Posts Tagged ‘James Squires’

NS Cites 2016 Progress in Meeting Strategic Goals

March 23, 2017

Norfolk Southern released it 2016 annual report this week and claims to be well on its way to achieving goals that it hopes to reach by 2020.

NS CEO James Squires said in a news release that the railroad is in the midst of implementing a five-year strategic plan to streamline operations and drive profitability and growth.

Squires told NS stockholders that the railroad in 2016  met or exceeded its targets to lower operating costs, increase profitability and improve customer service.

In a news release, NS said that during 2016 it:

• Achieved an all-time best operating ratio of 68.9 percent.
• Reduced expenses in all areas of operations to generate $250 million worth of savings, surpassing a targeted $130 million.
• Increased income from railway operations and net income by 7 percent each, driven by an 11 percent decrease in operating costs.
• Disposed of 1,000 miles of secondary rail lines.

Squires said NS also made progress in its efforts to improve locomotive fuel-efficiency, reliability and emissions reduction continued as a cornerstone of the company’s sustainability and business strategy, he said.

NS is seeking to be “more focused than ever on services that will help convert freight from highway to rail,” Squires said.

This means focusing on customer-service initiatives that range from modernizing its e-commerce platforms to developing shared performance indicators for measuring service.

“We are changing the way we do business in order to meet and exceed our customers’ expectations and to drive superior value creation for shareholders,” Squires said.

NS Income up 15% in 4th Quarter of 2016

January 26, 2017

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.”

NS Revenue, Profits Fell in 2nd Quarter of 2016

July 28, 2016

Norfolk Southern’s financial performance in the second quarter of 2016 followed a similar path of other Class 1 railroads with falling net income and profits, but an improved operating ratio.

NS logo 2NS said that its second quarter net income declined to $405 million, or $1.36 diluted earnings per share, from $433 million, or $1.41 earnings per share. The comparisons are to the second quarter of 2015.

Operating revenue declined by 10 percent to $2.5 billion compared with 2015 quarterly results. NS said that the fall in revenue was due to reduced volumes and lower fuel surcharge revenue. Overall, volume dropped 7 percent to 1.8 million units for the quarter.

Income from railroad operations was $770 million, a slip of 5 percent from the results of the second quarter of 2015.

However, NS said its operating ratio improved 1.4 points to 68.6 percent.

That was in part a result of cost-cutting measures the company imposed. It said lowering expenses and lower fuel costs resulted in an 11 percent decline in operating expenses, which totaled $1.7 billion for the second quarter of 2016.

“Our second-quarter results reflect our unwavering focus on cost-control, steadfast commitment to customer service, and significant improvements in network performance,” said NS Chairman, President and Chief Executive Officer James Squires in a statement.

Squires said NS expects to reap productivity savings of at least $200 million for 2016 and noted that the operating ratio of 69.4 percent for the first half of 2016 is a record.

NS is aiming to have an operating ratio of below 70 percent for all of 2016.

“Through the continued execution of our strategic plan, we remain confident in our ability to drive superior shareholder value through excellent customer service that positions us for future revenue growth, combined with network efficiency and asset utilization,” Squires said.

In looking at individual traffic figures, NS said that coal revenue plummeted 25 percent to $339 million and coal volume fell 24 percent.

It attributed that to continued high stockpiles of coal by utility companies, limited coal burn due to a mild winter and lower natural gas prices.

Merchandise revenue fell 3 percent to $1.6 billion, primarily because low oil prices have resulted in fewer chemicals being shipped.

The five merchandise commodity groups’ year-over-year revenue results were chemicals, down 6 percent to $426 million; agriculture, up 1 percent to $383 million; metals/construction, down 3 percent to $334 million; automotive, down 2 percent to $248 million; and paper/forest, down 5 percent to $186 million.

Intermodal revenue fell by 15 percent to $538 million, with volume down 5 percent. NS said this was a result of its restructuring of its Triple Crown Services subsidiary.

The Wall Street Journal reported that the NS second quarter earnings were better than had been anticipated by Wall Street analysts.

CP’s Harrison Highest Paid Class 1 CEO in 2015

May 7, 2016

He may have lost out on becoming the CEO of Norfolk Southern, but E. Hunter Harrison has 15 million reasons to be happy with being the head of Canadian Pacific.

Trains magazine reported that Harrison is the highest paid CEO among North American Class I railroads.

In 2015, he took home $15.4 million in compensation (C$19.9 million). That was well above the $10 million made by Union Pacific CEO Lance Fritz.

E. Hunter Harrison

E. Hunter Harrison

Other CEO pay last year included: Michael Ward, CSX, $9.2 million; James Squires, NS, $7.9 million; David Starling, Kansas City Southern, $7.9 million; and Claude Mongeau, Canadian National, $7.7 million.

BNSF is a part of privately-owned Berkshire Hathaway and executive compensation figures are not publically available.

Not everyone at CP believes Harrison should be so well compensated. At last month’s CP annual meeting, stockholders rejected by 50.1 to 49.9 percent CP’s executive compensation package.

In response, the CP board of directors said it would take the non-binding resolution into account when setting the pay for executives this year.

However, Harrison and the CP board won re-election to their posts, receiving 96.6 percent of the votes cast.

In 2015, Harrison was paid a base salary of $2,803,522, stock awards of $4,749,089, options awards of $5,163,279, non-equity incentive plan compensation of $6,002,537, and other compensation of $1,184,026. All figures are in Canadian dollars.

Trains reported that Harrison’s base salary is high because he had to forfeit $1.5 million in annual CN pension payments in order to take the job at CP. Harrison was the CEO of CN before joining CP in June 2012.

In a proxy filing, CP asserted that by subtracting the pension makeup payments, Harrison’s base salary is $700,000, which the Calgary-based company said is “significantly below his prior salary at CN, industry norms, and CEO salaries in CP’s comparator group.”

The proxy filing justified Harrison’s pay package by saying that under his leadership CP has transformed from the industry’s worst financial performer to among its best.

“Although Mr. Harrison’s total compensation is much higher than his peers, the return to shareholders during his tenure is equally impressive,” CP said, adding that during Harrison’s tenure as CEO that CP added $14.2 billion in total additional shareholder value.

Fritz, who became CEO of UP in February 2015, earned a salary of $966,000, a bonus of $2 million, stock awards of $3,600,488, option awards of $2,400,008, change in pension value and deferred compensation earnings of $980,911, and other compensation of $139,220.

Ward of CSX had a base salary of $1.2 million, stock awards of $7,064,833, non-equity incentive plan compensation of $864,000, and other compensation of $80,728.

Squires took over as NS CEO on June 1, 2015, and was paid a base salary of $837,500, stock awards of $1,625,268, option awards of $4,375,050, a change in pension value and deferred compensation earnings of $1,036,596, and other compensation of $115,151.

Starling at KCS pulled down a base salary of $900,000, a bonus of $326,669, stock awards of $5,529,963, option awards of $551,195, non-equity incentive plan compensation of $468,000, and other compensation of $124,683.

CN’s Mongeau received a base salary of $1,075,000, an incentive bonus of $1,290,000, performance share units of $3,256,065, and stock options worth $2,144,000.

NS 1st Quarter Performance Exceeded Expectations

April 24, 2016

Analysts participating in a first quarter conference call to discuss Norfolk Southern’s first quarter earnings praised the railroad’s performance, taking note that the company’s profit rose by 25 percent, which proved to be better than projected.

“We’re on the right track and showing tangible results,” said NS CEO James Squires.

NS logo 1One analyst said the first quarter results will make the negativity of the bruising battle to fend off a takeover by Canadian Pacific go away.

NS revenue fell by 6 percent during the quarter when compared with the first quarter of 2015. But expenses were down 13 percent and income was up by 19 percent. The operating ratio fell by 8 percent to 70.1 percent.

NS officials said during the conference call that it expects to reach $200 million in productivity savings, which would best the $130 million objective that it had earlier set.

Its longer-term objectives are to lower its operating ratio to below 70 percent in 2016 and to get it to down to 65 percent or lower by 2020.

Squires said that despite a 2 percent fall in traffic volume, service improvements helped the railroad increase its profit.

Overall train speed was up by 15 percent and terminal dwell time was down 14 percent. The number of trains that needed a new crew fell by 51 percent.

Like its chief competitor CSX, NS has been running longer trains, which led to a decrease in crew starts.

NS Executive President and Chief Operating Officer Michael Wheeler said train length has expanded by 2.5 percent.

Wheeler said NS is running longer trains and expanding the use of distributed power where it makes sense.

The railroad has stored 200 road locomotives and idled 150 engines assigned to yard and local service. It returned during the first quarter 28 leased units. The company will take delivery of 50 new locomotives this year.

Although NS during the quarter furloughed 1,300 operating employees along with 450 non-crew works, it expects to recall 500 operating employees to replace employees lost to attrition and handle an anticipated second quarter traffic increase.

Among the service reductions that NS has made are a planned May 1 closing of a hump yard in Knoxville, Tennessee, and reduced switching operating at 25 other yards, including Moorman Yard in Bellevue.

NS plans to downgrade, sell, or lease or sell to a short-line carrier 1,000 miles of track this year.

“We’re pulling out all the stops on costs,” Squires said. “We have the pedal to the metal and that’s where it’s going to stay.”

Squires said during the conference call that the cost cutting campaign was helped by a mild winter.

The warmer than usual winter also meant that coal traffic fell by 23 percent in part because utility companies had large stockpiles of coal that they did not need to use.

Merchandise traffic grew 3 percent. Within that segment, automotive traffic was up 18 percent.

However, Alan Shaw, executive vice president and chief marketing officer, said auto traffic would not continue to grow at that pace the rest of the year.

Domestic intermodal traffic was flat, but international intermodal shipments were up 15 percent for the quarter.

NS Had Mixed Financial Results in 1st Quarter

April 22, 2016

Norfolk Southern reported on Thursday that its first quarter operating revenue was down by $2.4 billion or 6 percent over the same period in 2015.

However, its operating expenses also fell by $1.7 billion, a 13 percent decline to go with a 2 percent fall in traffic volume.

The operating ratio was 70.1 percent, which set an NS first quarter record.

NS logo 2NS was able to earn $387 million in net income, which was a 25 percent increase over the first quarter of 2015.

Diluted earnings per share were $1.29, up 29 percent compared with $1 diluted earnings per share in the first quarter last year.

“Our strong first-quarter results demonstrate the significant progress we are making in line with our strategic plan,” said Chairman, President, and CEO James A. Squires. “Since I became CEO in June, our team has been committed to streamlining operations, reducing expenses and maintaining superior customer service levels. Our focus on strengthening Norfolk Southern is yielding results, and the company is now on track to achieve productivity savings of about $200 million and an operating ratio below 70 in 2016.

“We are confident the continued execution of our strategic plan will deliver superior shareholder value by best positioning Norfolk Southern to succeed while ensuring the company is prepared to capture revenue and volume growth opportunities in 2016 and beyond.”

The NS strategic plan is seeking to achieve annual productivity savings of more than $650 million by 2020 and an operating ratio below 65 percent.

In a news release, NS said the fall in traffic volume was largely the result of falling coal traffic. At $349 million, coal revenue was 23 percent lower than in the first quarter of 2015.

The railroad attributed the falling coal revenue to mild winter temperatures, low natural gas prices, and a weak global export market.

Merchandise freight revenue was $1.5 billion, 2 percent higher than the same period last year. NS said the merchandise revenue was led by an 18 percent increase in automotive traffic.

Volume grew in all business groups except chemicals, which was affected by fewer crude oil shipments due to low oil prices.

Intermodal revenues were $522 million, down 12 percent compared with the first quarter of 2015.

NS said volume was even for the quarter as growth in international volumes was offset by lower domestic volumes due to the restructuring of the company’s Triple Crown Services subsidiary.

CP Issues White Paper Making the Case for ‘Precision Railroading’ at Norfolk Southern

April 9, 2016

Canadian Pacific has given Norfolk Southern stockholders a reading assignment in advance of the NS annual meeting on May 12.

In a white paper, CP seeks to make the case for how its “precision railroad philosophy” would improve NS operations by transforming it from an “industry laggard to leader.”

“Politicians, shippers and others are calling for a strong, healthy and high-performing rail system yet no one has the stomach to challenge the status quo,” said CP CEO E. Hunter Harrison in the paper. “Clearly, moving goods reliably and efficiently is top of mind for everyone in the industry; we believe precision railroading and a CP-NS combination address those challenges.”

Canadian PacificThe white paper, which was part of a series that CP has issued over the past few months to make the case for its proposed takeover of NS, said that precision railroading has enabled CP to reduce its operating ratio, improve service, reinvest record amounts of dollars in its network and create “significant shareholder value.”

A PDF version of CP’s latest white paper can be downloaded at http://www.cpconsolidation.com.

CP described precision railroading as a tried and tested approach that has already transformed two of the worst-performing Class I railroads into top performers.

The latter was a reference to CP and Canadian National, where Harrison was CEO for several year. Harrison also applied his precision railroading approach at the Illinois Central when he headed that railroad before moving to CN.

“Over the last 20-plus years, Mr. Harrison’s execution of precision railroading has transformed three Class I railroads into the best-run railroads in the world,” CP’s white paper said. “The likelihood is high that, under his leadership and guidance, NS can achieve similar success and perform far better than its management currently believes possible.”

The white paper noted that the previous management of CP had claimed during a 2012 proxy fight with Harrison and financier Bill Ackman of Pershing Square Capital Management that precision railroading would not work at CP.

“But precision railroading is a set of non-discriminating principles that can be effectively applied to any railroad in the world,” the white paper asserts. “Geographic, network, and business mix differences are irrelevant in the application of the underlying principles that guide day-to-day decisions.”

Harrison has stated that his operating philosophy has five foundations of improving customer service, controlling costs, optimizing asset utilization, operating safely, and valuing and developing employees. “These five foundations can be applied to any railroad with the same result,” the paper said.

The white paper said that after implementing precision railroading practices, CP was able to slash transit times, increase system velocity and reduce terminal dwell times.

By increasing efficiency, CP cut its locomotive fleet size by 40 percent and saw its operating ratio fall from 81 percent to 61 percent.

“The prevailing view in the rail industry is that more locomotives, more cars and more crews allow for the movement of more volume,” CP said. “Precision railroading challenges this view.

“Because track and yard capacity is finite, adding more equipment creates congestion and slows down the system. While it may sound counterintuitive, reducing fleet size actually enables a railroad to move more volume. By running fewer and heavier trains, faster and on schedule, assets can be utilized far more productively and can yield significant savings.”

As an example of how precision railroading has worked, CP said it has increased domestic intermodal traffic by 19 percent between 2012 and 2015.

CP claims it could achieve $1.2 billion annual savings at NS by shifting it to the precision railroading model.

Among other things, Harrison has suggested that NS would be able to mothball up to a third of its locomotive fleet.

NS CEO James Squires, though, has described precision railroading as a “short-term focused operating model” that would result in service deterioration, diversion of traffic to trucks, and a loss of service-sensitive customers.

Squires said that the CP approach would mean unacceptably deep reductions in capital spending and employment levels.

NS has begun to implement its own five-year strategic plan to gain $650 million in annual savings by 2020 by reducing expenditures, seeking new traffic and increasing profitability.

CP interests are sponsoring a resolution to be voted on by NS shareholders that would direct NS management to discuss a merger with CP.

The resolution is non-binding and the NS board of directions is opposing it. The NS board also has rejected three offers from CP to buy NS stock.

Trains magazine interviewed a former CP executive who said that Harrison deserved some, but not all of the credit for improvements since he took over after the 2012 proxy fight.

The executive, who Trains did not name, said that under CEO Fred Green, CP had begun making progress by cutting $80 million from equipment rental payments, saving $150 million for the pension plan, closed intermodal terminals, reduced fuel consumption and begun operating longer trains with the use of distributed motive power.

“We were a lot further along the curve than people realize,” the former executive said.

The executive, though, did give Harrison and his team credit for being more aggressive through such moves as shutting down humps in several yards.

“Hunter’s a good railroader. He gets it,” the former executive said. “He drives the assets.”

The former CP executive operational efficiency and cost-cutting were not the sole drivers of CP’s rebound.

“Fundamentally the franchise needed top-line growth,” the former executive said. “CP needed to flex its muscles in terms of pricing. It’s done that well.”

Even before Harrison had arrived, CP management has discussed whether it was being aggressive enough with above-inflation pricing.

After Harrison arrived, CP’s total revenue increased by 18 percent between 2012 and 2015 although its total carloadings fell by 1.5 percent.

During that same period, CN saw its total revenue rise by 27 percent and its traffic grow by 8 percent. Last year CN led North American Class 1 railroads with the lowest operating ratio at 58.2 percent.

Whether the success of CN and CP in using precision railroading would translate well at a U.S.-based Class 1 remains an open question.

Trains magazine quoted railroad analyst Anthony Hatch as saying that it is not possible to draw conclusions about the growth rates of CP and CN due to their different traffic mixes, particularly their bulk and carload business.

“But you can say that CN has done a terrific job leveraging the precision railroading legacy of EHH into the New Model Railroad — one that combines efficiency, productivity, and marketing to grow faster than the rails as a whole, transports as a whole, and the continental economy,” Hatch said.

A former NS executive, though, is not enthusiastic about precision railroading as it might apply to NS.

In an interview with Trains, former NS CEO Charles “Wick” Moorman called precision railroading a recipe for disaster.

“If Hunter puts out an order to park 700 locomotives, I don’t even give it a week,” Moorman said. “The service would collapse. It’s just that easy.”

NS Posts 2015 Annual Report Online

April 1, 2016

Norfolk Southern has posted its 2015 annual report online and CEO James Squires touted early highlights of the company’s five-year strategic plan to promote growth, streamline operations, improve network performance and deliver enhanced shareholder value.

NS logo 2[NS] “has taken decisive and deliberate action to capitalize on significant growth opportunities within our unique network,” Squire wrote in a letter included in the report.

“This year (2016) we expect to achieve productivity savings of $130 million through disciplined cost control and asset utilization,” Squire wrote. “Annual savings will grow to more than $650 million by 2020. The projects we accomplished in 2015, together with the initiatives we are undertaking over the next five years, will position Norfolk Southern to achieve our long-term financial goals.”

Among the steps cited by the report that NS said it has taken to cut costs and improve its network are:

  • Closing the Roanoke, Virginia, office building and consolidating or relocating approximately 500 positions.
  • Restructuring the company’s Triple Crown Services subsidiary.
  • Reducing capital spending.
  • Expanding track rationalization in the coalfields.
  • Idling a major lake coal terminal in Ashtabula.
  • Consolidating two operating divisions.

NS said it has implemented these measures while still maintaining its commitment to providing good customer service. “During this time, we achieved near all-time best service levels,” Squires wrote.

NS also noted that it expanded its ability to serve the Northeast through acquiring the Delaware & Hudson line between Sunbury, Pennsylvania, and Schenectady, New York.

NS Profits Dipped in 2015 4th Qtr., CY 2015

January 27, 2016

Second Shot 2016

Norfolk Southern delivered a trainload of bad news on Wednesday, saying that its profits fell in the fourth quarter of 2015 as well as in calendar year 2015, and that it will be imposing belt tightening measures, including reducing its workforce.

The news came a day after NS announced a regular quarterly dividend of 59 cents per share on its common stock, payable on March 10 to stockholders of record on Feb. 5.

NS logo 2Since its inception in 1982, Norfolk Southern has paid dividends on its common stock for 134 consecutive quarters.

The railroad attributed the decline in 2015 profits to falling traffic volume, particularly in coal traffic.

NS posted net income of $361 million, or $1.20 per diluted share, for the fourth quarter, which was a drop of nearly 30 percent when compared with $511 million, or $1.64 per diluted share that it posted in the last quarter of 2014.

The 2015 income of $1.20 per share in the last quarter of 2015 was below the prediction of $1.23 made by Wall Street analysts.

NS said that its operating revenue for the quarter totaled $2.5 billion, down 12 percent versus the revenue earned in the last quarter of 2014.

Income from railway operations fell 28 percent to $642 million in the fourth quarter of 2015 compared with 2014 income for the same period.

In a news release, NS said that its traffic volume during the last quarter of 2015 fell 6 percent, which it attributed to lower coal volumes and the effect of low commodity prices.

Average revenue per unit fell 6 percent as the impact of higher rates was offset by a $226 million, or 73 percent, decline in fuel surcharge revenue.

Coal revenue dropped 20 percent to $433 million for the quarter. NS said a weak global export market, record high temperatures in the East and low natural gas prices collectively depressed coal volume by 18 percent.

Railway operating expenses fell 5 percent to $1.9 billion compared with the same period in 2014, notwithstanding $49 million in expenses related to the Triple Crown restructuring and Roanoke office closure.

For calendar year 2015, NS posted net income of $1.6 billion, or $5.10 per diluted share, compared with $2 billion ($6.39 per diluted share) in 2014.

Railway operating revenue declined 10 percent to $10.5 billion in 2015, reflecting a 64 percent reduction in surcharge revenue. Traffic volume fell 3 percent, driven by a sharp decline in coal.

Income from railway operations dropped 19 percent to $2.9 billion compared with 2014.

The operating ratio in 2015 was 72.6 percent compared with 69.2 percent in 2014.

In response, NS said it has developed a strategic plan that it said would streamline operations.

James Squires

James Squires

The plan had been in the works for some time and was not strictly a reaction to the dismal fourth quarter financial results.

NS said the plan is projected to achieve annual productivity savings of more than $650 million per year by 2020, growing from an initial $130 million in 2016.

“This plan will enable us to achieve significant annual expense savings beginning in 2016 without compromising the company’s ability to capitalize on volume and revenue growth opportunities,” said NS Chairman, President and Chief Executive Officer James Squires. “We are making progress despite a challenging operating environment, including successfully restoring our rail service to previous high levels, realigning resources, and completing strategic capacity investments to improve efficiency and productivity.”

Among the steps that NS plans to take are:

  • Reduce the workforce by 2,000 employees.
  • Cut overtime expenses by 50 percent from 2015 levels.
  • Reduce the number of employees affected by lower coal traffic and by reorganizing the company’s coal infrastructure.
  • Consolidate operating regions from three to two.
  • Halt or reduce operations in several hump or secondary yards, thus reducing workforce needs and locomotive fleet requirements.
  • Consolidate traffic on fewer and longer trains.
  • Abandon or downgrade 1,500 miles of secondary lines by 2020, including 1,000 miles in 2016, as traffic is rerouted onto higher-density lines. Some secondary routes will be operated in collaboration with short lines.

“Through these actions, we are positioning Norfolk Southern for improved performance and value creation in 2016 and beyond,” Squires said. “We are confident in our ability to deliver superior shareholder value through our strategic plan, which is built on exceptional customer service, growth through pricing and new business, cost reduction and control, and increasing returns on capital. Our fourth-quarter results reflect current challenges in domestic and global markets.”

NS said a key objective of its strategic plan is to lower its operating ratio to below 65 percent by 2020.

In a news release, NS also announced details about how it will seek to reduce costs for such things as purchased services, materials, fuel and rent. For further details, go to:

http://www.nscorp.com/content/nscorp/en/news/norfolk-southernannouncesfurtherdetailsofitsstrategicplantoreduc.html

 

CP Plans Move in Wake of NS Rejection of Merger Bid, NS Continues to Talk Up its Growth Plans

December 7, 2015

Norfolk Southern continues to emphasize its plans to improve its financial position while Canadian Pacific is regrouping but not giving up on its efforts to acquire NS.

In a statement, CP said it was disappointed that NS rejected its proposal to create an an end-to-end North American rail network and took exception to what it terms NS claims, misdirection and mischaracterization of its offer and the benefits that it would entail.

CP said it will conduct a conference call on Dec. 8 to discuss the offer and amplify its reasons why an NS-CP combination is a good move.

The Canadian railroad said it was committed to the merger and would continue to seek to engage NS management and shareholders as well as address what CP called timely regulatory approval concerns raised by NS.​​​

In the meantime, NS Chairman, CEO and President James Squires continues to make his own case that an NS-CP merger is not in the best invest of stockholders of either company.

Squires also has laid out NS plans to improve operations, control costs, and increase revenue.

NS has said that it will strengthen its financial performance, drop its operating ratio below 70 in the coming year and achieve double-digit earnings per share growth during the next five years. The NS operating ratio during the third quarter of 2015 was 69.7 percent.

“We are confident in our ability to deliver superior shareholder value through continued execution of our strategy,” Squires said.

NS officials are reacting to what they expect will be efforts by CP CEO E. Hunter Harrison to seek to speak directly to NS shareholders after the NS board of directors voted to reject CP’s merger proposal.

Squires told investors that the NS plan to improve its financial position has far more potential than CP’s merger proposal and that NS manager “are strong and laser focused on identifying additional growth and cost savings opportunities.”

The NS CEO said that NS service performance has rebounded from the hard times of 2013 and 2014 when its service metrics were slow to improve from harsh winter conditions and the railroad carried less traffic.

The average train speed of NS trains has risen to 25 mph and terminal dwell time has fallen to 21.8 hours.

“A faster railroad is a less expensive and more profitable railroad,” Squires says.

Squires cited a list of operational improvements and cost-cutting moves that it has made this year, including the restructuring of the money-losing Trip Crown RoadRailer service; closing offices in Roanoke, Virginia; reducing the number of managers; and mothballing routes in areas where coal traffic has fallen.

Without giving specifics, Squires said that additional yards and terminals may be closed and that as many as 1,000 miles of low-density routes may be taken out of service in favor of concentrating traffic on higher-density lines. He said these moves will reduce maintenance and operating costs.

NS expects to continue it locomotive rebuilding efforts and take delivery of 50 new locomotives in 2016.

Squires said a younger locomotive fleet reduces maintenance expenses while an aggressive maintenance program will improve reliability and limit the time that locomotives spend in shops.

In an appearance before investors, Squires said NS plans to improve its pricing; diversify its traffic base by growing its service-sensitive automotive, consumer-related, and intermodal traffic; and seek small merger and acquisition opportunities to fill holes in its network.

Among the challenges that NS faces are low commodity prices and a strong U.S. dollar, more domestic intermodal competition due to increased capacity in the trucking industry, and weakness in international intermodal traffic because of slowing imports.

Squires said the longer-term outlook favors stabilization of commodity volumes, including coal; tighter trucking capacity and improved domestic intermodal service; and sustained growth in international intermodal business through East Coast ports.

He anticipates that automotive, ethanol, chemicals, plastics and housing and construction traffic will grow.