Posts Tagged ‘NS financial outlook’

NS Set Quarterly Records in 2nd Quarter

July 29, 2021

Norfolk Southern said on Wednesday that it set records in the second quarter of 2021 for net income and diluted earnings per share, operating ratio and income from railway operations.

In a news release, NS said net income rose 109 percent to $819 million, or $3.28 diluted earnings per share from $392 million, or $1.53 diluted EPS, in the same quarter a year ago.

Income from railway operations rose 91 percent to $1.2 billion while the operating ratio was a record 58.3 percent from 70.7 percent a year ago.

Railway operating revenue of $2.8 billion increased 34 percent, driven by a 25 percent increase in volume and a 7 percent increase in revenue per unit. Railway operating expenses totaled $1.6 billion, an increase of 11 percent.

 “We are even more confident about growth for the balance of this year,” NS CEO James Squires said during an earnings call.

NS executives said they expect revenue to increase by 12 percent this year, up from the previous forecast of 9 percent growth.

They project shaving up to 4.4 points off the operating ratio this year, an improvement from their earlier projection of a 3-point improvement.

Overall traffic volume was up 25 percent including a 29 percent gain in merchandise traffic, a 20 percent rise in intermodal and a 55 percent gain in coal traffic.

All figures are in comparison with the second quarter of 2020, which was marked by an economic downturn triggered by the COVID-19 pandemic.

“We are approaching pre-pandemic revenue levels,” said NS Chief Marketing Officer Alan Shaw. “However, the composition of our business has changed dramatically due to  . . . trends in the overall economy that were accelerated by the pandemic.”

Shaw said one example of how NS was able to take advantage of those changes is carrying traffic serving consumer and manufacturing markets in the East.

Even as NS traffic grew during the second quarter, its payroll was 8 percent smaller.

Train are longer (14 percent) and heavier (16 percent). Yet the railroad said fuel efficiency improved 4 percent.

“These gains were achieved in part by the increased deployment of distributed power and more blending of previously separate traffic types on the same train,” Chief Operating Officer Cindy Sanborn said.

Sanborn said that in order to accommodate longer trains NS plans to lengthen passing sidings on some routes. She attributed the fuel efficiency gains to longer train lengths.

NS now has 1 percent fewer locomotives than it did a year ago. It has retired older locomotives and stepped up converting DC units to AC traction.

Fewer locomotives are being bad ordered spending time in repair shops. The NS locomotive workforce has fallen by 55 percent in size compared with 2018.

NS officials said they are focusing on improving local service in yards by changing staffing to make service more consistent and terminals more productive. More remote control locomotives are being in used as part of these efforts.

Sanborn said NS has reduced switching volume in Chicago by building trains in its Elkhart, Indiana, yard that can be directly interchanged with other railroads.

Train crews have received smartphones that allow them to provide real-time reporting of switching moves. NS plans to implement a new local train reporting application this summer to improve reporting of first- and last-mile service.

NS Net Income Up in 1st Quarter

April 29, 2021

Norfolk Southern said on Wednesday that its first quarter 2021 net income was $673 million, or $2.66 earnings per diluted share, compared with $381 million, or $1.47 per diluted share during the same period in 2020.

Railway operating revenue of $2.6 billion was up 1 percent, or $14 million, compared with last year.

In a news release, NS said this gain was driven primarily by a 3 percent increase in volume.

The quarter’s diluted earnings per share was a first quarter record. Likewise, NS set an operating ratio record during the first quarter of 61.5 percent.

A year ago, the operating ratio for the first quarter was an adjusted 63.7 percent. The operating ratio is the percentage of revenue devoted to paying expenses.

First quarter 2021 railway operating expenses were $1.6 billion, down 21 percent or $433 million, compared with the same period last year.

The first quarter 2020 results included a $385 million non-cash locomotive rationalization charge as a result of productivity gains achieved through implementing the precision scheduled railroading operating model.

Last year NS sold 703 locomotives “deemed excess and no longer needed for railroad operations,” and thereby recorded a $385 million loss “to adjust their carrying amount to their estimated fair value, which resulted in a $97 million tax benefit,” NS said in a news release.

Excluding the locomotive rationalization charge, operating expenses were down 3 percent, or $48 million, compared with adjusted operating expenses in 2020.

NS said it benefited from lower fuel, compensation and benefits, and materials expenses.

Income from railway operations reached a first-quarter record of $1 billion, an increase of 79 percent or $447 million compared to 2020.

Excluding the effect of the locomotive rationalization charge last year, income from railway operations was up 7 percent or $62 million.

“The reopening of the economy provides meaningful tailwinds for continued strength in both the consumer and manufacturing sectors, and our long history of delivering sustainable transportation solutions for customers will continue to drive long-term value for our shareholders, customers, and the communities we serve,” said NS CEO James Squires.

NS executives expect 9 percent year-over-year growth in revenue, with intermodal and merchandise as the leading drivers, and coal continuing a “secular decline.”

The company anticipates a “greater than 300 basis points improvement” for the operating ratio in 2021, vs. the 2020 adjusted operating ratio of 64.4 percent

Capital expenditures are expected to be $1.6 billion.

NS Net Income Up 1% in 4th Quarter

January 27, 2021

Norfolk Southern reported on Wednesday that during the fourth quarter of 2020 its net income increased 1 percent to $671 million or $2.64 diluted earnings per share.

That compares with $666 million or $2.55 per share in the same quarter in 2019.

Fourth quarter railway operating revenue fell 4 percent to $2.6 billion last quarter, driven by a 1 percent decline in volume, lower fuel surcharges and differing business mix, NS officials said in a news release.

The news release said operating expenses were $1.6 billion, down 8 percent. Lower fuel costs, compensation and benefits and purchased services were partially offset by lower gains on property sales.

Income from railway operations rose 2 percent to $1 billion and NS posted an operating ratio of 61.8 percent for the quarter.

That broke the previous OR record of 64.2 percent in the fourth quarter of 2019.

Fourth quarter volume declined 1 percent overall but intermodal volume was up 5 percent and merchandise declined 5 percent. Coal traffic dropped 25 percent

Driving domestic intermodal growth of 7 percent was a 30 percent increase in premium business that includes e-commerce shipments,

NS said it will spend $1.6 billion on capital expenditures this year.

In a statement, company executives said they expect intermodal and some merchandise volume growth this year as the economy recovers from the COVID-19 pandemic. NS expects revenue growth of about 9 percent.

NS Revenue, Profits Fell in 3rd Quarter

October 29, 2020

As expected Norfolk Southern reported this week that its revenue and profits sank during the third quarter due to traffic declines that the railroad tied to the COVID-19 pandemic.

Operating income fell 6 percent to $939 million while revenue dropped 12 percent to $2.5 billion.

Adjusted  earnings per share rose 1 percent to $2.51.

During the period NS posted an adjusted operating ratio of 62.5 percent.

During the quarter NS reduced expenses by 15 percent while its traffic volume fell by 7 percent.

Intermodal volume grew 1 percent during the quarter, but merchandise traffic and coal combined fell 11 percent.

Domestic intermodal was up 9 percent while international intermodal volume fell 11 percent.

Coal volume alone fell by 32 percent, which represented most of the volume declines said NS Chief Marketing Officer Alan Shaw.

NS CEO James Squires said the railroad plans to pick up the pace of precision scheduled railroading changes, including closing hump operations in Macon, Georgia, and revising its southern service plans.

“As we continue rolling out PSR, our team sees additional opportunity for efficiency and growth that will close the [operating ratio] gap with the rest of the industry,” Squires said during an investor’s conference call.

The carrier said it is aiming to reach an operating ratio of 60 percent in 2021.

Chief Operating Officer Cindy Sanborn said the change NS is making to its operating plans are more than tweaking.

She said there will be longer trains that will move faster. Train length was up 12 percent this quarter compared to 6,600 feet a year ago.

Increases in intermodal and merchandise traffic have been added to existing trains.

Crew starts in August and September did not increase even though traffic volume rose.

The NS workforce in the third quarter was 18 percent below what it was a year ago.

Shaw predicted a rebound in consumer-related traffic, including intermodal and automotive, but expects anything connected to energy to recover more slowly.

He said there is no hope for coal traffic to improve so long as natural gas prices remain low and utility stockpiles stay 45 percent higher than they were at this time last year.

Sanborn said NS still has the ability to increase train length because only 9 percent of merchandise trains at at the maximum of the horsepower of their locomotive consists.

Just 10 percent of NS intermodal trains are longer than 10,000 feet.

NS in September closed its hump at Enola Yard near Harrisburg, Pennsylvania.

The closing of the hump in Macon next week will mark the sixth hump that NS has idled since 2019.

 “A lot of these hump conversions that you’ve seen  . . . actually improves car speed,” Sanborn said. “And at a system level what we want to do is avoid touches all together if at all possible. If we can speed the cars up, that’s good for us in terms of asset intensity and it’s also good for our customers. It provides them a more timely service product.”

As part of its redesign of southern operations, NS also plans to close several local yards around Atlanta.

As other railroads practicing PSR have done, NS is pre-blocking more traffic at origin and focusing on block-swapping en route.

NS will still have jump yards in Elkhart, Indiana; Conway (Pittsburgh), Pennsylvania; Birmingham, Alabama; and Chattanooga, Tennessee.

NS Operating Revenue down 29% in 2nd Quarter

July 30, 2020

Second quarter operating revenue at Norfolk Southern plunged a whopping 29 percent to $2.1 billion.

In announcing its quarterly financial results, the carrier said the steep dive was driven by a 26 percent decline in total freight volume compared with the second quarter of 2019.

It was the largest second quarter 2020 drop among Class 1 railroads.

NS posted net income of $392 million, down 46 percent, and diluted earnings per share of $1.53, down 43 percent compared with the same period a year ago.

Railroad officials cited the COVID-19 pandemic’s impact on freight volume as a major factor in the dismal quarter performance.

Operating expenses during the quarter were $1.5 billion, down 21 percent from a year ago due to lower fuel, compensation, benefits and purchased services expenses.

In a statement, NS CEO James Squires said the railroad will continue to further trim its infrastructure, including reducing the number of hump yards that it operates and operating longer trains.

Income from railway operations was $610 million, down 43 percent. The railroad’s operating ratio for the quarter was 70.7 percent compared to 63.6 percent a year ago.

During an earnings call on Wednesday morning, Squires declined to predict how the railroad might fare from a financial perspective for the remainder of the year because it remains to be seen how durable the economic recovery will be.

However, he and other NS executives expressed guarded optimism, saying the carrier has seen a strong rebound in intermodal and automotive traffic.

One commodity NS does not expect to bounce back is coal, which sank by 57 percent during the second quarter.

NS Chief Marketing Officer Alan Shaw said coal will continue to be depressed due to competition from low-cost natural gas and weakness in export metallurgical coal markets.

During the second quarter, merchandise traffic dipped 29 percent while intermodal traffic was down 16 percent.

Shaw said the growth of consumer demand and tightening truck capacity could bode well for intermodal volume growth.

The resumption of auto manufacturing and rising manufacturing output have boosted merchandise volume.

“The consumer segments are doing really well,” Shaw said noting that intermodal and automotive volume in July have outpaced those of June.

Average train weight was up 6 percent due to NS moving more tonnage on fewer and longer trains.

Train starts were down 28 percent and Chief Operating Officer Michael Wheeler said many of the train suspensions are likely to be permanent even as traffic volume recovers.

Wheeler said train starts are down 20 percent thus far in July as NS has amalgamated various types of traffic into its merchandise trains.

Wheeler said NS still is able to add volume to existing trains without having to add train starts.

The second quarter saw the closing of hump operations in Linwood, North Carolina, and Bellevue, Ohio, and NS expects to close additional terminals.

Closing Linwood and Bellevue is expected to save the railroad $20 million to $30 million a year.

NS Operating Revenue Fell 8% in 1st Quarter

April 30, 2020

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.

NS Net Income Down 5% in 4th Quarter

January 31, 2020

Norfolk Southern said this week that during the fourth quarter of 2019 its net income fell 5 percent to $666 million, or $2.55 per diluted share, compared with net income of $702 million, or $2.57 per share in the fourth quarter of 2019.

Operating revenue dropped by 7 percent to $2.7 billion as a result of a 9 percent decrease in total volume.

In a news release, NS said operating expenses were $1.7 billion, which was down $90 million compared with the same period of 2018.

Lower compensation and benefits, fuel costs, equipment rents and materials usage were partially offset by lower gains on operating property sales and increased purchased services expense.

Income from railway operations was $1 billion, down $116 million year over year.

NS posted an operating ratio of 64.2 percent for the quarter and 64.7 percent for the full year, both of them records.

For calendar year 2019, NS reported net income of $2.72 billion, or $10.25 per share, compared with $2.67 billion, or $9.51 per share, a year earlier.

On a year to year comparison between 2018 and 2019, NS said its railway operating revenue fell 1 percent to $11.3 billion on a 5 percent decrease in overall volume. Carloads declined in all major commodity categories.

NS reduced operating expenses by 3 percent to $7.3 billion. Income from railway operations rose 1 percent to a record $4 billion.

“Norfolk Southern’s strong financial performance in a year of macroeconomic headwinds is underpinned by the hard work of our team to expeditiously implement productivity initiatives throughout the year,” NS CEO James Squires said in a statement.

During the fourth quarter of 2019 NS saw its coal traffic fall by 21 percent.

Company officials attributed that to low natural gas prices putting pressure on coal for use in electricity generation, and reduced steel production and a weakening market for export coal.

Squires said the annual operating ratio improvement was “particularly impressive against the backdrop of declining volumes.”

NS Chief Operating Officer Mike Wheeler said the carrier set records last year for on-time performance records for merchandise and automotive traffic and posted its best intermodal on-time performance since 2009.

“Our network is running fast and on time,” Wheeler said, citing a 17 percent improvement in average train speed and a record low terminal dwell that was 30 percent below the levels of 2018. He said crew starts were down 15 percent.

During 2019 NS cut its locomotive fleet size by 20 percent and ended 600 mechanical positions.

It expects to eliminated another 135 positions this year.

NS’s merchandise volume dropped 6 percent in the fourth quarter due to a slowdown in the industrial economy. Intermodal volume was off 8 percent.

Chief Marketing Officer Alan Shaw says coal traffic is expected to continue lagging this year but intermodal volumes should resume growth in the second half of the year.

He said uncertainty in the industrial economy means the outlook for merchandise traffic is cloudy.

Squires said NS expects flat revenue this year but should shave 2.35 points off its operating ratio as it continues to cut costs. The carrier is targeting a 60 percent operating ratio by 2021.

Shaw said the fourth quarter of 2019 was the 12 consecutive period in which NS has enjoyed growth in revenue per unit for all three of its business segments.

NS Record Financial Results Offsets Traffic Declines

July 25, 2019

The second quarter was kind to Norfolk Southern with record quarterly financial results that the carrier needed to offset a decline in traffic.

In a news release, NS said more efficient operations, cost controls, and price increases were enough to offset a decline in coal, intermodal and merchandise traffic.

Operating income rose 4 percent to $1.06 billion, as revenue grew 1 percent to $2.9 billion. Earnings per share was up 8 percent to $2.70 but that was 9 cents below Wall Street expectations.

In a news release, NS said it operating income, revenue, and earnings per share figures all set quarterly records.

Also setting a record was an operating ratio of 63.6 percent, a 1-point improvement over the second quarter of 2018.

Traffic volumes fell 4 percent during the quarter. Coal was down 6 percent, intermodal was down 4 percent and merchandise was down 3 percent.

Although merchandise revenue was up 2 percent to a record level, coal revenue was flat and intermodal revenue declined 2 percent.

NS said it is not changing its traffic volume and financial outlooks for the year despite a slowing economy.

The carrier expects intermodal, automotive, crude oil, sand, and aggregates traffic will pick up in the second half of the year.

“Our railroad is performing very well. The transition to our new PSR-based operating plan, TOP21, went flawlessly, and we are already seeing the financial benefits, with more to come,” CEO James Squires said during the railroad’s earnings call.

Chief Marketing Officer Alan Shaw said traffic volume fell during the second quarter due to flooding in the Midwest flooding that affected automotive traffic.

Steel volumes slumped due to the impact of tariffs and increased truck capacity sent domestic intermodal volume down 10 percent.

Weak demand for exports and lower domestic metallurgical coal shipments hindered coal traffic.

NS said its average train speed was up 19 percent during the quarter and terminal dwell time was down 37 percent.

“Our train performance, terminal dwell, shipment consistency, and car level velocity for the second quarter were the best on record for any quarter,” Chief Operating Officer Mike Wheeler said.

NS said its total employment fell by 6 percent compared to the second quarter of last year.

Analysts Pepper Squires with Questions About Why NS Can’t be Like CSX

July 27, 2018

Despite setting performance records in the second quarter, Norfolk Southern CEO James Squires found himself having to defend his railroad after some Wall Street analysts wondered why NS has not closed a widening operating ratio gap with CSX.

James Squires

The analysts asked why NS isn’t moving as fast as CSX in cutting costs and boosting profitability.

Squires expressed optimism that NS would meet its 2020 sub-65 operating ratio goal ahead of schedule, although he would not say when that would occur.

NS set a record 64.6 percent operating ratio during the quarter, but it was 6 points higher than the CSX operating ratio of 58.6 percent, also a record.

The NS operating ratio was last among publicly traded North American Class 1 railroads.

In response to question by an analysts as to why NS has a different return profile than CSX, Squires said NS recognizes that boosting profitability is important, and consistent improvement in the operating ratio is part of its plan that balances growth and productivity gains.

“We’re going to continue to push on operating ratio,” Squires said. “When we get to the current goal of sub-65 we certainly won’t stop there.”

When pressed if NS has more of a growth focus than CSX, Squires responded: “I will say this. This is a terrific environment in which to grow. And we have been executing on growth by sending that growth to the bottom line.”

Squires pointed to the railroad’s improvements in operating income and noted that the railroad business is cyclical. “You better jump on that growth opportunity when you have it,” Squires said.

At the same time, NS saw an increase in traffic of 6 percent during the second quarter of 2018 compared with the 2 percent gain posted by CSX, which was the lowest among the publicly traded Class 1 railroads.

In response to another analyst, Squires said he watches the performances of other railroads and adopts their best practices.

He raised doubt about whether NS should do what CSX did last year in making disruptive operational changes to quickly reduce structural costs and then pursue more profitable growth.

In response to another question as to whether NS has a better network than CSX, Squires said he likes the NS network a lot.

“I think we have an outstanding network with a lot of potential for both efficiency and growth. I’ll take our network any day,” he said.

Squires also noted that NS has taken steps to reduce structural costs, including consolidating dispatching in Atlanta by the end of the year, simplifying its local operating plan by collaborating with customers, and rationalizing its yard network.

“A classification network that can provide good local service is one of the keys to growth in the merchandise network,” Squires said.

One analyst wondered if NS has considered hiring operations people with precision scheduled railroading experience as a way to cut the workforce as CSX has done.

By comparison, CSX had 22,942 employees at the end of the second quarter, which was down 11 percent from a year ago, while NS had 26,535, a decrease of 2 percent.

“I’m very, very confident in our operations team and their ability to drive productivity while maintaining a foundation for growth. We’re in great shape with the team,” Squires said, adding that a railroad’s cost structure comes down to people and assets and NS remains focused on both as it looks to balance cost cuts with growth, service, and safety.

Squires didn’t bite when an analyst asked if CSX was enjoying short-term profits at the expense of long-term goals.

“We believe in our plan, and our plan is a balance of efficiency and growth, as I’ve said several times this morning,” Squires said. “That really is the right formula in our view.”

Squires elaborated by saying companies need to make investments for growth and that requires having a certain level of resources available, particularly in times that are conducive to growth.

“So while we are definitely focused on productivity going forward, right now is the time to make sure you have the workforce in place to handle the business so that you can grow when that’s possible. So I think our plan will be the right plan for our shareholders in the future,” Squires said.

NS Sets Records in 2nd Quarter

July 26, 2018

Norfolk Southern on Wednesday reported that during the second quarter of 2018 it set records for operating income, operating ratio, net income and earnings.

Second quarter net income rose 43 percent to $710 million, or $2.50 per share, compared with $497 million, or $1.71 per share in the same period of 2017.

NS officials attributed the net income growth to an 18 percent increase in income from railway operations and a lower effective income tax rate.

“Our second-quarter results reflect strong growth in our business and our sustained commitment to improving financial performance,” said Chairman, President and CEO James Squires in a news release.

Railway operating revenue for the quarter increased 10 percent to $2.9 billion over the second quarter of 2017 as overall volumes were up 6 percent reflecting growth in all three commodity categories of intermodal, merchandise and coal.

Operating expenses rose 6 percent to $1.9 billion for the quarter over a year ago, as a result of higher fuel prices, higher incentive compensation and increased costs associated with overall lower network velocity offset, in part, by refund claims for prior years’ employment taxes paid on equity awards.

Income from railroad operations increased 18 percent to $1 billion compared with the second quarter of 2017, which NS said marked a record for any quarter.

The operating ratio of 64.6 percent was a second quarter record. NS posted an operating ratio of 66.9 in the second quarter of 2017.