NS Operating Revenue Fell 8% in 1st Quarter

Norfolk Southern said on Wednesday that operating revenue fell 8 percent to $2.6 billion compared in the first quarter of 2020 compared to the same period in 2019.

Compared to the first quarter of 2019 NS experienced an 11 percent decline in total volume.

Operating expenses during the quarter were $2.1 billion, which included a $385 million non-cash charge related to sale and disposal of surplus locomotives and the introduction of a precision scheduled railroading operating model.

Excluding the charge, adjusted operating expenses were down 11 percent, due to lower compensation benefits, fuel, purchased services and materials, NS said in a news release.

NS posted net income equal to $381 million, diluted earnings per share of $1.47 and an operating ratio of 78.4 percent.

Excluding the impact of the locomotive rationalization charge, NS posted an adjusted first quarter net income of $669 million and adjusted diluted EPS of $2.58.

The adjusted operating ratio improved to 63.7 percent from its record of 66 percent set last year.

Much of the decline in the operating ratio came as NS reduced expenses more deeply than the decline in revenue.

Adjusted railway operations income of $953 million declined 1 percent during the quarter compared to a year ago.

NS also announced it has cut 2020 capital expenditures by 25 percent compared to the $1.5 billion spent in 2019.

“During the first quarter, Norfolk Southern’s determination to transform our operations once again produced all-time best service delivery levels accompanied by productivity improvements, despite volumes being impacted by weak energy prices and the onset of the COVID-19 pandemic,” said NS CEO James Squires in a statement.

Uncertainty surrounding the pandemic and a faltering economy prompted NS to pull back its outlook for flat full-year revenue, as well as its core operating ratio guidance for 2020.

Second-quarter volumes have continued to decline across all NS commodity segments, which thus far have fallen 30 percent.

While the COVID-19 pandemic will impact business volumes for the year, the company’s PSR operating model will generate significant operating savings, said Chief Financial Officer Mark George.

“In this challenging environment, our team is doubling down on examination of our structural cost opportunities to ensure that we remain positioned to drive enhanced profitability for the long term,” George said.

NS management expects broad traffic declines in merchandise, intermodal, and coal business segments this year and declined to say when traffic might begin to rebound.

“We project year-over-year volume declines across all business groups, with large impacts in the second quarter, and future volumes depending on the depth of the downturn and the timing of the reopening of the economy, as well as energy prices,” said Chief Marketing Officer Alan Shaw.

During the first quarter of 2019, traffic volume was down 11 percent overall with coal slumping 31 percent, intermodal sinking by 11 percent and merchandise traffic falling 5 percent.

CFO George said NS has a strong balance sheet with plenty of cash on hand and access to credit that will help it get through the economic downturn.

He said NS will continue its DC-to-AC locomotive conversion program but NS Chief Operating Officer Mike Wheeler said the Class 1 carrier will cut maintenance spending by more precisely targeting where new rail, ties, and ballast are installed.

NS has slashed the number of train starts in response to declining traffic as well as the third phase of the implementation of its TOP21 operating plan.

Wheeler said train starts were down 19 percent during the first quarter and have declined by 30 percent in April to match a 30 percent fall in traffic.

Some trains have been combined so that some merchandise traffic is now traveling on premium intermodal trains.

“We have really blended all the different traffic types into our network. So we’re to the point now where a train is a train,” Wheeler said.

At the same time, NS has opened some new lower-volume intermodal lanes by adding container traffic to merchandise trains.

“No longer do we need to find enough density for a point-to-point intermodal train,” Shaw said.

Shaw indicated that key performance and service metrics all improved during the first quarter as the carrier set quarterly records for terminal dwell, train performance, shipment consistency, and intermodal availability.

“Our service is the best in Norfolk Southern history,” Shaw said.

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