NS Income up 15% in 4th Quarter of 2016

Norfolk Southern reported that its income rose 15 percent in the fourth quarter of 2016 when it also posted a record low operating ratio. All comparisons are with the fourth quarter of 2015.

NS logo 2NS net income for the 2016 quarter was $416 million compared to $361 million in 2015. Diluted earnings per share were $1.42, up 18 percent compared with $1.20 in 2015.

The operating ratio in the fourth quarter was 69.4 percent, a 510 basis point improvement compared with 74.5 percent in 2015.

For all of 2016, the NS operating ratio was a record 68.9 percent, a 370 basis point improvement compared with 72.6 percent in 2015.

The company said the quarterly dividend for stock holders will be 61 cents per share, a 3 percent, increase over the dividend for the third quarter of 2016.

On the downside, the railway operating revenues for the fourth quarter of 2016 was $2.5 billion, a drop of 1 percent from 2015.

In a news release, NS said this reflected lower merchandise and coal traffic and reduced fuel surcharges. Those declines were offset in part by intermodal volume growth that eclipsed the effects of the 2015 Triple Crown restructuring.

General merchandise revenues were $1.5 billion, 1 percent lower than in 2015. Volume was 3 percent lower overall, as growth in steel and agriculture was offset by declines in energy markets, vehicles, and paper and forest products.

In the railroad’s five merchandise commodity groups, NS reported the following year-over-year revenue results:

  • Agriculture: $399 million, up 4 percent.
  • Chemicals: $395 million, down 7 percent.
  • Metals/Construction: $296 million, up 6 percent.
  • Automotive: $237 million, down 5 percent.
  • Paper/Forest: $177 million, down 5 percent.

Intermodal revenues increased to $583 million, a 4 percent gain compared with the fourth quarter of 2015. Volumes increased 7 percent with growth in domestic and international traffic offsetting the Triple Crown restructuring.

Coal revenues declined 7 percent to $403 million compared with 2015. Volume fell 4 percent with an increase in export coal softening the decline in the utility market.

Railway operating expenses declined $147 million, or 8 percent, to $1.7 billion compared with same period last year due to expense reductions and the absence of last year’s restructuring costs.

Income from railway operations was $761 million, an increase of 19 percent compared with fourth-quarter 2015.

NS said its composite service metric, which measures train performance, terminal operations, and operating plan adherence, was 80 percent, a 200 basis point improvement compared with 78 percent in 2015.

For all of 2016, net income was $1.7 billion, up 7 percent compared with $1.6 billion in 2015.

Diluted EPS increased 10 percent to $5.62 compared with $5.10 per diluted share in the prior year.

Results for 2015 included restructuring expenses that reduced 2015 fourth quarter net income by $31 million, or $0.10 per diluted share, and lowered 2015 net income by $58 million, or $0.19 per diluted share for the full year.

Railway operating revenues were $9.9 billion, 6 percent lower compared with 2015. The decrease was driven by a 3 percent volume decline due to reductions in energy-related markets and the Triple Crown restructuring, as well as reduced fuel surcharges.

General merchandise revenues were $6.2 billion, a 2 percent decrease compared with the prior year. Volume declined 2 percent, primarily due to reduced demand in energy markets and lower fuel surcharges.

Intermodal revenues totaled $2.2 billion, 8 percent lower compared with 2015, reflecting the Triple Crown restructuring, as well as reduced fuel surcharges. International and domestic growth more than offset the volume decline from the Triple Crown restructuring.

Coal revenues were $1.5 billion, down 18 percent year-over-year. Reduced utility volumes combined with a weak global export market lowered total volume by 16 percent.

Railway operating expenses declined $813 million, or 11 percent, to $6.8 billion primarily due to cost cutting, lower fuel expenses, the absence of last year’s restructuring cost, and service improvements.

Income from railway operations was $3.1 billion, a 7 percent increase compared with the previous year.

The composite service metric was 80 percent, an 800 basis point improvement compared with 72 percent last year.

NS said that during 2017 it would invest $1.9 billion to maintain the safety of its rail network, enhance service, improve operational efficiency, and support growth opportunities. It invested a like amount in capital expenditures in 2016.

“2016 was a pivotal year as Norfolk Southern began implementing its new Strategic Plan. We delivered $250 million of productivity savings and recorded our best ever operating ratio, notwithstanding challenging business conditions,” said CEO James A. Squires.

“With the dedication and support of our talented employees, we improved service for customers while positioning the company for further growth in 2017 and beyond. We are poised to continue building on our success and deliver an additional $100 million of productivity savings in 2017 on the way to our goal of $650 million of annual savings by 2020. We remain steadfast in our commitment to delivering superior shareholder value through the execution of our Strategic Plan.”

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