CNI Q3 2026: 18% EPS Growth, Mexico Expansion, and Operating Leverage

On its third-quarter 2026 earnings call, Canadian National Railway (CNI) reported adjusted diluted earnings per share growth of 18% year over year. The railway operator also highlighted a 25% increase in free cash flow, driven by operational improvements and disciplined cost management.

Management emphasized three key points. First, operational efficiency continues to improve, with employee productivity up 7%—the seventh consecutive quarter of year-over-year gains. This allows CNI to handle higher freight volumes without proportional increases in locomotives or staff.

Second, CNI announced a strategic agreement with Union Pacific (UNP) that provides direct access to Mexico's high-growth manufacturing corridor. This complements CNI's existing access to central and southern Mexico via the CG Rail Ferry, expanding its addressable market for cross-border trade.

Third, capital spending has normalized to industry-standard levels after major network capacity investments were completed. This means additional rail volume now generates expanding profit margins without requiring heavy new infrastructure spending, unlocking operating leverage and cash flow growth.

The 18% EPS growth and 25% free cash flow increase demonstrate CNI's ability to translate operational improvements into bottom-line results. This is crucial for investors because it shows the company is not just growing revenue but also expanding profitability.

The seventh consecutive quarter of productivity gains signals a sustainable trend. As freight volumes rise, CNI can leverage its existing network and workforce, leading to higher margins and potentially higher stock valuations.

The Mexico partnership with Union Pacific opens up new growth avenues. By connecting to high-growth manufacturing regions, CNI can capture cross-border trade opportunities, diversifying its revenue base and reducing dependence on any single market.

Normalized capital spending is a game-changer. With major capital programs completed, CNI can now generate more free cash flow from each additional unit of volume. This operating leverage should support higher earnings and potentially increased shareholder returns through dividends or buybacks.

Overall, these factors position CNI well for long-term growth, making it an attractive option for investors seeking exposure to the rail sector.