operator: Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Jean-Jacques Ruest.

JJ Ruest: Well, thank you for joining us on the call. I'm hoping that many of you, if not most of you, could join us on our Investor Day on June 3rd and the 4th. On the afternoon of the 3rd, you'll have a chance to meet our team of railroaders, as well as to see the different item and technology that we are deploying. And on the 4th, we will do the usual presentation and give you our outlook for the next two years. So thank you very much.

Thanks for joining us. See you back in early June. Operator, back to you.

Operator: Thank you. The conference has now ended.

Please disconnect your lines at this time and thank you for your participation.