Good afternoon. My name is Donna, and I will be your operator today. Welcome to CN's First Quarter 2022 Financial and Operating Results Conference Call. . I would now like to turn the call over to Paul Butcher, Vice President, Investor Relations. Ladies and gentlemen, Mr. Butcher.

Good afternoon, everybody, and thank you for joining us for CN's First Quarter 2022 Financial and Operating Results Conference Call. Now before I begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the U.S. and Canadian securities law. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements and are more fully described in our cautionary statement regarding forward-looking statements in our presentation. After the prepared remarks, we will conduct a Q&A session. I do want to remind you to please limit yourself to 1 question. The IR team will be available after the call for any follow-up questions. Joining us on the call today are Tracy Robinson, our President and CEO; Rob Reilly, our Chief Operating Officer; Doug MacDonald, our Chief Marketing Officer; and Ghislain Houle, our Chief Financial Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Thank you, Paul, and good afternoon. And now let me start by saying how honored I am to be here with you today. I'm excited to be back in this industry and especially to be sitting in this chair at CN alongside an outstanding group of railroaders. We're working hard and excited about the future. Now I want to take a moment as we start to just acknowledge the difficult challenges being faced by the people of Ukraine these last 2 months. We all want to find a way to help. CN has donated more than $1 million in support of Ukrainians displayed by the war. And I'm so very proud of my fellow CNers who donated over $100,000 of their own money towards this important cause. Our company will provide a match for these donations and our thoughts continue to be with the people of Ukraine at this time of unimaginable sufferance. I know that you're interested in early thoughts on where we are as a company and where I see us going. My priority over the last 2 months has been to get out into the field and across the network, getting to know our team and our operations, our strengths and our challenges, you just can't do something like that from the office. I've also started to meet our customers and our stakeholders, some for the first time and some whom I have known for some time now to get their perspectives on us and how we can work better together in the future. And I spent some time with some of you, and I've appreciated the feedback that you have offered to me as well. So as I sit here, 60 days in, with all of that, I can tell you that I'm more excited about…

All right. Thanks, Tracy. And first, thanks to the dedicated team of CN railroaders who helped get us through a very tough winter season, where we saw Tier 2 operating conditions in place for nearly 85% of the days in January and February. And as a reminder, Tier 2 is when conditions are minus 31 degrees Celsius and colder, which forces us to reduce train size, use more locomotives and crews and overall, be able to move less freight through the very cold portions of our network. With the weather moderating at the end of February, we were able to regain fluidity on our network in the month of March. We are working closely with our customers that are continuing to face supply chain challenges, particularly in the merchandise sector. We saw all of our core metrics rebound in March and continue to improve in April with our daily GTMs up 24%, our car velocity up 35%, train speed up 18% and our train length up 9% from the January lows, allowing us to get back to running a more scheduled railroad. As we look forward to the remainder of the year, we are working to have the resources in place to accommodate the growth expected in the second half of the year. And finally, while the extreme weather conditions in Q1 contributed degradation in our accident ratio, our team of railroaders continued to reduce our injury frequency ratio with an 18% reduction year-over-year, reinforcing that safety is a core value at CN. With that, I'll turn it over to Doug.

Thank you, Rob. Let me start by saying how excited I am with the opportunity of leading the sales and marketing organization, leveraging the best network in the industry and delivering value to our customers. Let me provide you with an update on our top line performance in the quarter. Revenues were up a solid 5% to around $3.7 billion despite volumes on an RTM basis being down 8%. The volume drop did not come from demand, which remains strong, but was mostly driven by extreme winter conditions in January and February, as Rob just said, continued supply chain challenges and a weaker Canadian grain crop. We did experience significant volume increases in certain markets. U.S. grain shipments to the Gulf Coast for exports, Canadian coal from the new Teck business as well as 2 coal mines that reopened in late 2021. Broad-based growth in petroleum products and higher frac sand shipments from our unique reach into Western Canada where drilling activity is strong. As we look out for the balance of the year, we are still expecting volumes to be up in the low single-digit range for 2022 with broad-based growth across most segments. We are assuming a normalized Canadian grain crop starting in the fall. Let me conclude with the following. The current demand environment is strong, and with improved network fluidity, our focus is to improve our service to our customers and drive this growth to the bottom line. Our yield management strategy is broad-based and is backed by a solid pricing environment. I'm working very closely with Rob's operating team so that we are fully aligned to deliver the service required for our customers during the ongoing recovery. With that, I'll pass it on to Ghislain.

I will talk to Page 12 of the presentation and provide more visibility on our first quarter performance. As Doug mentioned, we experienced a solid top line performance despite volume in terms of RTMs being down 8%. Our ability to move the strong demand was impacted in the quarter with very harsh winter conditions and continued supply chain challenges. In addition, geopolitical risk have put significant pressure on fuel prices over the short term. Despite these headwinds, our team of railroaders delivered 7% growth in adjusted earnings per share year-over-year. Let me provide you with more details on the quarter. my comments would reflect adjusted results which exclude advisory cost related to shareholder matters. The condition as I just referred to impacted the fluidity of the network leading to cost headwinds such as recrews, deadheads and more snow clearing to name a few. We continues to benefit from the nonoperating headcount reduction that took place last fall as average headcount was down 7% in Q1 versus last year. Our fuel expense was up 44% as we saw fuel prices significantly rising in the quarter with WTI touching around USD 125 a barrel and on-highway diesel prices spiking up in March, up 27% versus February. We have an efficient fuel surcharge program that deals with fuel price fluctuations like this, but it does create some noise in the short term. In the quarter, we were impacted with unfavorable fuel surcharge lag of $0.07 of EPS versus last year. Our Q1 adjusted operating ratio came in at 66.6%, which was 30 basis points higher than the same period last year and reflecting the headwinds I just highlighted. We delivered adjusted net income of nearly $925 million in Q1 and an adjusted diluted EPS of $1.32, up 7% versus last year. We generated…

Thanks, Ghislain. And let me close by saying again that I'm excited and energized about building the railroad of the 21st century. This is a great company with significant potential. Our focus is on unleashing the capabilities of this exceptional network and this experienced team of railroaders. We're going to focus on driving long-term sustainable growth to the bottom line as we run a scheduled railroad focusing on delivering for our customers. And we'll invest for the long term in our talent and develop the next generation of railroaders to invest in our networks and our capacity to accommodate our pipeline of profitable growth opportunities. So our goal will deliver long-term value for all of our stakeholders. We are the best in the business. Now we're happy to pause here and take your questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Jonathan Chappell from Evercore ISI.

Tracy, I know you're only 60 days in, and you've laid out some of your ambitions already. You did step into a pretty big wide spread corporate strategic plan just adopted just 6 months before you started. So I'm just wondering given some of the uncontrollable headwinds that you're seeing in the market today. Are there any areas of that September plan that you think need adjusting whether that's the growth focused element of it, the resource based or some of the strategic initiatives.

excellent network prepost great optionality on each coast, strong carload bulk, intermodal franchises, great customer relationships, strong growth prospects and great team. There's a lot that's really strong here. So as I look at it, what we need to do is just lean in on refocusing -- but the business that we take on that that's the way it directly to the bottom line. So as we get this team set up to work in a much more integrated manner, there's no doubt that all of what was laid out in September, that's been -- and I'm excited about chasing it. It's going to take us a bit of time to get all of this organized, but from 60 days in, as you say, I'm optimistic. Thanks for the question.

Your next question comes from the line of Konark Gupta from Scotiabank.

Congratulations Doug on a new role here. You mentioned about reviewing the operations and meeting stakeholders, et cetera. I just wanted to understand, given what's going on in the U.S. right now with the STB, I think there is some, obviously, in U.S. we have Class 1 railroads regarding the performance and deliverables basically, and their focus on operating ratio. What's your biggest take away from talking to your customers, maybe regulators and shareholders in terms of what needs to be done to get back on track?

Yes. It's an interesting question. Listen, the most important thing we all do every day is make sure that we provide the service that we've committed to our customers, and we're all focused on that. Now the supply chains in the last 2 years, 2.5 years, there's been a big shock in the supply chains, and we're working very hard to get our rhythm back and our operation back and to serve our customers well. And each one of us in the industry will have different challenges on that. And I'm going to ask Rob to make some specific comments around some of the proceedings that are taking place in the U.S., Rob?

Yes. Konark, we certainly understand the concerns of STB, and we're working with the STB to provide the potential solutions there. and especially with our customers on any service issue that may arise. At CN, we do have a very strong track record in terms of growth, particularly in the intermodal space and also the investment to help support that. So customers are a big part of what we do, and we're going to continue to stay partnered with them and working with the regulator in this case, the STB. I'll be there tomorrow and look forward to the discussion. Thanks for the question.

Your next question comes from the line of Ken Hoexter from Bank of America.

Just a clarification question before I get into mind. Just I think 3 times on the call, you said you're now forecasting an above -- I'm sorry, an average crop. And I think in the fine print on your 2022 assumptions, it says you're looking for an above average crop for '22, '23. So I just wanted to clarify that. But my question is, Tracy, the company has been talking about focusing on the right freight for years. Just want to understand what is the wrong freight, right? So you talked about -- is it just mispricing on business? Is it -- maybe just talk about your thematic of what needs to be changed with the base of freight.

And the important thing -- thanks, Ken. By the way, it's good to hear your voice again. The important thing is you think about being intentional about what we put on our network that we understand what our capabilities are because when we take on traffic, we need to have the capability of delivering to it. So part of this is first understanding what our capacity and our capability of our operating plan is and then selling into that so that we're capable of consistently delivering what we've committed to our customers. And only once we do that, that we'll really understand what our capacity is and then we'll sell into that. From there, we lift our head and we take a look at that pipeline of great growth opportunities that's in front of us. So that's -- that's the way I'm thinking about that as we go. I'm going to ask Doug to comment on your first question around the grain crop assumption.

Ken, just to clarify. So the industry always talks about a 3-year average. That would be the prior 3 years. What we're doing is we're talking more of a normalized. So we've eliminated the drought year last year. So we just have a more realistic view of a normal Canadian crop. That's all.

Okay. Don, congrats on the new job and Tracy, welcome and good luck.

Thanks so much.

Your next question comes from the line of Brian Ossenbeck from JPMorgan.

Tracy, if you can just clarify, you mentioned the investment past, how are you going to measure that internally from a team and then just a follow-up on the 12 view on technology application event, probably still a little early, but the railroad has clearly been one of the big proponents of the client technology and towing along the DSR path in the past?

Brian. Listen, I wonder if you could repeat the first part of your question. I caught the second part about technology, but what was your first -- your first piece?

I'm sorry. You mentioned talking about being best-in-class, returning about what's being best in class. Is that on a warrant perspective, that EPS growth? How would you measure that?

Well listen, when I left this industry, CN was the one that was setting the pace and that everybody else was chasing and we all know what this network and what this team is capable of doing. It's not a matter of is it operating ratio or is it growth, I think it's both. In order to grow, you need -- we need a tight, efficient operation that moves quickly, delivers effectively to our customers, and that's where we're going to get at our real capacity, and we're going to be able to grow. So it's a matter of both. This company knows how to do it, there's a lot of muscle memory here, and I'm excited about stepping into that with them. With regard to technology, you're right, it is something that I haven't got deeply into yet, but I can say that -- it is one of the changes that I've seen that come back into the industry. It's really exciting to see some of the new thinking and the new capabilities that have been brought to bear. I know this company has got a lot going on in that front. As I sit here 60 days in. I haven't got into it deeply yet, but I'm excited about the potential that it has to offer. Thanks so much for the question.

Your next question comes from the line of Cherilyn Radbourne from TD Securities.

Tracy, I've got another one for you. In terms of your objective to curate the book of business, I do appreciate it's still early, but I was hoping you could give us a bit of perspective on how you see intermodal in terms of the scale of that growth opportunity and how attractive do you view that opportunity relative to the return on capital?

Thanks, Cherilyn. Intermodal is an important part of our book. And I think it is now and it will be in the future. The question for us, we've got a really strong pipeline of growth opportunities, and they'll all call upon different parts of our network differently. So it's not a single answer. As we look at this, it's going to be about being intentional about putting the right volume on the right parts of our network so that we can deliver effectively. And when you can do that and you can do that with some velocity, then you tend to like the returns that you get on the capital that you invest. So we're getting into that work now. I can't tell you exactly where it's going to end up. But as I said earlier, I'm excited about the prospects here.

Your next question comes from the line of Chris Wetherbee from Citi.

Tracy, the answer to your first question was at least a little muffled as far as I could understand it earlier in the call, so I apologize, but I was hoping maybe you could kind of give us your perspective on what you think the strategy of the company should be relative to the operating ratio versus balancing that with your profitable growth? I know it's ultimately the goal, I think, for every railroad. But wanted to get a sense, obviously, leading up to you being named as the CEO, there is discussions about taking a PSR path or revisiting a PSR path and potentially different folks who are interested in the job at one point who had different opinions about that relative to maybe where the company had been before. So I really want to make sure I understand the perspective you bring to the table when you think about balancing things like operating ratio relative to top line to the volume growth.

And sorry if the previous one was muffled, I'll go a little slower this time. As I come -- the game has changed in this industry over the last 10, 15 years. It's now table stakes to operate a tight, efficient kind of operations. And we're going to do that by focusing on a very balanced, scheduled operation and model with a focus on velocity. That, I think, is a thing that's going to allow us to do a few things. It's going to allow us to deliver consistently to our customers. It's going to allow us to get the most out of our assets, and it's going to allow us to be able to see more clearly where our available capacity is now and to be able to decide how to sell into that. So in my mind, you need both. You need a tight, efficient operation in order to generate your top line growth. And top line growth, that growth is only interesting if you can find a way to have it fall from the top line to the bottom line. The way that we're going to do that is by leaning into the scheduled approach, the focus on velocity. We're going to move our assets well, and we're going to be intentional about our business. I hope that made sense. Thank you.

Your next question comes from the line of Amit Mehrotra from Deutsche Bank.

Tracy, hearty congratulations on the appointment. I'm trying to understand your philosophy around running a business, what a railroad needs to accomplish. And so the question is 3 to 4 years from now, if we can fast forward to that point, if you look back, what would be a successful outcome for you? And I want to leave it open-ended because I want to understand your philosophy, but I would ask if you could to be somewhat specific so we can understand how you are going to gauge a successful outcome over the next 3 to 4 years.

Thanks for the question, Amit. So look, with 60 days in. So let me say this for now. 3 to 4 years from now, what we will have done is exactly what we're talking about today, the focus on driving long-term sustainable value. So the way we're going to do that give velocity and scheduling the operation, we're going to move our assets quickly. We're going to sell into our network. We're going to drive our top line growth to our bottom line. And then we're going to lift our heads and look at what is a very healthy and interesting pipeline of growth opportunities for us. And as I said, we're doing a little work on this right now. And we'll be happy to share a lot more details on it as our plans crystallize and we get all the specifics in place.

But is operating ratio? Is it growth? Is it all of the above? Because the yardstick in which successful railroads have been gauge is through an operating efficiency ratio that is impressive. And in a fixed cost business, growth and margins are not mutually exclusive, which is what the message of C&I has been for the last many quarters. So I just want to understand your philosophy around -- in 3 or 4 years, is there an opportunity for C&I with its network with its velocity potential to be the best OR railroad in the industry. Is that an opportunity that you see and that's important to you as having a successful outcome?

Well, if I think about the way I'm going to measure success as we go forward, it's going to be around the long-term growth bottom line. But the metrics that we'll be looking at as we do that, we're going to look at -- once we get our plan set up, we'll be looking at compliance to plan. We'll be looking at velocity. We'll be looking at growth, and we'll be looking at margins. So yes, operating ratio is important. And I think we all know what this network and this team is capable of driving on that front. The gift of a very effective tight operation and a good operating ratio is a manner in which it allows you to grow. So you can capitalize on the growth opportunities and drive that growth to the bottom line. And that's the way I think about this.

Your next question comes from the line of Walter Spracklin from RBC Capital Markets.

Just a question on, I guess, the strategic direction of some of the noncore items that have been highlighted previously and just your thoughts on those. I'm referring to trucking operations. Do you view trucking as a growth enabler or is this a noncore business that you'd look to shed? And are there any other similar types of kind of noncore opportunities that you could see through divestiture going forward?

It's an interesting question. And what I can say now, Walter, is that we're going to continue to evaluate all those pieces of our business. I am aware that there has been some discussion in the past around what we should do with those. There's no change in direction at this point. We're focused on ensuring that we've got the right business on our network, for our network and making sure that top line goes to bottom line in the most effective way. I want to be part of evaluating those options. So I've laid out what our first priorities are. But as we lift our heads in a few months here and start looking at longer-term growth and what choices we're going to make, I want to ensure that we look at all of these pieces through that lens. We have this great advantage network and a strong set of growth opportunities. I can't tell you yet which ones of them will factor in over the long term. But I think we've got some great choices, and I'm pretty excited about getting into this.

And your current forecast include those are not predicated on any divestitures?

That's right. I want to take just a quick pause so that I can make a decision with the team on them, but I'm going to ask Ghis to just comment on that as well.

Yes, that's right. Walter. We're still assuming that we may reorganize TransX as we publicly said. That's still on the table. And as Tracy said, she's going to review this with us. And I would stay tuned with what we decide to do, but we're reviewing.

Your next question comes from the line of David Vernon from Bernstein.

So Ghislain I want to kind of stick with you for a second on the guidance. When we take a look at the first quarter RTM performance and look at the fine print, they are expecting up low singles, I think it implies sort of mid- to high singles RTM growth in the back half of this year or the next 2 quarters anyway. How much have you sensitized that against what could happen as a result of the China lockdowns and intermodal and Rupert. And as you think about kind of the puts and takes from this year's guide to adding in sort of the annualization of coal growth and the expansion of Rupert. How good are you feeling about that '23 to '22 OTM build? Not looking for guidance on '23, just kind of some of the puts and takes would be helpful.

I'm just going to jump in on that one, and then I'll hand it over to Ghis. I would say that as we've crafted kind of an updated outlook on the year, it takes into consideration all of that as we put this range of 15% to 20% of EPS growth we are assuming in that the -- as Doug said, the normalized kind of crop level from a grain perspective. That's going to be really important to us achieving our goals on the year. We are watching very closely what's going on in China and some other places and truth around the pandemic. And that's -- we'll kind of watch that as it goes forward, and it is a risk. But as we look into 2023, we'll see things normalizing, I think. Ghis?

Yes. And I think as you said, I think that currently, as Doug mentioned in his remarks, we see the demand being very, very strong. But as you know, sometimes, this can change quickly. But at this point, we see this demand being quite strong. And actually, what we're doing is we're hiring. And Rob talked about this to make sure that we can deliver on good customer service in the fourth quarter. So we are hiring and all hands on deck, especially in Western Canada was there are some locations that are harder to hire. So at this point, we see the demand being quite strong, but we are monitoring the global environment very closely because things are volatile and things change. But at this point, we're quite bullish and we're quite comfortable about this 15% to 20% EPS guidance.

Your next question comes from the line of Scott Group from Wolfe Research.

So the idea of being intentional with the business, when does that start? Is that reflected in the volume guidance for the year? And then maybe, Tracy, your perspective on the balance sheet, you guys have the lowest leverage ratios in the industry. Is that something that is important to maintain? Or do you think that there's potential there.

I'll start, and then I'll hand this over to Ghis. So from a volume perspective, well, maybe I'll hand that one over to Doug in a moment, but our guidance as we look at it this year, kind of incorporates all of what we've talked to you about around our assumptions. Demand is strong. Now we'll see where it goes. On capital allocation, I think I like the fact that we've got a really strong balance sheet and the flexibility that, that gives us. As we think about capital allocation, we will always prioritize -- we look at it through the lens of long-term value, and we'll prioritize building our business, always going to be our first priority, and we want to maintain the strong balance sheet. But after those things, we'll consider incremental shareholder distributions as we've done in the past. I think it's an interesting time right now to think about the advantages of a strong balance sheet like ours as we go into a period of higher inflation. But Ghis first and then maybe Doug.

No, I think you've covered it well, Tracy. I think that this -- the use of our balance sheet is -- remains the same, and it's the first use of cash is towards the business. We do debate on a quasi-regular basis, the leverage. We do that. I think that for this year, we're committed to do our share buyback of $5 billion. I think that we started executing on that since February. And I think that at the end of the day, to your point, Tracy, I think that the key is to use the balance sheet to create long-term shareholder value. I think that's the key, and that's what we're focused on. Doug?

Thanks, Ghis. And just to highlight our -- the plan does contain all of our current business. So it's great. It's fully into the plan. It's baked in there. We believe in it. It's there to have. What we also have is a very strong pipeline of other opportunities. So when we look at those, we have to look at what fits into our network -- how do we move it and all that. And that's when we're talking about curating the book of business. We have to be very selective on how that fits in with our operating environment and Rob's team and what we can move and when we can move it. So we're pretty confident that we're going to be able to hit all those numbers.

Just if I can clarify one thing about investing in the business. You guys had a long period of spending over 20% of revenue on CapEx. I think this year it was closer to 17%. Any thoughts on where that trends in the future?

Yes. I think we're still on 17%, Scott. I think that when we do reassess our investments on a regular basis. And again, like just rest assured that if there's a good project that's got a great return, we're not going to turn it down just because we want to get to the number. I mean, we'll do the right thing for the long-term shareholder value that this will create. So I think at this point, I would tell you that we're still in the 17% of revenue range.

And your next question comes from the line of Steve Hansen from Raymond James.

Just a question on the service reliability and fluidity improvements that you're starting to see. I think we all understand there's been a number of constraints for specific industries. Forestry and fertilizers both come to mind recently across the broader North American platform. But how long do you think it takes to get back that fluidity and customer service that you had and known historically so well for.

Yes. This is Rob. Thanks for the question, Steve. Appreciate it. In terms of fluidity, the railroad, like I said in my comments, we've really rebounded quite nicely. And actually, we're seeing our metrics back to where they were pre BC flooding. Doesn't mean there's always room for improvements. We recognized through January and February, just with the weather impacts itself, that had impacts on our customers. And we continue to work with them and particularly out where you're at in British Columbia with some of our forest product customers. And that will be our continued focus going forward. But from a railroad standpoint, we're very fluid right now and really focused on service to our customers. Thanks, Steve.

Your next question comes from the line of Tom Wadewitz from UBS.

Yes. I wanted to get a sense and -- yes, Tracy and Doug, congratulations to both of you as well. I'm trying to kind of develop some intuition on what you have in mind for running better. Obviously, you're emphasizing velocity. But I guess I think of you could change the schedule, you could expand the sidings, things like that, that, I guess, if you change the schedule, maybe that can be a little bit quicker. But what -- Tracy, what's your intuition in terms of -- are there some things from an operating perspective that can be changed fairly quickly, 6 to 12 months to really drive that network improvement or if we're talking about reworking the book, it makes me think this is more like kind of a 2- or 3-year type of play to really drive that network improvement. So I don't know if you have intuit. If you can lend some insight on what you're talking about and what the time frame is.

Thanks, Tom. So this team has done a fantastic job over the last 6 months of working through some pretty significant service disruptions in the Western Corridor last fall and right into a very difficult winter. As we've regained our fluidity, as Rob says, it gives us an opportunity to look at the business that we're moving and whether it's led to a balanced operation, right? So I think we've got some near-term opportunity as we think about building some balance into our operational plan and then selling into that balance. So there'll be some near term. We're going to work on that right now. See what we can get done this summer before what could be a very heavy fall hit. But overall, it's going to be a longer-term effort to find that right sweet spot between the balance and velocity and volume growth. I don't know, Rob, if you want to add anything to that?

No, I think you hit it. The opportunity is ahead of us and the railroad has recovered quite nicely from the challenges in January and February. And we look forward to preparing for the second half of this year in terms of the volume growth.

Okay. But you think there are some kind of quick things in terms of schedule and changing some of the operations that we'd see over a couple of months that. Okay.

And your next question comes from the line of Justin Long from Stephens.

I wanted to ask about the 2022 guidance. How much of the trend in the EPS guidance was a function of the first quarter and some of the weather events and supply chain issues you faced versus a change in the outlook for the remaining 3 quarters? And then specifically on the OR, I was wondering if you could unpack the change in the outlook there from 57 to sub-60. How much of that is fuel versus other items?

Yes. Justin, thanks for the question. So obviously, when you look at our guidance and going from the 20% and now to a 15% to 20%, obviously, the growth that we had in the first quarter of 7% has an impact for sure. And then when you look at the OR, I mean, we delivered a 66.6% OR in Q1. So obviously, this played into it. The good news is, I think that the demand is very strong, as we've said. I think the pricing environment is favorable. I think to Rob's point, we're getting our cadence back in terms of our network fluidity and we can see that clearly in the latter part of March and then in April. And I think that we're not going to uncouple fuel on OR and with and without. I think that at the end of the day, we do consume fuel. It's included in there. It's included in our guidance that now will have an OR that starts with a 5, we did provide our assumption on fuel for the full year and it's between USD 90 to USD 100 a barrel. And as I said, we do have an effective fuel surcharge program. but it does create noise and it did create a $0.07 EPS negative unfavorable lag in the first quarter. So -- but when you put all of these pieces in, I think that's where the team and trust me, we looked at this quite hard. We feel comfortable that we will deliver on that updated guidance. Thanks for the question, Justin.

Your next question comes from the line of Brandon Oglenski from Barclays.

Congrats to Tracy and Doug. Tracy, obviously, Canadian National used to be viewed really best-in-class with a really great culture. But you did mention in your opening remarks about getting operations and marketing and sales efforts may be a bit more aligned. I don't know if you want to hit that one or Doug. How is this changing? And maybe can you push the culture in a more favorable way to get better outcomes there?

I'll maybe take that and then, Doug, you can come in behind me and give your perspective. Listen, this is a great company. It's one of the iconic companies in Canada. And as I said earlier, we all know what this network and this team can do. As I've been out across the property and meeting our employees, I am overwhelmed by both the talent out there, but also the enthusiasm and the desire to kind of put a shoulder into this and win. Without a doubt, I think that the first step is, is that we need to work more tightly together between what we sell and how we operate the network. And we've started that already. I think that's going to give us some tremendous opportunity not just to kind of start to deliver better immediately, but also to work more tightly together on where the opportunities are and get on top of the challenges. In a network like this, you need to approach it on an integrated way. So between finance, between operations, between commercial, we need that kind of balance in that -- in connectedness between what we are -- how we're building our operation and what we're selling into it, you only do that together. How to drive the growth to the bottom line. So I'm seeing some great energy in this company as we lean into this, and I'm really optimistic, fantastic network, great opportunity.

Thanks, Tracy. So listen, the teams have always worked well together. So the sales and marketing team has always been hand-in-hand with the operating team. But a lot of it has always been, hey, let's sell, let's operate. Now it's let's sell and operate together. So it's going to be Rob's team and the sales marketing team at the table saying, here's where we have the assets. Here's where we actually have the fluidity. Here's where we have the actual capacity to handle them. Can you guys sell them to that? Sure. Let's turn to sales and marketing guys lose, let's do that versus here's where we have some sales opportunities, hey, Robin guys, can you guys build the capacity here. So it's going to be a lot more give and take and working together to make sure we get the best value for the railway and drive all that new business to the bottom line.

Your next question comes from the line of Ravi Shanker from Morgan Stanley.

Tracy, welcome and thank you for all the thoughts today. If I were to continue the line of questioning here. Correct me if I'm wrong, but I think in your prior role, you were a rail customer and may have been a CN customer side as well, so I'm wondering if there's anything that you're bringing to the table on day 1, you could ever thought to yourself those people at CN, if I was ever their CEO, what I do on day 1, I think, again, maybe a general railroad versus a super question or a specific question about CN and your experience there. But what is your experience a shipper kind of bring to the people here?

Ravi, actually, I wasn't a customer of the railways. In some regards in the energy industry, I guess, we kind of competed with the railways. I ran the Canadian Natural Gas Pipelines for TC Energy, and I spend a lot of my time running a big operation, pipelines across Canada and a lot of time building pipelines. But no, I wasn't a customer of the railroads, but always been a fan of the railways and it's an honor to be here and particularly in this company.

So yes, so my perspective was given the crude by rail kind of situation, right? So -- is there anything that kind of you have seen from the other side that you think you can implement kind of relatively quickly here?

Well, listen, I think that I was in the oil side when I was in the energy industry, as I said it was in natural gas. But I'll tell you this. What I've learned over time is that there is absolutely a place and a need for both. There is no better path to be doing big volumes over long periods and pipelines play a great role there. Railroads are very nimble. You can come out of a pipeline in Hardisty and you can get to any market in North America on an existing rail network. And so that kind of flexibility and the ability to be nimble is pretty critical to the energy industry right now. So I think that they complement each other. I think you've seen that happen pretty effectively over the past number of years, and it will be an important part of our collective ability to serve the energy industry going forward.

Got it. I just follow up with a question on the second half volume outlook. I just want to clarify your comments on the kind of China lockdown situation and maybe some of the risk opportunities there. Do you see a potential for like a big international intermodal wave once these lockdowns in China are lifted? Or do you think it's going to be fairly normalized and kind of more of an overall macro view from this point forward?

Thanks, Ravi. It's Doug. So looking at the way the lockdown has progressed, it's just another supply chain disruption. So we've been dealing with them on and off. Obviously, as all the other railways have, the ports have the warehouses have. So this next wave will come out of China, again, it will cause over like capacity at the coast. It will always come in flow in land. It will cause bottlenecks again at the warehouses -- and guess what, we'll all work through it again. So it's great. We are actually getting some experience at it now, and we're planning for it as best we can, but there's only so much every part of the supply chain can do. But we're all going to play our part, and we're going to work with our customers to get through it. All right. Thanks for the question.

Your next question comes from the line of Jason Seidl from Cowen.

I wanted to ask a little bit about headcount. Can you talk a little bit about your projections for headcount, excluding attrition? Are you going to grow that? Where this headcount is really targeted? And does CN and really the rail industry as a whole run the risk of sort of hiring into a potential downturn given all the sort of economic, geopolitical and potential supply chain black swan events that we have ongoing in the crystal ball that we have.

Yes, Jason, this is Rob. From an operating standpoint, of course, I mentioned we're resourcing up for the second half, and that's the demand we see in front of us right now. It is strong and we're preparing for that accordingly. Obviously, there could be changes in that, and we'll adjust accordingly as those times come. But right now, we're preparing for that more normalized grain crop in Western Canada and the opportunities that are ahead of us. I think from an overall standpoint, you'll see our headcount down year-over-year because the adjustments we made and on the op side, we're hiring for volume, and it won't be necessarily on a one-to-one basis, but on the projections that we see in front of us. I hope that helps.

And your next question comes from the line of Benoit Poirier from Desjardins.

With the potential labor issues that LA Long Beach, we've seen a shift in market share from Western ports to Gulf Coast, Eastern port. So could you provide some color about the market dynamics these days and opportunities you see with Halifax, St. John and also Rupert?

So thanks, Benoit, it's Doug. I'll take that on, actually. So we have seen a shift that's gone more east, I think all of our always have seen that. So -- while we've seen some great business still in Vancouver and Prince Rupert, they continue to be sold out for us, we have seen a shift over our Halifax business is growing. Our Montreal business is relatively stable or up a little bit. So we're very happy to see that because it actually helps balance out the network. We have lots of capacity in the East, and we're able then to drive that to our bottom line. So it's actually very good for us to have that balance. We're also seeing some growth at Mobile as well and New Orleans even. So great opportunity to talk about our 3 coasts and the ability to move that right across our network. so we are very enthusiastic about the shifts and we hope to see more of it.

And our last question comes from the line of Jeff Kauffman from Vertical Research.

Tracy, it's great to have you back and congratulations. So I guess all the really good questions structured at this point. So I'd love to think about the curate decision that you outlined. And I think I understand what you're looking to do with that. But I want to kind of shift beyond the downsizing in the cutting and the restructuring part to the growth part. And think about businesses that maybe CN doesn't do as much as you'd like it to today or businesses where you see larger opportunity with the assets repurchased. And just kind of give us an idea, this is obviously a multiyear process. But what kinds of business would you like to do more of than you do today? And what types of assets or what types of capabilities does the railroad need to handle that, that you're not in a position to do today.

Jeffrey, thank you for that question. This is one of the things that excites me the most. I mean, of course, we're focusing right now about lifting out of some of our winter operations. But as we lift our head and look forward, I am so impressed with the number and the range of opportunities that we have ahead of us. We're doing a lot of work right now thinking about how trade flows may change over the short term and the longer term. We have this great asset of having touching 3 different coasts and having optionality on all of those coasts. That positions us in a really unique way to think about how we step into some of the growth, whether it's as we've had the questions on today, some of the consumer products or container traffic, whether it's stepping in a different way with our partners in the industry, some of the domestic traffic or whether it's looking at the change in flows of some of the commodities as a result of what's going on in Europe or what I think will be a pretty fundamental change in energy flows over time. So we're going to have some really cool choices and we've got the best network and the optionality to step into it in the right way. I don't have the answers yet, but it's going to be a lot of fun to take a look at it.

This concludes the question-and-answer session. I would now like to turn the call back over to Tracy Robinson.

Thank you. Thank you all for your time today and for your interest. I'm looking forward to meeting some of you in person over the next few months, then we'll talk other than that on our Q2 call in July. Thank you and stay safe.

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