NS Reports Records in 3rd Quarter Financial Report

Norfolk Southern said on Wednesday that it posted quarterly records for operating revenue, operating income, net income and diluted earnings per share during the third quarter of 2022.

Net income was up 27 percent to $958 million, or $4.10 diluted earnings per share, from $753 million, or $3.06 per diluted EPS in the third quarter of 2021.

Operating revenue was $3.3 billion, a quarterly record, which represented an increase of 17 percent.

NS said the revenue gain was driven by a 20 percent increase in revenue per unit due to higher fuel surcharges and pricing. Income from operations totaled a record $1.3 billion, up 12 percent.

Operating expenses in the quarter rose 21 percent to $2.1 billion due to higher fuel prices, increased labor costs and other elevated expenses resulting from inflation and slower network velocity, NS officials said in a news release.

Incremental labor costs of $117 million associated with the tentative major labor agreements including $88 million in expenses pertaining to prior periods.

The operating ratio of 62 percent was up 1.8 points over that of the third quarter of 2021.

However, a report on the website of Railway Age characterized the NS financial report as a mixed picture because earnings missed projections of Wall Street analysts.

“A large question will be NS’s ability to capture intermodal traffic that have been lost due to labor/network challenges,” Cowen and Company Managing Director Jason Seidl told Railway Age.

The report also showed that freight volume dropped 2 percent overall during the third quarter.

Merchandise freight was down 2 percent while intermodal volume dipped 5 percent. Coal was a bright spot increasing 14 percent.

NS Chief Marketing Officer Ed Elkins said intermodal volume declined because some shippers diverted loads to the highway in advance of a potential work stoppage in late September.

Some short-haul international intermodal traffic also went to trucks.

CEO Alan Shaw during an earnings call with investors expressed optimism that as NS improves its service it will see increases traffic.

Top NS executives said during the call that the railroad is exceeding its goals of hiring new conductors.

Average train speed rose 20 percent during the quarter, and rail cars also spent less time in classification yards.

Chief Operating Officer Cindy Sanborn was asked if NS would furlough train crews if traffic decline in coming months due to a softening economy.

“We have to make sure we manage through downturns in such a way that we are in a good place to handle the upturns,” Sanborn said. “That’s how we’re going to grow long-term.”

She said NS would first rely on attrition to reduce its operating crew head count if traffic declines.

NS Cites Strong Third Quarter Performance

Norfolk Southern said Wednesday that it posted gains in key financial indicators during the third quarter of this year.

That included setting records for net income, diluted earnings per share, income from railway operations and the operating ratio.

Third-quarter net income was $753 million, diluted earnings per share was $3.06, income from railway operations was $1.1 billion and the operating ratio was 60.2 percent.

Compared with the third quarter of 2020, operating revenue was up 14 percent to $2.85 billion.

Railway operating expenses rose 3 percent to $1.7 billion. In a news release NS noted that 2020 third quarter financial results included a $99 million impairment charge related to an equity method investment.

Excluding the impairment charge, operating expenses were up 10 percent compared with adjusted operating expenses in the third quarter of 2020 largely due to higher costs for fuel, purchased services and compensation and benefits expenses.

The $1.1 billion in railway operations income was a 35 percent increase on a year-over-year basis. Excluding the effect of the third quarter 2020 impairment charge, income from railway operations was up 21 percent.

NS management expects revenue to show continued year-over-year growth of more than 12  percent.

It expects the operating ratio to show a year-over-year improvement in the range of 400-440 points while capital spending is projected to be approximately $1.6 billion.

Although NS executives talked about train crew shortages, they did not provide any train performance figures that reflected the effect of those shortages.

NS CEO James Squires said the Class 1 carrier has been actively seeking to hire new conductors, and has stepped up its training programs to more than tripple the number of participants in conductor training.

To some extent NS has overcome crew shortages by running longer trains, which in some cases has included double-length single commodity trains of grain and coal.

Current employees are being offered bonuses for perfect attendance and for referring people who the railroad has hired as conductors.

Figures provided during an earnings call showed that NS has 7 percent fewer workers than it did at this point last year. It has handled 5 percent more gross ton miles on it trains, which are 10 percent heavier and 3 percent longer than they were previously.

To accommodate longer trains, some sidings are being lengthened with most of those projects in the Southeast.

More information about the third quarter financial performance of NS is available at http://www.nscorp.com/content/nscorp/en/investor-relations/presentations/third-quarter-2021-earnings.html

CN CEO Ruest to Retire in January

Canadian National CEO Jean-Jacques Ruest will retire in January.

In a news release, CN said Ruest had deferred discussing his retirement plans in order to see through the proposed merger with Kansas City Southern, which was called off after the U.S. Surface Transportation Board rejected CN’s request to place KCS stock in a voting trust while regulators reviewed the merger.

The news release said CN would conduct a global search for a new CEO and that Ruest might stay on in his post beyond January if need be until a new CEO is hired.

Ruest has worked for CN for more than 25 years and been CEO since 2018.

In an unrelated development, CN said it earned during the third quarter of 2021 revenue of CA$3.6 billion, up 5 percent from the same period a year ago; operating income of CA$1.34 billion, up 2 percent; adjusted operating income of CA$1.5 billion, up 8 percent.

Diluted earnings per share were CA$2.37, up 72 percent while adjusted diluted earnings per share were CA$152, an increase of 10 percent.

The operating ratio improved 2.8 points to 62.7 percent. The adjusted operating ratio of 59 percent was a gain of 0.9 points.

CN said operating income and operating ratio were affected by transaction-related costs for the unsuccessful bid to acquire KCS.

NS Net Income Up 1% in 4th Quarter

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.

CSX Net Earnings Down in 4th Quarter

CSX reported this week that it had fourth quarter 2020 net earnings of $760 million or 99 cents per share, compared with $771 million or 99 cents per share in the same quarter in 2019.

For the last quarter of 2020, net income included a $48 million charge or 5 cents per share after taxes that was related to debt retirement.

Revenue during the quarter decreased 2 percent compared with the previous year to $2.83 billion.

In a news release CSX said intermodal growth was more than offset by lower fuel surcharge revenue and declines in coal traffic.

Expenses fell 7 percent in a year-over-year comparison to $1.61 billion, driven by fuel expenses and efficiency gains.

Operating income rose 5 percent to $1.22 billion from $1.15 billion compared with the fourth quarter of 2019.

CSX reported a fourth quarter operating ratio of 57 percent, which official said was a fourth quarter record.

In the fourth quarter of 2019 the operating ratio, which measures expenses as a percentage of revenue, was 60 percent.

CSX management expects traffic volume in 2021 to outpace gross domestic product growth, with merchandise volume growth exceeding industrial production.

Management expects intermodal volume to grown faster than merchandise and coal traffic to show some improvement over its 2020 levels.

The carrier is expected capital expenditures of $1.7 billion to $1.8 billion this year.

Most Class 1s Likely to Announce Earnings Gains

Fourth quarter financial results for publicly traded Class I railroads will begin being released today and Wall Street analysts are expecting earnings to rise collectively by 5.5 percent.

CSX and Union Pacific will be first to release their earnings with CSX expected to report a 1 percent increase.

Canadian National’s earnings are expected to be up by 13.5 percent when it releases results on Jan. 26.

Norfolk Southern is expected to post an earnings decline of 2.7 percent when it announces its results on Jan. 27.

Analysts said one thing to watch for during the earnings conferences will be whether railroads fully reinstate earnings and volume guidance for 2021.

Those projections were suspended last year amid the the economic uncertainty triggered by the COVID-19 pandemic.

CN Revenue Down 11% in 3rd Quarter

Canadian National reported this week that during the third quarter it had revenues of C$3.41 billion (US$2.59 billion), a decrease of C$421 million (US$319 million) or 11 percent when compared with the same quarter of 2019 period.

In a news release, CN attributed the drop in revenues “mainly due to lower volumes across most commodity groups caused by the ongoing effects of the COVID-19 pandemic.”

CN said other factors included lower fuel surcharge rates, which were partly offset by freight rate increases, and increased shipments of Canadian grain.

Revenue ton miles fell 7 percent while freight revenue per RTM fell by 3 percent over the year-earlier period.

Operating expenses were down 8 percent to C$2.04 billion (US$1.55 billion). CN said this was prompted by lower fuel and labor costs, and fewer purchased services and material expenses.

“The decrease in the first nine months was partly offset by a loss on assets held for sale in the second quarter, resulting from the company’s decision to market for sale for on-going rail operations, certain non-core lines,” CN officials said in a statement.

The third quarter also saw CN experience increased traffic compared with the second quarter of this year. However, overall demand remained below 2019 levels.

CN said by the end of the third quarter some commodities had recovered at or close to 2019 levels.

This included intermodal traffic, lumber and panels used in home renovations and new home construction, and export grain and fertilizers.

Such commodities as finished vehicles, industrial products, petroleum and chemical products, coal, and frac sand remained below pre-pandemic levels.

 “As we look at the fourth quarter and beyond, we continue to see sequential improvements and momentum leading us to have a cautious optimism about the future,” CN President and CEO JJ Ruest said in a statement. “We remain confident in our ability to continue delivering long-term shareholder value.”