Posts Tagged ‘NS operating ratio’

PSR To Help NS Close Gaps With CSX

November 13, 2018

A Norfolk Southern executive said recently that moving toward the precision scheduled railroading operating model is expected to enable the carrier to close productivity and operating ratio gaps it has with CSX, its primary competitor.

Speaking at a financial conference, NS Chief Financial Officer Cynthia Earhart said the Class 1 carrier will approach implementation of PSR with a much slower timetable that will avoid the type of disruptive change that occurred when CSX moved to PSR in 2017.

NS is using a process it has described as “clean sheeting” to redesign local service at yards and terminals that will make better use of locomotives, cars and operating crews.

Once that is completed sometime in 2019, the carrier will then turn its attention to a new systemwide service plan for  road trains that will be implemented gradually to minimize the potential for service problems.

“The biggest difference for us is we’re really trying to communicate very closely with our customers so that they understand what the changes are going to be and give them time to plan,” Earhart said.

She said there will be a lot of change to the way NS operates and that will affect shippers. NS officials have said they will provide more details of the plan to move to PSR during an investor day to be held next February.

Since switching to PSX, CSX has lowered its operating ratio by more than 10 points to 58.7 percent.

The NS operating ratio in the third quarter of 2018 was 65.4 percent. The operating ratio shows how much of revenue is devoted to expenses.

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 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.