Canadian National Railway Co
TSX:CNR
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
150.2
179.65
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Canadian National Railway Co
You don't have any saved screeners yet
[Operator Instructions] Ladies and gentlemen, the CN Third Quarter 2018 Financial Results Conference Call will begin momentarily.I would like to warn you that today's remarks contain forward-looking statements within the meaning of applicable securities laws. Such statements are based on assumptions that may not materialize and are subject to risks described in CN Third Quarter 2018 Financial Results press release and analyst presentation documents that can be found on CN's website. As such, actual results could differ materially. Reconciliations for any non-GAAP measures are also posted on CN's website at www.cn.ca.[Operator Instructions] Welcome to the CN Third Quarter 2018 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.
All right. Thank you, Michael. Good afternoon, everyone, and thank you for joining us for CN Third Quarter 2018 Earnings Call. I would like to remind you about the comments already made regarding forward-looking statements. With me today is J.J. Ruest, our President and Chief Executive Officer; Mike Cory, our Executive Vice President and Chief Operating Officer; and Ghislain Houle, our Executive Vice President and Chief Financial Officer. [Operator Instructions] It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Mr. J.J. Ruest.
Well, thank you, Paul, and good afternoon, everyone. Welcome to our earning call. And I'm honored to be here with my colleagues, Paul, Ghislain and Mike, presenting our third quarter results. We produced adjusted diluted EPS growth of 15%, with an operating ratio of 59.5%. We delivered solid top line growth with revenue up 14%. We generated nearly $1.9 billion of free cash after 3 quarters. We also made progress in our strategic agenda. We expanded our capacity to accommodate the pipeline of growth opportunities that we have already identified. We're building our safety culture, and we are bringing pragmatic focus to the deployment of technology in our operation. We are also assessing our management team to ensure that the right people with the right skill sets are in the right job in that we do not have more layers than what we need, all to drive our agenda forward with a nimble and transformative team. We had an acceptable July, a solid August and a challenging September as we were completing many construction projects under heavy demand on a very busy western mainline corridor. I will now provide an update on our top line followed by Mike's overview of our network operations, and Ghislain will follow with a review of our financial results and outlook. Demand remains strong, and the outlook for the remaining of the year is solid and broad-based. Volume, as expressed in revenue ton miles, was up 4.4%. Same-store price in the third quarter was up a solid 4.5%, one of our best quarters in years. Core pricing from recent renewal concluded in the last 90 days averaged about 4.6%. Our average length of haul was up 1%, and both the cent RTM and the revenue per carload were up double-digit -- were up low double-digit. Same-store price, as you remember, is a backward-looking measure of price in the last quarter full book of business. Coal pricing from recently completed renewal is a forward-looking measure of price trend from the mix of deals concluded in the last 90 days. Most of the revenue growth in our third quarter came in from our rail-centric supply chain, which include merchandise and bulk. As frac sand and lumber volume declined in September, we took the opportunity to onboard more crude business, which crude revenue was up $80 million compared to last year. As the spread between world crude price and Western Canada Select has widened to record level, more Canadian crude exporters are using the CN network. Other refined products' revenue was also up 16%. Our lumber and panel revenue grew by 17% driven by U.S. housing start and by export demand. Grain revenue in total was up by $64 million or 14%, and those carload grew by 9% versus last year. Grain export tonnage at CN is ahead of last year, but September, demand was disappointing due to snowfall during the harvest time. U.S. grain revenue was up 22% in Q3 with stronger U.S. Gulf export. Overall, coal revenue grew by 25% mainly from Midwest thermal coal export to Europe via Louisiana. Lastly, in our consumer products supply chain, the intermodal segment revenue grew by 8% versus the same period last year. It was mainly from stronger overseas traffic via the Port of Prince Rupert and via Port of Montréal where we had a new service from Maersk. Domestic was also up 7%. It was up 7% from solid pricing across the customer base. Automotive was soft. I'd like to conclude just my commercial comment review. On pricing, trend remains solid, reflecting tight capacity. For the fourth quarter, we are aiming for improving length of haul, improving revenue per carload and improving cent per RTM. On volume as of October 22 to date, our revenue ton mile volume have improved to 9%, and as market volatility are shaking out, by that, I mean, lumber and sand being down, crude and coal being up, and as we complete our Western Canadian construction, Q4 volume should be solid versus last year. I will now turn it to Mike. Mike will give you a sense of where we stand on our operations. Mike?
Thank you, J.J. And I'd first, of course, like to start by thanking our entire operations team for the work they did this quarter and especially on our construction projects. Our dedicated team of railroaders delivered over 80% of the capacity projects that we have planned for this year. And delivering these capital programs has been a significant challenge. The engineering team not only needed to deliver one of the biggest capital programs in history, but they also delivered the majority of our basic capital program in the busiest part of our network. They did this with our transportation team, who gave them time to work, despite having to deal with record volumes in those corridors. So both John Orr and the transportation team and our new VP of Engineering Raj Gupta had a big task, and their teams delivered. They have 27 project to deliver, and 22 are completed. The majority of the projects are in our growing Western Canadian corridor. Our delivery of the projects South of Winnipeg took place in the summer due to an earlier start with more favorable weather. Our Western Canadian projects over the key Edmonton to Winnipeg corridor are just coming to a close, with most of them being accomplished by the end of the first week of October. The 5 remaining projects are spread out to support coal in Northern BC and crude in our southern region as well as yard enhancements in both Winnipeg and Edmonton. Let me also provided with an update on the other components of our resource plan, including labor and equipment. Our employee training plan was in full gear again this quarter. We hired close to 700 new conductor trainees, and as well, we continued to train locomotive engineers. 480 more conductor trainees that were hired earlier this year qualified as conductors. Our run rate for hiring transportation employees is now normalizing. We also continue to hire for both mechanical and engineering employees in the quarter. Going forward, you would expect hiring to be normalized for this group as well. On the locomotive front, we've brought on 30 of the 60 locomotives planned for this year, with the balance scheduled for this quarter. We are returning 24 of the leased locomotives we had brought on. We'll be receiving our order of 140 new locomotives for next year starting in January, with over half of them expected in the first quarter of 2019. Just to give you a sense of how this capacity is supporting volume growth. We've had all 10 of the top 10 workload days in CN's history take place in October this year. Also, for the last 7 days, we've seen both speed and train productivity come up 7% higher than at September over the Winnipeg to Edmonton corridor. As I stated earlier, in describing the accomplishments of our capacity maintenance programs, as this work was being completed, we continue to move the highest historical volume levels on our network and especially in the portion within Western Canada. Gross ton miles in Q3 were essentially flat versus Q2, and that's when we handled the largest workload in our history. As you can appreciate, growth is not spread out equally across the network. It's most prevalent in Western Canada, and Q3 growth was more prevalent in one corridor, Edmonton to -- via Winnipeg to Chicago. In the case of Q3 versus Q2, we saw volume mix and location shift as we temporarily depleted the backlog of commodities available, such as coal and grain from Q2, that are headed to West Coast ports. We also grew more volume from Edmonton going east. As a result of eastward crude growth, our workload expressed in GTMs increased 9% through the Winnipeg to Edmonton corridor even with the reduction of grain from this corridor during the summer. We also experienced even higher growth in our Winnipeg-Chicago corridor, which saw a 16% increase in GTMs. During the quarter, our service levels continued to followed Q2 standards. We met all Canadian grain orders each week, moved all available coal in Western Canada and moved all available frac sand in Wisconsin. Lastly, we achieved an average on-dock dwell below 4 days for Western Canadian ports, where we have faced some ongoing challenges at certain terminals. Looking at the southern region, where we finished all of our targeted capacity projects in Wisconsin in the latter part of the summer, we were able to increase speed and automotive utilization. We experienced a 6% increase in train velocity and a 5% increase in locomotive utilization in Q3 relative to Q2. Looking at operations, our train speed was flat overall as the increase in traffic in the Winnipeg to Edmonton corridor offset improvements to the gains in our southern region. This was the primary driver of locomotive utilization in car velocity overall. As well, speed and locomotive productivity improvements in our DC corridors that we experienced during Q2 were temporarily reduced, with less coal and grain running to the ports. Terminal dwell was essentially flat during the quarter as we accomplished good work on servicing our customers demand, especially in the South for sand. Coal and grain will be a growth opportunity for us going to Prince Rupert, and we expect to see speed and productivity improvements as a result.On the safety front, we saw a sequential improvement in both FRA injury and accident ratios. As we continue to onboard new employees entering the workforce, our focus is on ensuring we are targeting our safety interventions with them. We continue to see higher yard accidents as a result of these new employees, but over time and through experience gained, we will see improvements in the safety performance. Lastly, on the safety front, our injuries to severity ratio has also come down. In closing, John and the team are working extremely hard to drive these results. And while we have lots of volume to move, their railroad experience in moving it is second to none. As we stated many times, our ongoing capacity improvement plan is in place to support a long-term strategy of growth at low incremental cost. And we have a strong pipeline of opportunities across various segments. While we understand growth can be bumpy, not necessarily even spread, our network reach provides us these growth opportunities, and they're clearly a large part of our strategy that we'll deliver on. Well, thank you, and over to you, Ghislain.
Thanks, Mike. I'm very pleased with our strong financial performance in the third quarter. Starting at Page 10 of the presentation, I will summarize the key financial highlights of this performance. As J.J. previously pointed out, revenues for the quarter were up 14% versus last year at slightly under $3.7 billion, and a new quarterly record for CN. Fuel Lag on a year-over-year basis represented a tailwind of $13 million or $0.01 of EPS, mostly driven by an unfavorable lag last year. Operating income was slightly under $1.5 billion, up $113 million or 8% versus last year. Our operating ratio came in at 59.5% or 230 basis point higher than last year. Higher fuel prices accounted for 30 basis points of this entry. Net income stood at $1,134,000,000 or $176 million higher than last year, with reported diluted earnings per share of $1.54 versus $1.27 in 2017, up by 21%. Excluding the impact of non-core asset sales in the quarter and the impact of deferred income tax expense from the enactment of a higher state income tax rate in 2017, our adjusted diluted EPS for the quarter was up 15% versus last year. The impact of foreign currency was favorable by approximately $26 million on net income or $0.04 of EPS in the quarter. Turning to expenses on Page 11. Our operating expenses were up 19% versus last year at slightly under $2.2 billion, impacted by higher fuel prices, higher labor costs, stronger volumes and operating metrics that remained below last year's levels. Expressed on a constant currency basis, this represented a 16% increase. At this point, I will refer to the variances in constant currency. Labor and fringe benefit expenses were $707 million, 15% higher than last year. This was mostly a result of higher wages driven by increased headcount, training cost for new hires, an increased pension expense and overtime cost, partly offset by higher capital credits. Purchase services and material expenses were $485 million, 12% higher than last year. This was mostly the result of higher repair and maintenance expenses and material cost, partly due to higher volumes. Fuel expense came in at $437 million or 35% higher than last year. Higher fuel prices accounted for $83 million of the increase, while higher volumes were an $11 million unfavorable variance versus 2017. Fuel productivity was unfavorable by 1.7% in the quarter versus last year. Depreciation stood at $330 million, 3% higher than last year. This was mostly a function of net asset addition, partly offset by the favorable impact of some depreciable studies -- depreciation studies. Equipment rents were up 14% versus last year mostly driven by additional locomotive leases. Finally, casualty and other costs were $110 million, which was 37% higher than last year mostly due to higher incident cost. Now moving to cash on Page 12. We generated free cash flow of $1,881,000,000 through the end of September. This is $440 million lower than 2017 and mostly the result of higher capital expenditures and cash taxes, partly offset by higher net income. Finally, let me turn to our 2018 financial outlook on Page 13. The demand environment remains solid in a number of different sectors, and we continue to see favorable economic conditions in North America, particularly as it relates to consumer confidence. Our resource plan is on track as we continue to onboard new conductors and receiving our order of 60 new locomotives for this year. In addition, we have essentially finalized construction of our infrastructure capacity investment plan. While we now expect RTM growth to be approximately 5% this year compared to our previous assumption of 5% to 7%, overall pricing remains solid, backed by our 4.5% same-store price performance in Q3. With this in mind, we reiterate our 2018 financial outlook of delivering adjusted diluted EPS in the range of $5.30 to $5.45 versus 2017 adjusted diluted EPS of $4.99. On the capital front, we are committed to investing in our business to support safety, service and organic growth. Our capital end goal for 2018 is still expected to be approximately $3.5 billion. Furthermore, we continue to reward our shareholders with consistent dividend return, and we are completing our current $2 billion share buyback program on October 29. I am pleased to announce that our Board of Directors has just approved a new Normal Course Issuer Bid program for the repurchase of up to 5.5 million shares for the next 3 months to be completed by the end of January 2019. The reason for the shorter program is to synchronize the various elements of our guidance, including our shareholder distribution strategy that we will provide on our fourth quarter call next January. In closing, we remain committed to our agenda and continue to manage the business to deliver sustainable value today and for the long term. On this note, back to you, J.J.
Well, thank you, guys. And before I turn it over to the Q&A, Michael, I would like to add a few wrap-up comments here. We recently ran an internal employee survey, and our railroaders are very engaged and strongly behind what needs to get done at CN. We have a good pipeline of organic and inorganic growth opportunities to feed more volume in our network to put more truck or rail business on our unique franchise over time. We are investing in the business. We are attracting and retaining crucial talent to execute, and we are deploying technology with the aim to drive cost midterm via OR, and should generate return on invested capital via ROIC. CN is a supply chain service company with rail as a centric component of everything we do to be a growth company. Operator, we can now turn it over to the Q&A.
[Operator Instructions] And the first question is from Walter Spracklin at RBC.
So looking at your guidance change, you've moved now to 5% on a volume, which -- for the year, which would imply a fairly significant increase in volumes in the fourth quarter, around 13%, to get to 5% for the full year. And when I add the 4.5% kind of pricing, assuming that doesn't change going into the fourth quarter, you've got an nice revenue lift in the fourth quarter, but you're holding your guidance constant. So just to get to the top end of your EPS, your operating ratio really is not going to seemingly improve at all despite the very strong pricing and the solid volume. I'm just wondering, where -- how would you explain the lack of any incremental margin there in terms of getting a better operating ratio on the back of the higher pricing and higher volume in the fourth quarter?
So Ghislain, you want to take that question on guidance?
Yes, Walter, thanks for the question. Listen, you're right. I mean, we're reiterating our guidance. So our guidance of volume is 5%, and that implies volume growth, to your point, about 13% in the fourth quarter. I think we're comfortable with that. I think, right now, as you look, our capacity investments are coming online. Mike, in his remarks, have mentioned, that he can see velocity coming in. And our costs so far has been slightly higher than what we would have liked. I think that now that's coming online. I think that -- we started to return some locomotives. We'll continue to do that. And you can expect as we expect -- as we said to the market that our comps are naturally going to come down, and you can expect to do that, and that's what's coming. I mean, remember that out of the 27 projects, there's 22 that's coming in service. There's still 5 to go. So that will continue to help, and we're comfortable that we are in a very good position to start the winter.
The next question is from Steve Hansen at Raymond James.
Just quickly here on the crude side, which I'm sure will be topical. You described a decent bump already in the quarter that you're taking on now in terms of volume. How should we expect that cadence to change through the winter periods specifically and then as we get into the spring next year? Should we expect it to run flattish as we get into the deeper winter months? Or should we expect to ramp right through winter?
So Steven, the fourth quarter run rate will be sequentially up for the third quarter. I don't have a very specific guidance as to quarter-by-quarter for next year, but we think next year will be a very solid year for crude-by-rail, maybe to the point where CN could be the leading railroad December total quarter for 2019. But in terms of the winter, remember what we said in the past, we need -- we'll be moving grain business into '19, and we want to make sure that we do the right thing by those who have been using the railroad -- rail network for a long, long time. And then every available capacity would have to spare, we will do offer those to the Canadian crude producers.
The next question is from Ravi Shanker at Morgan Stanley.
So clearly, you guys are setting up for a pretty strong environment in 2019. But can you just take us through maybe some of the economic sensitivity that the assumptions you have in terms of the growth that comes in to fill that pipeline, whether it's Prince Rupert or crude-by-rail or on the grain side? Again, do you feel like this stuff is -- again, I usually regret using this term, but do you feel like this stuff is in the bag? Or do you think it's going to depend on kind of global growth and U.S. growth staying at current levels?
Yes. So nothing is really always in the bag. If anything, we're an industry whose volume is derived from the economy, so we need a strong economy in both Canada and the U.S. But that right now is -- looks good. And we also need good commodity market for international resource, like crude, grain products, coal, et cetera, et cetera. So some of the strong driver that we have line of sight is, for example, the Port of Prince Rupert, and I'm talking just not import and export of container business but also the coal export at Rupert for both thermal coal and met coal, the one -- the new mine that we talked about. More export the wood pellet. Wood pellet into Asian countries and to England is also on the growth, meaning it's -- we have more production coming online, and that production will be going by the West Coast, mostly via Rupert. Sand is taking a pause. We have a customer who actually put his plant in mothballs in Wisconsin because of lack of pipeline capacity, and some of the drilling area in the U.S. could take out all that crude to market. So when these pipeline are being rebuilt for the current demand, we might see sand coming back sometime next year. We don't know though, but that will be winter time, spring or summer. That's all -- I mean, this is an unknown at this point. So you have a series of puts and takes. Overall, the Canadian economy is also doing fairly good, so this year, we put a big focus on the pricing for domestic intermodal product. Next year, with the capacity that we're adding, currently as we speak, in some of the new reach stackers, containers, chassis coming in service in the fourth quarter, when it comes to 2019, we will have the ability to go back in the marketplace on the transcon business to compete more head-to-head with long-haul trucking. So it's many, many different things, and some are down. Lumber, right now, is in a lull. Frac sand is actually a year-over-year negative. Other things are positive. And what's really key for us is to replenish our capacity, regain our velocity, and then, basically, keep up with our customers' products and the customers' demand. We are -- we are a supply chain, so want to be part of our customers' success in an environment where the economy still looks fairly strong.
The next question is from Cherilyn Radbourne at TD Securities.
In terms of the intense capital activity that was underway in the third quarter, I'm just curious to what extent the worst is behind us. So maybe you can give us a bit more color on the 5 remaining projects and just how important they are to the total of 27.
Sure, Cherilyn. It's Mike here. So the 5 remaining, really, and as I stated earlier, there are 2 or 3 that are up on that BC North line to Rupert that are really there for the coal growth and the intermodal growth. The other 2 are really in our 2 big yards in Western Canada, Winnipeg and Edmonton, and they have a big impact on how we process cars that are entering that area, that Winnipeg to Edmonton corridor, in such a way that they don't have to stop, they don't have to be staged because at each end there's -- and Winnipeg, for instance, that's our facility that processes with a hum. And in Edmonton, they're more of a location that accepts a lot of petrochemical commodities outside of crude. And so the goal between those 2 capacity enhancements was to make it so that we would do the work in Winnipeg, and Edmonton would be able to not handle the traffic in their yard as much as they had to last winter with the growth but take it directly into the customer. So they're both very crucial for this corridor. And there's one other little piece of double-track on that corridor that will be completed in the middle of November as well. Because we had some weather issues that J.J. referred to, the snow that stopped or slowed down the harvest. We had the same issues, snow and then some serious rain, that basically set us back a couple of weeks with the completion of our projects in the Manitoba and Alberta areas. So the other -- to my point, the other 2 big construction projects, Winnipeg and Edmonton, they play a big role on the added capacity in the corridor, and the other ones are for growth to the BC North.
The next question is from Chris Wetherbee at Citi.
J.J., I wanted to come back to some of your pricing comments, particularly about the renewals, and maybe better understand how much of your book of business was repriced at that 4.6% rate, the renewal rate in the third quarter and then maybe how you think about maybe the next couple of quarters. I'm just I'm just trying to get a sense of the weighting of the quarters in the time of the year. We should think about that. Obviously, the trajectory's quite strong. I'm trying to get a sense of what may be the outlook for 2019 could be.
Yes, we -- Chris, we renew contract all the time, and we are -- we have at CN to have a book of business that regularly turn so we can upgrade and make new deals on a better-and-better basis. The -- my comments about core pricing was related to the last 90 days, and the last 90 days may not be the busiest renewal time -- typically, the biggest renewal time would when you get to the end of the calendar year or beginning of the following year. So you need to keep that into account. So I think just thinking some of our total book of business turning 80 maybe on average every 2 years, and then there's obviously some variances from quarter-to-quarter. I don't know if that helps, but that's kind of how things shaped up.
It is helpful. Just one point of clarification, if I could. When you think about that pace of activity, do you feel confident in sort of run rate of the renewals as you get into that busier period of time as there seem like there's enough demand in the markets to be able to generate good activity during that period?
I think the core pricing that we had the last quarter was not so much. The key driver is, remember, the market were still very tight -- was tight in the last quarter. We didn't have quite the capacity required in ourselves. The truck drivers capacity was still tight. I think, by and large, we're in economy where demand is strong enough. And transportation companies, for a different reason, in the case of CN, because of our network was not rebuilt, in the case of over-the-road, the age-old issues of driver capacity, that's really what creates the pricing environment. So whatever you're renewing, a lot of deal or just a few deal, what you're renewing is more -- even more relevant is the environment, and the environment has been conducive to -- for higher value for the capacity you have available for the marketplace.
The next question is from Scott Group at Wolfe Research.
If we look at the last few weeks, and I don't want get carried away by the last weeks, but intermodal, auto, forest products volumes or RTMs are all down, and those are all sorts of consumer-facing end markets. How do you think about the weakness there? Is it temporary? Is it -- are there timing issues because of tariffs, and that's impacting some of the intermodal? Or how do you look at this and not get a little bit worried about some of the economic outlook?
Yes. So I think this is where you -- because, Scott, when you get into a specific railroad result for a very short period of time like you described, you need to take that -- that's one point of reference. But in the broader economy, we're still very confident that even though people may not be buying as many -- initially, it was -- they had done last year, that's a fact, the overall consumer consumption in there and how much that drives traffic is still very good. So I think I mentioned in my comments about -- on the domestic container business, for example, this year, because of capacity, we decided to focus on price. And therefore, obviously, we didn't necessarily go and went out and exploited what the over-the-road market was -- what made available for a railroad like us. But as our service come back, our capacity in the network come back. And As I mentioned in my comment, we have more reach stackers, chassis and reefer containers and dry containers coming in service in the fourth quarter, we will be able to be -- hopefully be able to do both. Slightly better price but also compete with long-haul business, especially with the truck market with the driver shortage. The driver situation hasn't really improved. So I would say in our intermodal business, it's not a reflection of trade issues between Canada and the U.S. or trade issues with the U.S. and China. It's reflective of the position that we're in right now, which we are quickly regaining strength and capacity to be able to get back in the marketplace the way that CN historically is capable of doing.
And you don't think there's been pull-forward and lag and then maybe another pull-forward coming related to tariffs as it relates to international intermodal?
My view is, definitely, there has been pull-forward. We saw the pull-forward -- we got the sense that we had an earlier peak this year, that the so-called fall peak came in earlier, because people, to the extent that their factories produce back in Asia, we're talking China, specifically, was able to ship the product ahead of the duty coming in or ahead of a potential -- a bigger duty coming in. That was a factor. The next phase of what you're talking about has to do with whether or not the U.S. consumer is still consuming strong and even more what people thought would be last July and August. So that fall peak might be extended on the back of -- demand is strong, and there's still potential tariff coming in at the end of the year. So there is definitely a factor of early fall peak that could be extended because demand is strong. But you have to remember though, eventually, when we get into 2019, if people consume, the product will come from somewhere. And in our view, we've been having offices and traveling in China for the last 20 years plus, especially, light manufacturing factories move very quickly, and a number of them already moved out of China. They're going to Vietnam. They're going to Bangladesh. They're going to Indonesia. And the product is still being made, but it's made or being made in other countries, which still basically are there to fill the demand of the people who need the products. So overall, we're very bullish about trade from Asia, especially trade from Asia to North America in 2019, but it might be coming from different countries or different port of origin.
Okay, that makes sense. If I can just ask one more, just follow-up, just big picture. So your -- you spent a lot this year in terms of capital and OpEx in plans for a lot of volume growth next year, and it sounds like you still think that's coming. But if, for whatever reason, that volume growth doesn't come, how quickly can we reverse some of the spending? Right, the rails, as a group, broadly didn't do such a good job of that in 2015. Do you think that we can do a better job of that, or you can do a better job of that if, for whatever reason, the volume doesn't show up in 2019?
Okay. I'll answer your second question. Two things. One is on the people side, which is sort of in expense. We already have normalized our hiring at this point. On the union side, the only group that we hire, we're doing -- still hiring is the T&E, which is the conductors, and that's for the attrition that we forecast for the second quarter of next year. And at this point, we're no longer having on the management side. So already, we are starting to normalize. We've replenished the pool of people, and our hiring is normalized, and we're only hiring the conductors at this point in time. On the capital side, we have a capital envelope that we're working the details for next year, but we will be mindful of what we build in the spring second quarter and then be mindful that what we schedule to do in the third and fourth quarter, we might decide -- elect not to do it but to delay if there was going to be a slowdown in the demand for our services.
The next question is from Turan Quettawala of Scotiabank.
J.J., you talked a little bit about technology, I guess, in your presentation. I was wondering if you can talk a little bit more about that in terms of which are the projects that you're sort of moving ahead with it. And do you think that you can see some of those benefits as early as next year?
Yes. Mike is my technology guru. So Mike, your take on that one.
Yes, look, from pure operations perspective, we're talking car inspection through machine visioning and then the machine learning and the analytics we can use to improve, first of all, our inspection capability, whether -- both from an efficiency perspective and a safety perspective. Second is our automated track inspection. Some of the things we did at Investor Day, we plan to roll that out, especially over our heavy corridors next year. And then just from that, the ability to gather that big data lake that we're looking for in terms of both car and rail and life cycle and analyzing it, putting full analytics behind it, that starts to open up the doors on material consumption, getting to the problem before it gets to you. And then again, to support all of that, we're building platforms for the data to be housed in so that we don't have a whole bunch of separate legacy systems that we've had for many years but we have applications that can be far more nimble and agile for our people to use. And it's all around safety, efficiency and service. So car, track, that then leads to locomotive analytics, again, with the same database using the Internet of Things. Those are the things that we're starting to deploy next year, along with some mobile reporting for crews, from mechanical employees and, from a safety perspective, the ability for our crews to not only have their -- all their operating manuals on a tablet but also for us to communicate, whether it be CBT training on safety and, actually, just a better communication channel. So all those things are in full play, and they'll be deployed starting next year.
So next year, you're going to see our crews working. They will have -- they're going to have a hand-held device in their hands. And you will also see we're building 8 cars, boxcars, with the equipment to do track inspection. So you're going to see these at some point, these 8 boxcars moving around the network on our regular train service and basically inspecting the track as our regular train move around the network, as example.
Great, that's helpful. And if I could just ask one quick one on crude-by-rail. J.J., are you at all worried about car supply kind of being a limiting factor to your growth here in crude-by-rail next year?
The car supply, I leave that for our customers. There's the ones who have to secure the fleet, either they own it or they lease it for others or they have it modified. And -- but most of the people that we work with at this point have either the car supply or have visibility as to when they will have the car supply. And it's on that basis that we feel fairly confident about how much business we're going to do on crude next year. So car supply is maybe the one element of bottleneck right now for the crude industry in terms of shipping using the rail transportation mode. But each crude producer is dealing with that issue as we speak.
The next question is from Jason Seidl at Cowen.
I wanted to focus a little bit on 2019 and looking at it from an OR perspective. You've got all your major projects completed now. Volumes seem to be pulling onto the railroad. And your pricing at, what I would call, fairly high rates at 4.5%, that's well above rail cost inflation. How should we look at the OR improvement in '19 over '18 just from a historical basis?
Yes. Jason, this is Ghislain. I think as we've mentioned before, this year was a big capital year. We've invested a lot in infrastructure and capacity that we required to actually accommodate growth at low incremental cost. We're starting to now see this coming through in the fourth quarter. We've said to the market that we expect that 2019 was going to continue to be a significant CapEx year, in the same range as what we have here in '18. And as we've said before, when you have the right infrastructure, then your operating cost naturally comes down. You can expect your fuel productivity deals to get -- to go up, you can expect your workloads to go down, you can expect your car velocity to increase, and therefore, you need less car to move the same amount of volume. Same thing on locomotives, we expect our locomotive utilization to get better on a year-over-year basis, and therefore, we hope and we think we're going to be able to -- we've started actually to return some leased units that are less performing. I think, Mike, we've returned something like close to 20, 24 of leased units that are expensive. And as our network will become more fluid, we hope to return, hopefully, next year, all of those leased units, and then your cost will come down, and then your OR, therefore, will be the result of that. So stay tuned, but we're optimistic, and I think we're in a good position.
The next question is from Ken Hoexter at Merrill Lynch.
J.J., thanks for the thoughts on the current economy before. That was helpful. Just your thoughts maybe on some of the shifting crude contracts. Are your contract demands getting longer now that you've kind of taken up and given up some of the initial capacity that you had? And does it change as Mike opens up more capacity with the Western build-out in terms of getting longer contracts and kind of fixing in that -- those additional contracts?
Yes. So those contracts, they are and they were multiyear. And they are -- they were and they are with backstop, meaning that there's an element of take-or-pay to it. So therefore, we -- this is kind of steady business that if it doesn't come in, we will be able to get a return on investment on locomotive, for example, and on the main line. So in terms of which part of the network is where this business, well, mostly, Mike can probably answer that better than me. Mike?
Yes. No, this -- the capacity build-out can definitely allow us to go after more of that lucrative business because, really, where we're focused on are those same lanes because they go from Western Canada to the Gulf Coast where we've got long reach, and that's really where our focus is.
The main line.
Yes.
Right. Maybe I wasn't clear. What I was -- just maybe if I could rephrase it, then what I was wondering is, I know you had initial business that came out as you expanded the capacity and you focused on that. And I'm just wondering as you expand the capacity, do the terms change? Do you go in and say, okay, it's even rarer now, that extra capacity, so we want to get longer-term contracts? Or is it still the same as kind of what you're looking at on the crude-by-rail?
I'd say more or less. Obviously, since the issue that happened in Canada about the Trans Mountain Pipeline, the Kinder Morgan pipeline, getting into some further delay, the window, the marketing window, for the rail industry of moving crude is longer and that entice crude producer or crude buyer to be more comfortable about making commitments to the crude-by-rail, but I would qualify it as that. I think the market right now is probably more -- a little more focused -- more comfortable of making commitment to the rail industry since the option in the pipeline is not quite as good as maybe how the way they looked 6 months ago.
The next question is from David Vernon at Bernstein.
Just another sort of question on the margin. I guess, you look at the last 5, 6 years, incrementals have been running around 50% or so, maybe below 50s. This year is obviously a little bit lower into an investment year. Next year will be an investment year. Is there any reason to think that you wouldn't get back to that sort of 50% range, would be the first part of the question? The second part would be, are you -- is there any under-earning right now in this year because of the capacity and congestion that would lead you to believe that '19 will be an even better year on the incrementals, just as kind of a catch-up year?
Yes, David, you're right. I mean, when you look at our incremental margin, I mean, if you look at this quarter, our incremental margin is in the 25% range, slightly lower than what we saw in Q2, in the 40% range. But as I said, and this relates to the OR question, as capacity comes online, you can expect that our cost will naturally come down. And as our cost naturally come down, and J.J. made a couple of points about some of the hiring or some of the reduction of hiring that we're looking to do going forward and so on as we're restabilizing our workforce, then I think you can expect that our incremental margins will come back to what people have been historically used to see CN deliver.
And is there any potential for a snapback in '19? Or would that be more of a '20 kind of event?
You can expect us -- again, we're going to continue to get better. I mean, we're going to get better in Q4, and we'll see what winter holds. And winter in Canada is always tough. If you talk to Cory, he reads the almanac on a regular basis, and he scares you sometimes. But actually, as we are going to continue in '19, you can expect that, that improvement on the operating side will continue sequentially as we continue to move.
The next question is from Tom Wadewitz at UBS.
Your competitor had an Analyst Meeting recently and focused a lot on what they see as sure gain opportunities with some contracts you have expiring, noted that intermodal is one of those areas. And I just wanted to see, J.J., if you could offer some thought on how you think about the book of business you have. I guess, there are benefits to having scale and efficiency, comes with that. As we think about intermodal, the same thing. So you could say, well, market share is important and it's important to retain things. The other side, you could say, well, price and profitability of contract is important. And I just wonder if you could offer some thoughts about how important is retention in market share versus kind of profitability of an individual contract?
Yes. So I think CN is a growth company. We're focused on profitable growth. We're focused on overperforming the economy. The market right now is very strong. It's strong for all of us. There's a lot of business to go around. That's a good market environment. We're more focused about the OR, the return on invested capital that we have on this -- specifically on market share. As it relates to the competitive world, I know very well the character of my commercial team, and they're very experienced, very capable. And when it comes right down to it, I know that they will not allow anybody to come and push us around in our own market.
So you think it's quite likely you'll retain all of the contracts?
I think we have a very capable sales force, and they will do what needs to be done to make sure that CN has the role that it needs to have in the North American scene.
The next question is from Jean-Francois Lavoie at Desjardins Capital Markets.
Yes. You highlighted in your presentation the Kitimat liquefied natural gas terminal, that would be a long-term positive for CN. I was curious to have your thoughts on this one, please?
Okay, Jean-Francois. What I meant by that is that the terminal finally was announced officially it would be built. These things take many years to build. So the benefit comes in twofold. One is, as they build the terminal in Kitimat, which is on the coast, the terminal will also need to build pipeline capacity from the gas well, mostly in Northern BC and Alberta, to connect the Kitimat terminal with the gas that's going to be exported. So there's business to be made -- to be gained in moving pipeline for the construction phase. Also when you build one of these big terminals, you need to create capacity to feed it. So they don't wait for the terminal start-up to do the drilling, they do some drilling and capping in the years before the terminal start-up. So that needs more frac sand and more drilling pipes. And when the terminal is finally in operation in 2025, this is where you'll have your run rate of drilling activities to make sure that you have enough gas to feed the terminal. And some of that gas is dry, so the benefit from that is we move frac sand and drilling pipe for the drilling activities to feed the terminal. Some of that gas is wet and some of that liquid gas, propane and butane, will then probably find its way to the other terminal, the propane export terminal at Prince Rupert. Two of them have been -- currently being built. One of them will come in -- one propane export terminal will come in operation in late winter 2019 and the other terminal is from Pembina, it's probably going to be in operation sometime late '19. So all these things, what they do is they create a long-term franchise of drilling activities, export activities to the Asian countries. So it basically unlock good long-term business for the rail industry.
The next question is from Matt Reustle at Goldman Sachs.
I had a follow-up on labor costs. You mentioned the run rate on hiring is now normalizing. When do you think that shows up in labor productivity, and particularly thinking about the OR, can we tie this into the 6-month training period? I'm thinking about 6 months from now, that should start showing up. Or how would you frame that?
Yes. Matt, this is Ghislain. I think you're right. I mean, if you look -- we've been catching up on hiring crews. If you look at our labor productivity in the third quarter, which is, if you look at million in GTMs, gross ton miles, per employee, it's negative by 7%. If you look -- if you go back to '16, this measure was up on a year-over-year basis by 10% to 12%. So as we stabilized our hiring now, and as we're going to continue to grow our franchise and we're going to continue to grow our volumes, you can expect that the productivity will come back. And it's not going to come back in one shot. It's going to come back as every week, every quarter as we get that volume and as we reduce our cost with the right infrastructure, then -- and the right velocity and capacity and train speed, you'll see that our costs are going to come in line, and therefore, part of that is because our employee productivity is going to come online.
The next question is from Seldon Clarke at Deutsche Bank.
Just staying on that similar topic. Could you help quantify some of the moving parts that impacted the operating ratio in the quarter? You mentioned mix on the call and obviously you had a number of expansion projects that reduced volumes. But how should we think about the underlying operating ratio in the quarter, and if you know, like you could just help quantify maybe the revenue impact from those expansion projects and like what we should anticipate from those 5 additional projects you have in the fourth quarter from a revenue perspective?
Yes, sure. Let me open up, and then maybe Mike, you can jump in. But if you look at the remarks we made, and you go back to some of the points we made in the presentation, our velocity and our train speed was not where we would have liked to have it in the third quarter, and there's some reasons to that. Partly, some of it is because -- especially like in the month of July where it was a little tougher month, we were doing a lot of track maintenance in some of our busy corridor, and we tend to do that in July, because we want to do it before we hit the fall peak. So that had a bit of impact on the volumes. This is why you can see volumes were down -- or not that down, but were not as high as in August. They were up 4%, and then August was a strong month. So that all had an impact on some of our operating metrics. And if you look at our operating metrics, and it is in the presentation, they're lagging year-over-year, and they're still slightly lower than Q2. So that obviously -- when operating metrics are lower, then obviously your costs are higher than what you would have liked and that, obviously, translates into operating ratio. I think we had to deliver on our basic infrastructure maintenance, which I've just talked about, then we had to deliver on a lot of our capacity projects, which we're pleased that, to Mike's point, we have about 80% now in service. It's new, but it's coming, it's there, and now you can expect that some of these operating metrics will come slowly but surely back in line, and therefore our costs will come down. Mike, do you want to add anything?
Yes. It's all in the business. I'd look at fuel, because if fuel productivity is down and the trains don't go as fast, and that means the locomotive is employing as many gross ton-miles per hour. Car hire. There's a car hire expense to the equipment going slower. Obviously, Ghislain had mentioned earlier, the labor cost, so whether it's the training overheads that we have right now and productive people that are learning the job and/or train is taking longer to get over the road, requiring more crews, those are 3 big components from a cost perspective that we are focusing in on and we expect to see improvement as the capacity takes hold.
Okay. And then I guess, just similar impacts -- we should expect a similar impact in Q4, just obviously on a much smaller scale from those projects?
Yes. You should see the improvements as capacity opens up and the volumes comes on.
Yes. So the fourth quarter, we'll focus on improving the capacity, the gross ton miles, so we can generate more revenue. That's helpful to the OR. We've normalized the hiring. As we said, we, at this point, the only group that we are doing hiring is the T&E, which is to be able to deal with the turnover in the second part of next year. And as the velocity of the network gets better -- get a little better, fuel utilization and then locomotive costs, and all these things add up eventually to the amount of precision railroading.
The next question is from Brian Ossenbeck at JPMorgan.
So you mentioned several times the benefits of adding capacity and improving the fluidity with the capital investments this year, but looking at next year, the spend is still significant and implementing it this year is causing disruptions to networks. So how are you making sure you're getting paid for these additions, not outgrowing them next year and then limited impact on the core business, in addition earning something for that extra flexibility that you've mentioned keeping in the system to meet some of the demand volatility as it come up from a customer as you can't necessarily plan for in advance?
Yes. So as we had in one of the slides in our deck, where we were showing the major pitch point in our network, and the major pitch point was in maintenance needs especially, and that's the area that when -- as you do work in that segment, east of Edmonton, on its way to Winnipeg, this is why it has the biggest impact. This where the capacity is more tight. So I mean, we will be as mindful as we can be next year as we do basic maintenance and/or adding capacity, starting on double track. The work that we've done this year, they will be quite helpful, right? We won't start with a network which is as taxed as the one that was this year. So I don't know, Mike, if you want to add about how you see the capital program and the maintenance program next year, the maintenance needs?
Yes. And let me start, though, Brian, with the volumes from 2016 in that quarter there of 35%. And we didn't do a lot of capacity improvements in that corridor until this year. So obviously, we -- for next year, our plan will be to look at the seasonal peaks. I mean, you have grains that stops in a certain period. You have potash that slows down. That's when we'll be in there during our basic maintenance. And for construction projects, this is all about growth as it goes forward. And I think J.J. mentioned -- said it earlier quite clearly, we'll take it quarter-by-quarter. We're preparing ourselves right away. We've done a lot of the permitting ahead of time. We know what we want to do. We won't do it until we're sure that we need to do it.
Okay, Mike. And then -- just maybe if you can follow up on keeping some flexibility in the system to meet the demand, how you expect to get paid for that or if there's something that the customers are willing to entertain that notion right now when the demand is tight -- when capacity is tight, rather. How do you expect that to kind of go throughout the year if you still have to maintain that extra to make sure you don't get pinched when volumes do come online at the same time?
Well, maybe I can start with this. Brian, this corridor is -- again, I don't want to keep referencing J.J., but since 1919 this has been a key corridor for CN, and it will continue to be. This is where traffic goes to and from the Western Canadian ports to the U.S., the prairies where our grain is. This business estimate is there for many, many, many years, to answer your question.
Yes. And maybe Brian -- I mean, we've talked about this before. The key corridor -- our key corridor, between Edmonton and Winnipeg, we want to build a bit of a buffer in that corridor, because all of our commodities go through that corridor. And therefore if demand slows down a little bit, don't be surprised if we continue to invest a little bit in capacity in that corridor, because if we're wrong, then it'll be time value of money, because at one point, we will need that capacity, whether you like it or not. So -- and we believe that we will continue to grow that business. So we -- when we said that before and this year and many times that we want to get a little bit of buffer, not everywhere, not everywhere, but on certain places, and Edmonton to Winnipeg is one of those area, the other ones, as I said, and as J.J. has mentioned, if demand goes down, we will stand back and we'll look at it much tighter, especially if it's demand where it's supported only by 1 or 2 commodities, then you can expect us to refrain on the capital and we've said that as well. So -- and frankly, the business is coming on. The good news is, we're growing this business. So this is a good problem. We've got some good organic growth opportunities coming at us that we've mentioned to the market in '19 that are coming. Some of it are market share, organic growth that are coming at us, but we need to have the infrastructure, otherwise, our costs are going to -- are not going to be where they need to be.
The next question is from Justin Long at Stephens.
I wanted to ask about your coal business. Could you just go through the incremental coal business you expect to come online over the next couple of quarters? I know there are a lot of things that are in the works and on the near-term horizon. So just wanted to get your latest thoughts on how much additional tonnage you expect and also if there are any other minimum volume commitments associated with this new business, similar to what you discussed on the crude side.
Yes, Justin, it's Paul here. So I guess I'll answer that question. So just to give you a bit of an insight in terms of the -- there are 2 coal mines that have actually reopened this quarter. The 2 mines that we talked about, one would be the Conuma, the old -- I think that was the old Walter Energy, Willow Creek. The actual capacity on that mine is about 1.7 million tons on an annualized basis. Then the other mine that reopened as well was the old Grande Cache mine, which is called CSC. That's about 2 million tons per year of capacity. So those have actually reopened, so we're going to start seeing volumes this quarter and then into next year. And then, really, the other one that's going to open up, which is the bigger mine, which is the thermal coal mine out of Western Canada, the Vista project by Coalspur, that's, they said, probably will start late in the first quarter, and the annual capacity there will be about 6 million tons per year. So as you can see, a lot of opportunities there on the coal side in Canada, and also, we're seeing pretty good growth on our U.S. franchise, basically, on the export side. So basically, that's coal coming from the Illinois coal basin, heading to Convent for exports. So once again, pretty solid volume uplift for coal, both in Canada and the U.S. into next year.
Okay, that's helpful. And the second part of that question, are there any minimum volume commitments associated with that new business? Just curious if you could comment on the contract structure?
Yes, these, we qualified as -- when you look at take-or-pay contract, this is the world of crude, this is the world where the customers are using a mode of transportation that's not natural to them. But when you talk about all the other commodities, like coal, lumber, pulp, potash, grain, these are long-term rail user, and we don't get into take-or-pay commitment. We just look at the fact that they're investing significant capital and having a lot of people to restock this mine, and their investment in these small mining communities is their commitment that they're there to ship.
The next question is from Allison Landry at Crédit Suisse.
I just wanted to ask another quick one on crude. Just in response to some of the comments from the Alberta Premier on Monday, in response to wide differentials and the expectation for the government to submit a business plan in terms of outlining more efficient ways that the rails can help to get the crude to market. Does this concern you at all from a regulatory risk standpoint, to the extent that there's any government influence in terms of prioritizing this business for the rails?
Yes, Allison, it's J.J. We don't know very much about the exact detail of the plan of Prime Minister Notley. No, we're not concerned from a regulatory point of view. I think all it does is indicate the fact that the price of Western Canada Select -- the price of Canadian crude in Alberta is very low. That spread is not as high as it has ever been. I think we're talking of netback of crude in Alberta in the range of 20s -- low 20s, which is not great for either the Alberta economy and the Canadian economy. So we're doing everything we can and we've been at it since the beginning of the year to create capacity on our network to be able to move more crude. No need to, because it's business that is use -- is good for our results, but also because it does help the Alberta economy and the overall demand for our services, in general, it just makes sense. So I think maybe it's a recognition right now from the Alberta province that crude-by-rail, for the time being, is not a substitute, but it's a good supplement to try to drive -- to try to help to the extent that we can to bring this crude differential at higher level than what it is today. No risk on the regulatory side.
The next question is from Konark Gupta at Macquarie CM.
My question is on the volume outlook for 2019. So you mentioned about coal and propane business over the next 3 quarters, and we know Cenovus is starting soon in Q4. And then you have some centerbeams coming in recently, so that should support the lumber, I guess. So what other opportunities do you see beyond these 3 or 4 commodity crops heading into 2019?
Yes, Konark, listen, I can give you a little bit of color. We're not going to provide specific guidance in '19 on volumes at this point. We will do that as we typically do in January. But you can hear -- you heard Paul Butcher talking about some of the opportunities we have in coal. I mean, these are real, these are there. I think we're optimistic about Rupert. Rupert continues to grow. So we're optimistic about Rupert. I think Rupert is very good for us, and remember that Rupert will stay with us for the next 7 years. So I think we do have, in grain, some of the grain elevators being built on our line. Out of 22, 23, there were about 19 on our line, and I think they're coming in. Some of them are already built, so that will be -- that should be good for us on grain. And when you look at grain, the crop, in and of itself, is increasing 2% to 3% a year due to fertilizer technology and so on and so forth. So if you go through, we have a pipeline of growth opportunities that we told the market at our Investor Day. These growth opportunities are still there. They're coming online, they're real. And stay tuned. But we're optimistic about '19 and quite bullish, and frankly, we'll give you more detail in January when we provide more specific guidance at the fourth quarter call.
Just to clarify, you're not expecting frac sand to rebound substantially next year, right?
At this point, I would say frac sand is a whole curve. At this point, it's actually year-over-year volume-wise, negative. So we'll see when the -- the question of frac sand is really when will the pipeline capacity, and we're talking the U.S. here, when will the pipeline capacity be able to get caught up with the current crude production, so that you can increase the production of crude even higher, right? So don't know exactly when that will be. I'm sure it will not be in the fourth quarter.
There are no further questions, Mr. Ruest. I would like to turn the conference back over to you, sir.
Well, thank you for joining us today. I think we've maybe overran on time a little bit, so I want to thank you for your patience. So thank you all. We'll talk to you on the road, and we'll see you on the call in January. So to the operator, this is the end of the call.
Thank you.