Executives: Paul Butcher - Vice-President Investor Relations Luc Jobin - President and Chief Executive Officer Mike Cory - Executive Vice-President and Chief Operating Officer Jean-Jacques Ruest - Executive Vice-President and Chief Marketing Officer Ghislain Houle - Executive Vice-President and Chief Financial

Officer
Analysts: Brandon Oglenski - Barclays Walter Spracklin - RBC Ravi Shanker - Morgan Stanley Fadi Chamoun - BMO Capital Markets Jason Seidl - Cowen & Company Tom Wadewitz - UBS Steve Hansen - Raymond James Scott Group - Wolfe Research Milan Posarac - Scotia Bank David Vernon - Cormark Securities Brian Koenigsberg - Vertical Research Partners David Vernon - Bernstein Cherilyn Radbourne - TD Securities Chris Wetherbee -

Citigroup
Operator: Welcome to the CN's Fourth Quarter and Full Year 2016 Financial Results Conference Call. I would now like to turn the meeting over to Paul Butcher, Vice President, Investor Relations. Ladies and Gentlemen, Mr. Butcher.

Paul Butcher: Thank you, Greta.

Good afternoon, everyone, and thank you for joining us today. I would like to remind you of the comments already made regarding forward-looking statements. With me today is Luc Jobin, our President and Chief Executive Officer; Mike Cory, our Executive Vice President and Chief Operating Officer; JJ Ruest, our Executive Vice President and Chief Marketing Officer; and Ghislain Houle, our Executive Vice President and Chief Financial Officer. As to our prepared remarks, we will conclude with the question and answer session. In consideration of your time we are trying to keep this call to one hour and I will ask that you please limit yourselves to one question.

I 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, Luc Jobin.

Luc Jobin: Thanks very much Paul and let me in turn welcome all of you to CN’s quarterly call. Today we will review our results for the fourth quarter and the full year 2016. The CN team is pleased to report another very strong quarter, one that cast the solid year of performance both financial and operating, including significant improvement in terms of safety, service and productivity.

These results continue to show how CN is adapting to changing market conditions, ceasing opportunities every day whilst positioning for the future. We achieved strong results in the fourth quarter with an adjusted diluted EPS of $1.23 and that’s up 4% versus last year’s fourth quarter. We also saw positive momentum on volume with RTMs up 4%. That’s an encouraging sign that the worst of the market correction in several commodity sectors is behind us and brighter prospects lay ahead. JJ will give you more color on this in a minute.

In terms of operating performance, we delivered very good metrics despite a more difficult winter in December of last year. Looking at full year results we are very proud of our performance especially given how challenging the year has been from a market standpoint and so for 2016 we achieved a full year adjusted diluted EPS growth of 3% to stand up $4.59. We also delivered a record-breaking operating ratio of 55.9% that is a full 230 basis points better than last year. It’s very tough to achieve this level of results and the entire CN team deserves credit, since we accomplish this with a clear view to meet high service levels and supply chain collaboration but not undermine our ability to grow as the market improves. Mike will give us a good look at how innovation, productivity and teamwork has been instrumental in reaching this milestone.

In 2016 CN generated free cash flow of $2.5 billion up 6% versus last year. And last but not least, we announced today a 10% increase in our dividend. Later on the call, Ghislain will expand on other key financial metrics for Q4 and the full year as well as provide you with our earnings guidance for 2017 along with some key assumptions. Let me now turn it over to the team for their more detailed commentary starting with Mike Cory. Mike?

Mike Cory: Well, thank you Luc.

The CN team of professionals deserves accolades for achieving very good results for the fourth quarter in spite of the impact of December’s winter comeback story. I’ll go into further detail on the subject of winter a little later. On the full year basis the overall results were outstanding and they reinforce a supply chain approach. This is an approach that produces premium service at the lowest possible cost by understanding the customer demand in executing our operations to efficiently deliver it. On a full-year basis, all of our key operating metrics see previous records with the exception of train speed.

Train speed was slightly down since our record performance of 2010, however volume is up 24% and trains are carrying 16% more payloads since that time period. For Q4 workload, and are measuring this in GTMs we were up 8.4% in Q3 and up 4% from Q4 of 2015. In Q4, we set an all-time record for train productivity at 9449 tons per train which is 5% higher than last year’s Q4. We also set a Q4 record for locomotive utilization which was up 7% year-over-year, all this was accomplished against the very tough comparable with a significant headwind of winter in December that we do not experience last year. In fact, going back over the last five years, the month of December 2016 was the second coldest with more days colder than minus 20 degrees Celsius than any other period for one year.

As well, the snowfall we experienced was the second highest in the last five years and our major operating yards in Winnipeg recorded the highest level of snowfall in the history of the City. Considering the dramatic change in weather this December brought our response was swift and it ensured our game plan of operational and service excellence remained intact. In fact, I can objectively say that in my 35 years in this industry and you have to remember a good majority of that's been in operations in Western Canada, we have not performed this well in the type of winter conditions we were faced within December in all of my recollection. We were able to deliver these results because our focus is on two tracks, and the first track is really about the day-to-day management of our business. We focus intensely on our metrics.

Our attention to detail is second to none and continuous improvements if you will lead us to meet the demand of our customers efficiently. The other track is aligned to the future. We invest time and capital to continue to create more efficient solutions for customers. In turn, we create reliability, efficiency and business growth in the long term. This track allows for innovation that produces results.

Our investments in assets like AC locomotives, network and yard improvements, technology to reduce the impact of weather and increase our service offering for customers have created an environment of innovation, and I’ll tell you that environment is something our team takes full advantage of. Our alignment with JJ and his team on developing and delivering a series of superior product offering constraint supported by investments in both network and locomotive capacity has produced by far the best movement of grain and not only over a winter period but a reigning period in recent history. This alignment trends in across all business segments and allows for a clustering of innovation and ideas that continue to drive our results. Now I said it before but no one metric generates these results on its own, it’s all about balance. And we believe our model of operational service excellence with a view to the future is what delivers results that are best in class.

One last point of thanks to our operating team leaders, they believe in and they deliver our plan, they sacrifice for their teams and they create the environment that allows this success to happen. So we have work to do, but good work is being done. Over to you JJ. Jean-

Jacques Ruest: Well thank you Mike. Great operating results by the operating team of CN.

The fourth-quarter revenue of CN was up $51 million or 1.6% versus last year. The CN carload was up 3.4%, the revenue ton mile was up 4.2%, both were above the industry average. Q4 was broadly as follows; revenue increase from volume was about 3.5%. Our most positive business for Canadian and U.S. going, market share gain and refined petroleum products and automotive, U.S.

housing start was driving our lumber and panel. Our intermodal from the East Coast did well, and finally we had recovery in Canadian export of Pet coke and potash. On the negative side, less long haul of crude by rail, less U.S. terminal coal and less sulphur. The applicable fuel surcharge lowered our revenue by about 1% and the all-in same store price on same store sales was up 2.7%.

When excluding the regulated grain, same store price was up 2.4%. The Canadian dollar had no impact on revenue this past quarter. I will now go through some selected details and outlook of our very diversified portfolio. Starting with grain, our grain operation was very fluid as my partner Mike just described earlier, we did a great job especially in December, which meant that for U.S. grain that when I look at the as reported Q4 our carload we were up 8000 cars and the revenue reported revenue was up 19% or $30 million.

This was driven by soybean and corn export. On the Canadian grain when you look at it on the as reported on the Q4 AAR carloads we were also up about 6000 cars, these are longer haul and the reported revenue was up 13% or $40 million. This was driven by strong export of canola and by all peak season pricing program. We had solid carload performance during the month of December where the prairie was very cold and which is really the result of past capital investment in our network that we can now benefit and really and as Mike described is a strong team operation of winter preparation but also in partnership with our grain customers. Under AAR Q4 carloads we move 87000 cars of Canadian grain which is notably 12,000 more than our counterparts.

The future of our grain franchise and grain market share is to grow. We do have better yield for acreage, there is more acreage being planted and we do have a number of commercial agreement already in place with customers that were located on CN about two third of the next wave of Prairie elevated construction in the next few years. Staying with bulk commodities, potash produced 20% incremental revenue while sulphur from oil and gas declined 30%. Q1 outlook for potash carloading is positive for Canpotex export via Vancouver but is also positive at these coasts where we use our new 29000 ton unit train to the Saint John potash terminal. Overall core revenue for [CN and total] was down 6%.

Our U.S. terminal core revenue was down. To note, effective January 1, we lost a short haul Midwest utility contract that in 2016 was worth $13 million Canadian for CN and business about 42,000 carloads, these were short haul carloads. On the flip side, Canadian met coal was up 13% versus last year, but the volume trends have turned around. CN and the met coal have increased their production in response to better oil pricing.

Three of our idle Canadian coal mine were acquired by the company called Conuma one mine did restart and is now in full production and Conuma is looking to restart the second mine this year. We also have two other idle mine in CN which are also under restart consideration. Our met coal and pet coke exports should be growing in 2017. Housing starts drove our lumber and panel revenue which was up 4% versus last year. The lumber and panel shipment to the U.S.

increased 6%. The expiry of the softwood lumber agreement October 12 had little impact on our car orders which remained consistent during the quarter and into this month, driven by U.S. housing start in the range of 1.2 million units per year. Moving to customers' purchase of motor vehicle. Our automotive as reported on the Q4 AR carload was up 5000 cars and on a reported revenue basis were up 6%.

Vehicle sales were favorable and we also gained new business from a few contract renewal. This year in 2017 we expect our automotive carload to grow and CN is now touching close to 70% of all the finished vehicles sold in Canada. Regarding energy, our carload for crude by rail was about 15,000 for the past quarter and 52,000 carload for 2016. Crude has sequentially improved during the fourth quarter. We also had share gains in refined petroleum products such as propane and motor fuels, which produced solid revenue growth which should continue in the first quarter.

On frac sand, our revenue was up 7%, the resurgence in drilling activities have sequentially improved sand carloads during the fourth quarter. [Intermodal] revenue was up only 1% domestic volume growth was modest mostly coming from door-to-door service from our industrial carload customers as well as from the Canadian retailers. The hub to hub wholesales and cross border business stayed weak. With the growing numbers of shipping line partners now doing business with CN, we had a much bigger pool of international containers at our disposal this year to grow our domestic repo program. As the International volume was flat and Rupert after Hanjin filed for bankruptcy in September, we are well aware -- well on the way to recover the volume with other shipping line especially with the DP oil terminal expansion coming soon in July and the reshaping of the world shipping line alliance which will come into effect sometime in May.

In Vancouver, all of our major contracts are renewed. Starting this month we picked up the [Indiscernible] business and Mike’s team is putting new service in place for the container business offloaded at Vanterm and Centerm terminal solving the congestion issues. Also notable, at the end of April, we will see a final phase of the railyard construction at Deltaport which will create 40% more rail capacity than what’s available there today. On the East Coast, our Halifax position in the [Indiscernible] is growing; revenue growth was about 17% in the fourth quarter. The port of Montreal is also doing well growing 15%.

One team that we are very very proud and we want to emphasize is how the team we are going to supply chain partners is all of us to be able to grow these businesses. Rail volume from the Gulf coast is still building very slowly. And one other thing to add is, we will be adding an incremental ramp in Minnesota sometime in the first quarter. Finally, iron ore, our combined iron ore rail, dock, and vessel business increased 8% in revenue in the last quarter. The outlook for iron ore is positive.

There is less field being dumped in the United States. There is strike in auto manufacturing, there is prospect for U.S. infrastructure spending and the CapEx expenditure from the oil and gas industry is getting healthier. In closing, we had the constructive volume given the momentum we saw since last September which has been sustained in the first weeks of this year. We are aiming to outperform the rail industry average as it relates to volume growth.

On the pricing side, the pricing environment remain influenced by excess capacity in all mode of transportation, however we are seeing some early signs of tightening and discipline. We continue to expect pricing to be above rail inflation in 2017. Thank you. I think I will turn it over here to Ghislain, our Chief Financial Officer.

Ghislain Houle: Thanks JJ.

Starting on page 11 of the presentation, I will summarize the key financial highlights of our solid fourth quarter performance. Then I will comment on our full year 2016 performance and finally I will provide our guidance for 2017. As JJ previously pointed out, revenues for the quarter were up 2% versus last year at slightly over $3.2 billion. Fuel lag on a year-over-year basis represented a revenue headwind of $24 million or $0.02 of EPS driven by an unfavorable lag this year of $10 million versus a favorable lag of $14 million experience in Q4 of 2015. Operating income was just shy of $1.4 billion up $40 million or 3% versus last year.

Our operating ratio came in at 56.6%, a record for fourth quarter and representing an improvement of 60 basis points over last year. Other income was $91 million compared to $16 million in 2015. This increase is the result of the gain on aligned sale in Montreal of $76 million or $66 million after tax. Net income stood at [$1.018 million] or 8% higher than last year with reported diluted earnings per share of $1.32 versus $1.18 in 2015, up by 12%. This includes the gain on the one time aligned sale I just mentioned.

Thus excluding this gain adjusted diluted EPS for the quarter came in at $1.23 up $0.05 or 4% versus last year. The impact of foreign currency on an income EPS was negligible in the quarter. Turning to page 12 as Mike previously pointed out; we continued to make progress in the quarter in terms of productivity gains, including cost management initiatives while providing superior service. Our operating expenses were up 1% versus last year at just over $1.8 billion, mostly driven by higher volumes versus last year. As the average exchange rate in the fourth quarter of 2016 was essentially the same as last year, both actual and constant currency variances are the same.

Labor and fringe benefit expenses were $565 million, 7% lower than last year. This was mostly the result of lower wages and pension expense, partly offset by higher incentive compensation. Wage costs decreased by 2% as wage inflation was more than offset by a reduction of about 5% in average head count for the quarter versus 2015. At the end of the year we still had about 500 employees laid off and we finished 2016 with 4% fewer employees or roughly 800 less than last year. Pension expense was $46 million favorable this quarter, ending the year with a higher than expected tailwind of $195 million mostly driven by the adoption of the spot rate approach to estimate current service cost and interest costs.

As interest rates moved up, since the third quarter and the discount rate finished at 3.81% at December 31, pension expense will be roughly flat in 2017 versus 2016 on a year-over-year basis. Finally, these items were partly offset by higher incentive compensation of $15 million in the quarter versus last year. Purchase services and material expense were $428 million, 2% lower than last year. This was mostly the result of higher credits, driven by our capital program and lower repair and maintenance costs, partly offset by higher outsourced services. Fuel expense came in at $312 million or 3% higher than last year, mainly attributable to stronger volumes partly offset by fuel productivity which was up by 2.5% versus last year.

Depreciation stood at $310 million, 7% higher than last year. This was mostly a function of net asset additions. Equipment rents were down 7% versus last year driven by lower lease expense due to return of lease cost. Finally, casualty and other cost was $111 million, which was $40 million higher than last year mainly driven by our annual actuarial true-up for legal claims of $25 million and a workers’ compensation credit of around $15 million recorded in Q4, 2015. Let me now turn to our full year results on page 13.

We completed 2016 with revenue slightly above $12 billion or 5% lower than 2015. However, our operating expenses at around $6.7 billion were 8% lower than last year producing a 1% increase in operating income versus 2015. The operating ratio stood at an impressive 55.9% which as Luc indicated is a full 230 basis point improvement versus our all time record of 58.2% set last year. This demonstrates our continued ability to balance operational and service excellence consistent with our supply chain focus in good and tougher time. Net income was up roughly a $100 million were 3% at just over $3.6 billion.

Excluding the impact of the one time line serve in 2016 and income tax adjustments in both years, adjusted diluted EPS for 2016 came in at $4.59 up 3% versus 2015, quite a performance in an environment for volumes in terms of RTMs were down 5% for the year. Now moving to free cash flow on page 14 for the full year 2016 we generated just above $2.5 billion of free cash flow which is close to $150 million or 6% higher than in the prior year. This was mostly driven by improvements in net income, lower cash taxes and higher proceeds on sale of property. Our capital expenditure finished roughly at our budgeted $2.75 billion and our balance sheet remains strong with debt and leverage ratios well within our guide lines. Finally, let me turn to our 2017 financial outlook on page 15.

We are cautiously optimistic with regards to CN’s prospect for the year and while we see volume growth in 2017 we are continuing to experience some volatility and weaker conditions in a number of commodity sectors. As we look into 2017 North American economic conditions are improving with favorable consumer confidence which have support progress in many sectors. In addition we are leveraging our superior service to continue to gain market share in key customer service sensitive markets. While energy market mainly crude and frac sand have demonstrated sequential growth since trough experienced in the second quarter last year. We still expect this sector to remain relatively muted in 2017.

So this environment should translate into volume growth in the range of 3% to 4% in terms of RTMs with the full year versus 2016 while overall pricing above inflation. Therefore we expect to deliver EPS growth in the mid-single digit range over 2016 adjusted diluted EPS of $4.59. We remain committed to reinvesting in the business for the long run with the capital envelop of $2.5 billion for 2017. We will allocate $1.6 billion for basic track infrastructure supporting our safety agenda and an investment of around $400 million will be allocated to PTC as we continued to advance the implementation of a program. Furthermore, we continue to pursue our shareholder return agenda.

In 2016 we return to shareholders roughly 90% of our net income through dividends and repurchases. In our current share buyback program is approximately $2 billion in 2017. Finally, we are pleased to announce as Luc mentioned that our Boards of Directors have approved a 10% dividend increase for 2017 reflecting our solid performance in 2016 and our confident in the future as we move toward a 35% dividend payout ratios. In closing, we’ll remain committed to our agenda of operational and service excellence with our supply chain focus and we continue to manage the business to deliver sustainable value for our customers and shareholders today and for the long-term. On this note, back to you, Luc.

Luc Jobin: All right. Well, thank you very much, Ghislain, JJ and Mike. I think what we’ll do now is we’ll turn, we’ll open the lines to take your call. So we are now ready to take the calls.

Operator: Thank you, Mr.

Jobin, we will take questions. [Operator instructions]. The first question is from [Wayne McDonnell] of CN. Please proceed.

Unidentified Analyst: That was a mistake.

There are no questions. I was just listening to the call.

Luc Jobin: All right. Thanks.

Operator: Thank you very much.

The next question is from Brandon Oglenski of Barclays. Please proceed.

Brandon Oglenski: Hey. Good afternoon everyone and thanks for taking my question. So, Luc or JJ, can you just give us some feedback? Obviously, the landscape or at least the future landscape for NAFTA has change a little bit with the U.S.

elections. Have you gotten any feedback from your customers? I mean has anything structurally changed yet and are you rethinking your capital allocation process? I mean, when you think about some of the assets that are involved in North America trade, especially some other railroad stocks and valuations have come down a lot now, does that make you think strategically a little bit differently about the outlook?

Luc Jobin: Yes. Thanks Brandon for your question. Well, just talking little bit about NAFTA, I mean again from the Canadian perspective we are cautiously optimistic, again we’ve been long trading partners with the United States and there's a lot going on and there is a certainly a relationship which is very different between Canada and the U.S. versus Mexico and U.S.

So, the balance trade is much more – a much closer and we also -- when you look at the manufacturing jobs that moved. They moved out of Canada and out at the U.S. and in many over to Mexico. So, if you look at what might be more affected certainly the automotive sector both parts and new cars with the potentially at the crosshair of that, but that’s a very small percentage of what we actually export to the U.S. Southbound.

So, we don’t expect any significant change, I sees not in the foreseeable future and I think most of our customers and JJ can supplement, are taking the same sort of optimistic yet cautious approach and we’ll have to work things out, but generally what we've been hearing from the U.S. folks is encouraging and we’ll have to kind of work through it. There is free trade agreement which predate NAFTA and so there’s a long-standing relationship of bilateral negotiations and working out issues. As it relates to how this may affect other railways. At this point it hadn’t necessarily changed our views.

I think it's still too early to call the game and so we’re going to have to see how things evolve and where the dust settled in the end. JJ anything you want to add in [terms of any]. Jean-

Jacques Ruest: Yes. That’s been my opening comments, we are constructed about the volume outlook. We are aiming to outperform the rail industry average and after three weeks we're leading with 5.5% carload growth.

And also we look at the U.S. I mean, we got about 17 or so percent of our business which is domestic U.S. Brandon, so I think there are plenty of opportunities for us to grow as potentially more manufacturing and more jobs get created in the U.S., so we’re looking forward to that. Thank you.

Brandon Oglenski: No problem.

Operator: Thank you. The next question is from Walter Spracklin of RBC. Please proceed.

Walter Spracklin: Very much, good afternoon everyone. Jean-

Jacques Ruest: How you’re doing Walter?

Walter Spracklin: So I guess, the most common question I get is on your [OR] improvement in and how you can get much lower and it seems to be the question that recurs every year and you do deliver on that.

So I guess I'll ask it again, Mike you've got and you’ve demonstrated some significant trends and improvements that seem to look like they’re going to carry forward in the next year. Look, you talked a bit about technology investment, is there any sense, is our improvement in the cars for next year and can you give us some insights into what your assumption is for OR that the drives your current EPS guidance?

Mike Cory: This are the tough one, Walter, we can never answer it seem. So I’m going to give you this. I’m going to give you four points that are basic to what I would say fundamental success in railroading. The first thing that we focus on is understand what we’re trying to accomplish.

From that we set plans that have targets that require improvement whether we put one less asset into the plan, one less person whatever it is we set very tough target. And then we measure them religiously. And when we see something we take action immediately. Now, that's all I’ve done with strong leadership, the sacrifice I talked about, that will get strong work. That’s we’ll strong war.

We’ll never stop doing that. The thing is the investment, the item of the future technology. We have everything in the works. We just expect to continue to improve on not to OR, but every aspect of the business that we go after.

Luc Jobin: Yes.

Thanks Mike. And Walter, I mean, it’s always a balancing act. I mean, what try to is be as productive as we can, and as Mike pointed out to drive down costs where we’re not see necessarily adding the whole lot of value. The flip side is we are set on gaining traction in the market place, so we’re not shy about if we see opportunities and we want to invest a little bit and getting that business on board, we can do so. Our low OR allows us some flexibility and our confidence that we can continuous improvement that we can bring on new business and drive it to a level of productivity that’s our strength.

And so, all that to say, we’re not going to guide on ore and we’re always trying to solve for what’s the best bottom-line and sustainable growth that we can bring on the network, and it will bounce around a little bit given sometimes you’ll have weather that comes into play and at a times you’ll have a few other things that can cause it to bounce around. But I think we just deliver and you can rest assured that team here is set on growing the business and doing so as efficiently as possible, but not at the expense of more service offering. And that’s the key, that’s the magic to the equation here.

Walter Spracklin: Okay. Thank you very much.

Luc Jobin: Walter, we look forward to the question next year.

Walter Spracklin: Thanks.

Luc Jobin: All right.

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

Please proceed.

Ravi Shanker: I want to follow-up on that question, the risk of maybe asking the same question again in different way. If I were to kind of try and bridge your topline guidance to your EPS guidance, it does look like you said 3% to 4% volume growth and pricing over inflation, that by itself should get you to something close to mid single-digit EPS growth not to mentioned as you said continuous OR improvement and buyback on top of that. I just want to make sure that there isn't something you're missing in terms of a headwind to earnings next year kind of below the line or at our lines itself?

Luc Jobin: Well, I mean, you’re not missing much, I mean, the reality is, again I mean we set out and we look at – we have as much visibility than anybody else, so we take a few and I think that what we’ve said is a fairly constructive view in terms of a number of commodity sectors seem to have stabilized and are showing encouraging signs of progress. So, the guidance that we’ve provided in mid single-digit is the reflection of what I would describe as that volume growth, the pricing that we talked about and continuing to deliver solid operating metrics including OR.

So, that’s the equation and if you solve for that you get mid single-digit.

Ravi Shanker: Great. And can just have one more, on the shared gains, you certainly had a very good recent track record with the picking up share. Where are we with that shift, I mean, do you think that’s kind of normalized between you and your chief peer or do you there are more opportunities out there? Thank you. Jean-

Jacques Ruest: There is more opportunity, as geographic expansion or serving customers who are today we’d like to get a better service.

So now there, I would not discount potential to – getting to which market, but there is some business saw there, that we think we could that maybe the customers would like to have business with us?

Luc Jobin: Thank you, Ravi. Appreciate it.

Operator: Thank you. The next question is from Fadi Chamoun of BMO Capital Markets. Fadi Chamoun : Yes.

Good evening. Just a clarification, I’m not sure I said that. Does the guidance include a buyback for 2017? And secondly for JJ, when you look at the what's going on with the new alliances, ocean’s helping alliances, do you feel unbalanced that this is something that creates opportunities for you to fill that incremental capacity on the West Coast or does it represents more of a risk of this stage, any visibility on that would be good?

Ghislain Houle: Hi, Fadi, this is Ghislain. For your first question, yes, the guidance includes a $2 billion program for share buybacks in 2017. But then JJ if you want to say.

Jean-

Jacques Ruest: Yes. Fadi, on the ocean shipping, all the ocean shipping alliance will make into effect May 1st, this is where all the musical chairs, when the music stop and everybody has a different chair. It does provides some kiosk in the marketplace if you wish from point of view, at the same time in the case of Rupert because the expansion is coming in June and July, I’m sorry and we’ll have the second, but it does provide opportunity. We are selling what the Hanjin and Rupert right now very hard. And in the case of Vancouver with Delta Port having this rail on the capacity up a 40% by the end of April, it also offered opportunity for us and our partners to go out and sell to for bigger ship, bigger ship having bigger discharge, and if the ship coming as a first part of call whereas Vancouver it really gives us a great service to go and sell into market where our and to that market where market share today is suboptimal.

So lastly, we were restricted the capacity. I think this year we have an open field as of sometime in the spring and we are running hard to exploit all we can out of that.

Fadi Chamoun: Thanks very much.

Ghislain Houle: Thanks Fadi.

Operator: Thank you.

The next question is from Jason Seidl of Cowen & Company. Please proceed.

Jason Seidl: Thank you, operator, and thank you for taking the time. I wanted to go back on pricing side; I think earlier on you mentioned that things were starting to tighten up. I was wondering if you can give us a little more color as to where you starting to see that, and sort of, are you starting reprice contract at a little bit better way than you thought you were?

Luc Jobin: So, I think there are few – the line was not that great.

Your question was around pricing and pricing outlook getting slightly better. Is that right, Jason?

Jason Seidl: That is correct, yes.

Luc Jobin: Yes. So, definitely the last two years have been little more challenging than the years prior to that partly because the capacity of all more available, we see, I think on the trucking side there’s been less equipment been purchase, the people have cut to vacant their capital expenditure. On the rail side the capacity is going to be tightening.

This is where you’re going to get into commodity by commodity. Now railroad may have a lot of locomotive but they may no longer the specific type of gondola or specific type of rail equipment that a customer is looking for. So this is where you start getting to the sub-segment of, I do have crews network capacity and I have locomotive, but don’t have any more center beam or I don’t have any bi-level or on the trucking side I think people can only do so long at calling low price and year after cutting low price and then eventually start to get the result of what the living as a result of this low price. So I think the discipline often comes back as a result of phases with some pain and then each market players I think would like to eventually slightly better price, and each market players is also in some cases or at least in some equipment getting to the point, we get to invest new capital money and now they look at it differently, still longer in incremental sale, it’s the sale has to pay for their newer railcar that they have to bring in.

Jason Seidl: Okay.

And how much your book of business is already priced at 2017?

Luc Jobin: Same as in the past, we sign a multiyear contract and so we’re probably turning the book of business maybe like every three years or so.

Jason Seidl: Okay.

Luc Jobin: Thank very much.

Jason Seidl: Guys, I appreciate the time.

Operator: Thank you.

The next question is from Tom Wadewitz of UBS. Please proceed.

Tom Wadewitz: Yes. Good afternoon. I wanted to see if you could offer within the volume growth guidance that you said three to four, is there a mix effect that would be meaningful and then positive or negative that might kind of translate to revenue growth in a certain way and then I don’t know if -- just a kind of little more color on that intermodal volume outlook, it sounds like there was potential but it was kind of has been weak recently, so any thoughts on those do appreciate it? Thank you.

Luc Jobin: On intermodal we haven’t hit I will stride yet, I think we were negative for a while and now we’re flat and we now hoping for better days to come in spring and summer time for the reason I mentioned earlier. And yes, I think the mix has changed quite a bit last, short-haul business been last, long-haul business been gain, long-haul crude disappearing, long haul frac sand coming back in, I think we’re going to some of that this year as well. Intermodal if it comes that’s fairly long-haul too, but its slower weight and we talk about the expansion of Delta Port, so right now on the mix side, I’m not too sure exactly where it will go for this year. And there’s a lot of -- we’re not into steady in the environment, we’re into bit of a recovery phase from a volume side, but I think there is reason to be optimistic about volume for this year. I think for the rail industry in general but definitely at CN.

Tom Wadewitz: Okay. Thank you.

Luc Jobin: Thank you, Tom.

Operator: Thank you. The next question is from Steve Hansen of Raymond James.

Steve Hansen: Yes. Hey, guys. Thanks for time. If I'm looking at the volume growth side of things the strength that appears to be carrying over and Q1 appears quite robust and if I'm looking at the pretty low hurdle in the Q2 given last year’s turmoil, it strikes me that your backend guidance assumptions are probably a little bit conservative or it strikes me that they are conservative. Any thoughts around sort of cadence throughout the year in terms of how the growth will progress in that 3% to 4%?

Ghislain Houle: The first quarter last year, we have tougher winter, so this is really move all the volume we wanted to move, but at time we get to the second quarter we were running very smoothly, but the demand for our product was not that great, you remember that the volume in Q2 wasn’t that great.

And then it starts to pickup in the summer time. And our fourth quarter volume, last year it’s been pretty good, so that’s kind of the cycle of what you'll see. But all in, the guidance is volume that we talked about and one we’re sticking to it right now.

Luc Jobin: And Steve, it Luc. Just keep in mind, I mean, if you got better visibility on the second half and we do we’d be more than happy to share notes with you.

So at this point I think this is a fair annual guidance and as you indicated, I mean, we do expect to have stronger comps through the first half and then as the year unfold then if we see that the trends are evolving in a way that these are better or worst then we’ll readjust thing, so but…

Ghislain Houle: We are cautious people. I think last year everybody had different guidance. We finished at 3% EPS growth which in the end was one of the best in the industry.

Steve Hansen: I appreciate the color. Thanks, guys.

Ghislain Houle: Thank you.

Operator: Thank you. The next question is from Scott Group of Wolfe Research. Please proceed.

Scott Group: Hey, thanks.

Good afternoon, guys. So, I wanted to go back just the OR question. So, if I just take the pieces of your guidance with volume and price and buyback and earnings, it does imply about a point or so maybe even a point or two OR degradation this year. So is that what you're telling us or maybe is there something conservative in the guidance or maybe something is changing or if you look in the fourth quarter RTMs were up 4% and earnings were up 4%, so maybe something is changing where you just not getting the operating leverage, so how are you kind of answer that, but the guidance does seem to imply OR degradation this year and curious on your thoughts?

Luc Jobin: Yes. Scott, its Luc.

Just to give you a little bit more color, I mean, one of the issue that you still have to keep in mind is that we did have a fairly mild winter and when we look at the last year, so that’s not a god-given right and even though people talk about global warming we’re certainly facing more, what I call the more normal winter in fact a little bit more than that if you look to how Decembers came up. In any event, so I think there is a little bit of noise there in terms of where and how the year will unfold from a pure costs standpoint. And I think again we take a cautious view of sort of the second half in terms of volume. So, the numbers are there and it’s in the zone, so it’s still too early to say whether our OR will determine or not. There isn’t anything that's going on that is particular, it will be again, I mean it will be a question of mix.

It will be question of when and how the volume is layered on. Certainly you can expect that will continue to manage the cost very tightly and continue as the mentioned earlier to seize opportunities where we can and we are prepared to invest a little bit more and take on business that maybe at a slightly higher OR, that’s the right thing for the franchise for the long-term. So I think the precision you’re looking for is not what we do focus on. I mean, what we're doing is we get there, we got a good operating plan, we got a good commercial plan and every time there is an opportunity, we look at it and move on it. So it could be just as much in terms lowering costs, increasing productivity or putting on more business.

So you are in the zone, but we’ll have to see how it shakes out.

Scott Group: Okay. And that’s helpful. If I can ask JJ just one clarifying point. So I think you said price was up 2.7% and fuel was down one, but total carload yields were down too, so that implies like a three to four point headwind for mix and carloads and RTMs were pretty similar, so what am I missing on the mix headwind this quarter?
Jean-

Jacques Ruest: So on the same-store price it was 2.7% and I want to add, if I remove the regular grain, it was 2.4%, the difference between these two assets, because we do have peak pricing on our grain business that we start October 1st.

And what you’re referring to is the impact of the mix. Now we lost, we lost from long-haul business versus the year before and crude by rail has also been shift in our frac sand which is also long haul. The [Indiscernible] business was flat, so there’s a lot of mix noise in our mix result, which impact these revenue ton-mile and these revenue per carload. But when we’re already managed the business, we don’t manage the business on those matrix, we manage it on same-store price. We manage on revenue to cost ratio, contribution per carload, revenue ROI on equipment and then also we have the impact on exchange and fuel on this revenue ton mile and revenue per carload.

So you’re looking at data that in the end is not really that useful to understand our yield. The element that we use and the one I mentioned, the one I listed here.

Scott Group: Okay. Thank you. Jean-

Jacques Ruest: Okay.

Thank you.

Operator: Thank you. The next question is from [Indiscernible] of Scotia Bank. Please proceed.

Milan Posarac: Hi, there.

This Milan Posarac online for [Tron]. Just wondering CapEx been coming down here last couple of years and you’re guiding for a small decline in 2017 as well, so volume is recovering a bit here in 2017. Should be expect CapEx then to resume its upward trajectory in 2018 or do you think you’ll have a little bit of a longer holiday? Thanks.

Ghislain Houle: Well, this is Ghislain. So absolutely CapEx as I guided was 2.5 versus 2.75 last year.

We did say that we had locomotives in 2016 that we were not expecting in 2017, so that helped reduce the envelope, offset a little bit by an uptick on the PTC investments going forward. I think we’ve been very consistent on our investment and capital program. I think we’re always going around 20% of revenues or close to 50% of operating income back to the business. So in my view if I were you I would not assume anything otherwise. I think in that ranges is the range of we’re looking for.

Luc Jobin: Yes. Milan, its Luc. I mean, we obviously are looking whenever we can see opportunities to invest and to further advance our competitive advantage, we’re not shy about doing that. So our eyes in the long-term and as we move forward we have indicated that there may be some opportunities more on the technology side and so we’re looking really hard and we’re not shy about investing. We do have a good track record of delivering returns on capital investments.

So that’s of a posture on that.

Milan Posarac: Okay, great. Thank you.

Luc Jobin: Thank you.

Operator: Thank you.

The next question is from Ken Hoexter of Merrill. Please proceed.

Ken Hoexter: Great. Good afternoon. Nice job on the quarter and tough weather spike it sounds like, but clearly impacted a punch of peers.

For that reason I guess, was there any reason for casualty spike, it was the highest level since the fourth quarter level since 2004, just I guess technical question following on Scott's cost side, but just a longer-term picture that the thoughts our large wins, your big revenue wins with the GM business, Yang Ming. Should we look at this says is the pricing side is as you asked before? Is there a capacity need? What's driving those wins? I’m just wondering, I guess there were large expectation, some of that would move back to your peer, but when you keep winning like this it just wondering, it that just service or is it pricing?

Luc Jobin: So Ken, I think there’s two sides of your question to make sure. So the first one is one casualty and other and the second one is market share. So I’ll tackle the first one. And I’ll let JJ tackle market share.

So the first one I explain what happen on in the fourth quarter that explain that variance of $40 million, it’s really an annual throughout that you do with our U.S. legal claims. And about 25 million was another 15 or that was a credit in last year. When you look at casualty and others, sometimes they’re lumpy items that come in a quarter. If you want to look at a run rate, I think we’ve said in the past that 90 million give or take in a quarter is a good number and that’s what I would use going forward, but sometimes depending on what happens in certain quarters, you might have a lumpy piece hitting like the one that we have on the fourth quarter.

JJ you want to talk about the market share, please. Jean-

Jacques Ruest: Yes. So when you look and see accounts like General Motors or [Kia] or Mazda or Yang Ming that they are in the world where service is very key for their own success and I think Mike Cory in his opening comment said it right, our aim to produce a premium service at the lowest operating ratio and that’s supply-chain. So our mindset is to try to put ourselves and issues of this company especially those who are face where in a world where service does matter, automotive and delivering to warehouse and assembly plant and retailers and try to create supply-chain that starts before CN and finished after CN. So we’d become relevant for them.

And that’s how we – customers don't change from one supplier to another without good reason. Everybody obtain which are things are running well, why we’ll make a change, so it starts probably with a some level of dissatisfaction and then looking at something that's more appealing and having little taste of it because we do business with all these people. We were doing business with all of these customers. We’re just going to be doing more of it. And our job is to help them win in their market and that’s the reason why they’d like to little more with CN where are pile of – pile of the extension of their success, so and of course people want to pay a fair market price and having the lowest operating ratio in the industry allow us to compete when we want to.

Ken Hoexter: Very helpful. Appreciate the insight from both. Thank you.

Luc Jobin: Thank you, Ken.

Operator: Thank you.

The next question is from David Vernon of Cormark Securities. Please proceed.

David Vernon: Hello. Two questions please. One is just on headcount, could you give us your thoughts on that.

And the second is on tax rate can you give us your thoughts on tax rate for 2017 both effective and the cash stocks?

Mike Cory: Hi, David, it’s Mike here. Look, we modulate our labor based on demand demographics, productivity. We have people still laid off in some crafts. However we were very, very strong planning process and alignment with the variety of functions finance marketing sales operations where we meet regularly and we have a good view of the future and then we modulate our labor like I said.

Luc Jobin: And on the effective tax rate I think we had guided 2016 at 26.5% and I would continue to use that same number for 2017.

And on the cash taxes we are still around the mid-teen level, so that’s what I would use.

David Dalman: Okay. That’s helpful. Thank you.

Luc Jobin: Thanks David.

Unidentified

Company Representative: Thank you, David.

Operator: Thank you. The next question is from Brian Koenigsberg of Vertical Research Partners. Please proceed.

Brian Koenigsberg: Yes, hi good afternoon.

Actually just starting out with the point of clarification, on the revenue ton miles, on the release in the presentation it talks about 4% but if you look at your AAR data, it talks about that actually indicates our camp is up 6.3%. Can you just tell us what the difference is between those two?

Ghislain Houle: So in our press release I think we are using the calendar month, the calendar quarter which is start December start first of October to December 31 and the AR does not use the same period. So this is why in my comment I did refer when I was talking ARR data I was specifically saying that and think because a lot of developed people I see use the ARR data to compare but this is where you get into – it’s not a quarter with 90 days like we have on the ARR. I think Paul could probably explain that in more specific detail after the call ends.

Brian Koenigsberg: Okay, thanks for that.

And can you talk a little bit on met coal, I think you indicated to the other customer that was expanding some production, there are possibly some others that could open up business again in 2017 and maybe a little bit more color on that and how significant that could be to the extent these production ramps do happen.

Luc Jobin: In the last quarter of last year, the price of met coal, coking coal started to go up as a result of the Chinese production coming back. We had customers who had lot of energy, who had –was in bankruptcy situation, he had three mines shutdown. All of his assets were bought at a reasonable price by a company called Canuma. It did reopen one of the mine in November.

We intend to open another mine sometime in – probably in sometime in the first half. May open a third one, it will all depend how the price of coking oil move around the well. If you have a very good color what the Canuma game plan is, they actually their CEO gave an interview on BNN where he explained all of his game plan how that have come together. But all that to say that coking coal for CN well now should not be a negative headwind, it should be something positive. And that in itself is what I was talking about earlier.

All right, thank you Brian.

Brian Koenigsberg: Yeah. Thank you.

Operator: Thank you. The next question is from David Vernon of Bernstein.

David Vernon: Hey guys, thanks for taking the question. I guess Luc, maybe from a bigger picture sort of strategy perspective as you guys are kind of operating on all cylinders in a decent volume environment. Is there a point we just start looking at other ways to enhance cash flow whether monetization of assets maybe looking at coal production with CP, maybe looking at investing into adjacencies as this. How critical is this for the board and could you give us a sense for what you would think would be sort of fair game for what you could do to supplement the excellent operating results with corporate action?

Luc Jobin: Yeah, I mean thanks for your question. It’s something that we are always looking at.

And the first opportunity we look at is opportunities for growth in terms of advancing our book of business and investing in the franchise, so if there are opportunities for some co-investment or helping one of our customers grow and investing along with them we look at these things. In terms of co-production, again there these things are on the radar but they are very few that actually right now that we can look to that might be interesting so I don’t think there is a lot of potential there. We always look at other opportunities whether it’s adjacencies or bolt on smaller rails to acquire. So those again tend to be a little bit lumpy and we are cautious on adjacencies cause again you need to keep in mind we know what we do very well and unless we think that we can have a competitive advantage or improve our overall product by venturing into these things, we are not presumptuous enough to say that we can do all things well. In many cases what we’ve done as well is to have alliances in work supply chain and so we don’t necessarily need to own the asset but the way we work with our partners and scorecards and the way we work to improve the performance is clearly has paid off for us.

So we look at every opportunity to grow, to continue to grow the franchise. These things are – they are not linear in terms of when and how they come to us, but rest assured we are looking and we are intent on growing this franchise, but in the flip side we are good custodians of the shareholders money and we do look for good returns before we look at acquisitions specially when you are outside of our field of expertise. Okay, thank you…

David Vernon: Is that maybe just as a quick follow up, is there anything material that we should expect on asset monetization for next year or kind of runrate you’ll see how it goes?

Luc Jobin: No, I think from that standpoint Ghislain referred to a little transaction that we were able to achieve by the end of the year. We don’t expect anything of magnitude being out there. Having said that, we are always looking at things and turning stones, so maybe what typically you look at – part of $20 million sort of runrate from miscellaneous parcels and stuff.

Ghislain Houle: Yeah I would say about $20 million and to your point we always strive to find out things and sometimes things unfold in different ways during the year, obviously if we find some on used asset that we can monetize we certainly will run after it but at this point in time I would say that we don’t have anything specific on the docket and I would assume about $20 million of small sales, spread over the year basically.

David Vernon: Very good. Thank you.

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

Cherilyn Radbourne: Thanks very much, good afternoon. So a very strong operating quarter given the winter that you described. A bit of slippage in terms of the train and car velocity I assume a lot of that is winter but if those to the metrics I was also curious whether there were some tradeoffs being made in order to achieve the improvements in train productivity and locomotive utilization you reported, maybe you can just kind of talk a little bit about where you continue to unearth efficiency gains?

Mike Cory: Cherilyn, its Mike here. Winter has obviously had its impact and will continue till it’s over. I said it before it’s really rebalanced all those metrics to produce first of all the service the customers demand and to JJ’s point make sure that we are just not looking at our internal workings, but we look at the entire supply chain and continue to grow that profitable business.

So you’ll see changes throughout the year. We try to make the best decision again to grow the business at the most controlled price and give JJ and the team the opportunity to make sure that we are leading the supply chain. But really you’ll see those numbers fluctuate a little bit. They are certainly not out of the range that they normally are. There is no priority over either of them; it’s just about the demand for the customer.

Cherilyn Radbourne: Great. That’s all from me. Thank you.

Mike Cory: Thank you.

Luc Jobin: Thank you, Cherilyn.

Operator: Thank you. The last question is from Chris Wetherbee of Citigroup. Please proceed.

Chris Wetherbee: Hey great thanks and thanks for [squeezing] me in here at the end. A question on frac sand, so I think JJ you mentioned seeing some pick up there, just want to get a sense of kind of how we think about 2017 some of our internal views you were suggesting if you can step up in production just want to get a sense of kind of how you participate and maybe what that means to the mix of the overall business?

Luc Jobin: So the drilling activities is up definitely I think it’s well reported in most part of the continent.

In the case of CN we participate in this same way as in the past that we have a destination franchise in Alberta and BC where the drilling activity is also up, example in the month of January. So that’s frac sands coming from [Indiscernible] long haul and we are competing with some local brown sand. And then we also participate in other some shell play where we bring the unit train or into frac sand a Chicago – we interchange with either eastern railroad or western railroad going south. So it is a good story, it has been sequentially up in the fall, sequentially up in the fourth quarter. We had a good start here to the year.

On the Canadian side, the people drill, they love it when it’s cold so they can get in their much – heavy equipment on frozen ground and things don’t be surprised if things on the frac sand start to slow down sometime in the spring they call this during the break up after – the break up or after the when it gets really mushy or muddy and then there is a pause of a couple of weeks and then it restarts again. So now it’s a positive story. The price of crude and all of the technology of today is a decent outlook for anything which is fracing either for gas or oil.

Chris Wetherbee: All right. That’s helpful.

Luc Jobin: Thank you, Chris.

Luc Jobin: So perhaps in closing to kind of recap, first I need to say I am very proud of what the team has accomplished this year. We certainly demonstrated and state our ability to deliver great results in a very challenging environment. You heard JJ describe how our volume outlook has now turned positive. Mike illustrated for you how the operating team continues to drive our agenda of operational and service excellence in leveraging innovation.

Ghislain shared with you our financial performance came together in 2016, its clean and it’s straightforward. And you have received our annual earnings guidance for 2017 which is calling for mid single digit EPS growth. So looking ahead, we set out for 2017 with a constructive view and while the environment remains somewhat mixed, we do expect to see moderate volume growth. Then we’ll see how it unfolds. One thing for sure, with relentless focus on safety, productivity and service our industry leading team is intent on delivering solid execution.

With continued focus on leveraging our superior customer service and our supply chain approach to help us gain traction in the market place. We continue to reinvest in our business with a long term perspective and we are well positioned to deliver a continued share holder value. So on that note we look forward to reviewing our first quarter results with you sometime in April and in the meantime, thank you very much for joining the call and be safe. Thank you, we are ready to close the call. Greta?

Operator: Thank you very much.

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