NS Operating Revenue Down 4% in 3rd Quarter

Norfolk Southern this week reported that its third-quarter 2019 operating revenue fell nearly 4 percent to $2.8 billion.

In a news release, NS said a 2 percent increase in average revenue per unit was partially offset by a 6 percent decline in total volume.

Net income in the quarter dropped to $657 million, or $2.49 per share, compared with $702 million, or $2.52 per share, for the third quarter of 2018.

Operating expenses for the third quarter of 2019 fell to $1.8 billion compared with $1.9 billion a year ago. Third-quarter rail operating income fell to $996 million from $1 billion last year.

NS posted an operating ratio of 64.9 percent, which was third-quarter record and a half point improvement over third quarter 2018 operating ratio.

The carrier attributed its lower operating ratio to positive results of its new TOP21 operating plan, followed by the “swift transition to the plan’s second phase,” said NS Chairman, President and Chief Executive Officer James Squires in a news release.

“These efforts produced an 11 percent reduction in crew starts and recrews compared to the third-quarter last year, robustly outpacing the 6 percent volume decline while maintaining resilient service that supported an 11th consecutive quarter of year-over-year revenue per unit growth,” Squires said.

NS said that it also made headway toward more efficient mechanical operations during the quarter.

“Looking ahead, additional productivity will be generated as we advance to the third phase of TOP21 and execute initiatives surrounding fuel efficiency, distributed power, intermodal operations, and our mechanical network,” Squires said.

However, NS said it will miss its target of a 1-point reduction in the operating ratio this year, partly due to the effect of one-time actions being undertaken.

Squires said management remains confident about reaching its target of a 60 percent operating ratio in 2021 through a program of cost-cutting, efficiency gains and revenue growth.

Overall traffic volume declined 6 percent during the third quarter of 2019 with merchandise down 4 percent intermodal down 5 percent and coal off by 15 percent.

Revenue per unit climbed in all three business segments as NS continued to raise rates, said Chief Marketing Officer Alan Shaw.

Last August NS launched the second phase of its TOP21 operating plan, which is based on the principles of precision scheduled railroading.

The initial phase of the operating plan began on July 1 and involved consolidating trains and boosting the use of distributed power.

NS is mixing some intermodal, bulk, and carload traffic together in the consists of longer but fewer trains. Train starts and recrews per day have declined 11 percent.

NS has cut its active locomotive fleet by 22 percent and its number of train and engine crews by 13 percent to a record low.

The Class 1 carrier also has lopped 3,200 workers from its rolls and expects to employ 23,300 at year’s end, said Chief Financial Officer Cindy Earhart.

During an earnings call, Wall Street analysts asked Squires why the NS operating ratio has not declined as quickly as it did at CSX and Union Pacific after those carriers adopted the PSR operating models.

Squires said NS continues to push as hard as it can on costs, efficiency, and revenue growth and is controlling what it can in a declining volume environment.

NS also lags behind other Class 1 carriers on fuel efficiency, although Squires said NS is working to improve that.

Tags: class 1 railroads, James Squires, Norfolk Southern, North American Class 1 railroads, NS CEO James Squires, NS finances, NS financial figures, NS financial results, railroad financial results, U.S. Class 1 Railroads