It's been quite the year for Canadian National Railway (CNI 0.24%). In this segment of Backstage Pass, recorded on Oct. 19, Fool contributor Lou Whiteman delves into the background of the company's failed acquisition of Kansas City Southern and its just-released third-quarter earnings. Fool contributor Brian Withers is also in the clip.

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Brian Withers: There is some interesting going on at Canadian National Railway. Lou, you're still there?

Lou Whiteman: Yeah. What's going on with this world, Brian?

Brian Withers: [laughs]

Lou Whiteman: Netflix is up less than 1% after hours, and the Canadian National Railway is up 7% after hours.

Brian Withers: Wow.

Lou Whiteman: Billy, do me a favor, stop sharing your screen real quick. I didn't have time to add it to the master document. Let me do this real quick because yes, we have drama on the railroads and we need to explain where we're going right now. Before we get into earnings, here's what's going on with the railroads. Brian, my apologies for just butchering your slides here.

Brian Withers: It's awesome.

Lou Whiteman: It's late. Just really quickly, earlier this year, and you got to get your Canadians right here. Canadian Pacific, not this company, signed an agreement to buy Kansas City Southern, another railroad for $25 billion. Canadian National, the guys we're talking about today, came in a month later and said, "We'll give you 33." It took a month but Kansas City Southern eventually did realize 33 is greater than 25, and signed the deal. Canadian Pacific raises the bid but still under 33.

Kansas City Southern says no. But lo and behold, what Canadian Pacific had said all along, regulators in the U.S. really didn't like the idea of one of the North America's largest railroads buying Kansas City Southern. Canadian Pacific is much smaller. The regulator side, I don't think so, and sure enough, Kansas City Southern decides $27 billion looks great to me, and Canadian National walked away.

Why are we going through all this past? Because actions have consequences, as I always tell my daughter. The Children's Fund, the huge London activist fund, is one of the largest shareholders in both of these Canadian railroads. They thought from day 1, there's no way Canadian National gets this done.

They vocally, side channels from what I was told at first, but then eventually, very vocally told Canadian National stopped the nonsense. Canadian National said, "You know what? I think we'll do it anyway." When it fell apart, next thing you know, The Children's Fund launched a proxy battle.

They're going to try and dump four board members saying this is the first step to just getting rid of management. Management was drunk with power trying to buy Kansas City National. We're not happy,  or Kansas City Southern. Here we go.

Canadian National spoiled earnings because in September, sure enough, the one up playbook 101, if you are dealing with activists, they said, "Look, we are going to repurchase shares. We're going to cut costs. We're going to grow EPS by 20% in 2022."

That takes us to 4:30 today when we learned how they did. They did great. Third-quarter revenue came in. Mind you, this is all in Canadian, the funny money. Brian, not the real stuff like Bitcoin or U.S. dollar, Canadian dollars. But it is a 10-cent beat on earnings on revenue, massive bid, a 27% beat. I would say the only bad thing really, looking at the quarter real quick, the operating ratio, which is a measure of expenses compared to total revenues.

The lower, the better. Operating ratio was up 2.8 points, at 62.7%. That's mostly merger expenses. Good news is that's going to go away, but that's gets to TCI's point. The outlook they reaffirmed, which kind of surprised me when you beat like that and you don't raise your outlook, I think that's interesting, but they are still saying 10% growth versus 2020's Canadian 531.

We're still looking at a good year. Free cash flow in a range of 3 billion to 3.3 billion. We should mention that this is a really crummy year for Canadian week, and we knew that's a huge part of Canadian National's business. These results, honestly, are all the more impressive. It's a bad year for shipping one of their most important commodities. They are still knocking the ball out of the park.