10-KPeriod: FY2017

NORFOLK SOUTHERN CORP Annual Report, Year Ended Dec 31, 2017

Filed February 5, 2018For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported strong financial performance in its 2017 10-K filing. The company benefited significantly from the Tax Cuts and Jobs Act of 2017, which resulted in a substantial one-time tax benefit, dramatically increasing net income and earnings per share for the year. Excluding this tax impact, operating income showed healthy growth, driven by increased railway operating revenues, primarily from higher volumes in the coal and intermodal segments, alongside positive pricing gains. NSC operates an extensive rail network across the eastern half of the United States, serving key industrial and consumer markets. The company's strategic focus on growth, efficiency, and customer service appears to be yielding positive operational results, evidenced by a record-setting railway operating ratio. Investments in property additions continue, with a significant budget for 2018 aimed at maintaining and improving its capital-intensive infrastructure. The company also continues its share repurchase program, demonstrating a commitment to returning value to shareholders.

Financial Highlights

48 data points
Beta

Revenue

$10.55B

Net Income

$5.40B

51.2% Net Margin

EPS (Diluted)

$18.61

Total Assets

$35.71B

Cash & Equivalents

$690.00M

Free Cash Flow

$1.53B

Financial Statements
Beta
Revenue$10.55B
Operating Expenses$7.03B
Operating Income$3.52B
Interest Expense$550.00M
Net Income$5.40B
EPS (Basic)$18.76
EPS (Diluted)$18.61
Shares Outstanding (Basic)287.90M
Shares Outstanding (Diluted)290.30M

Key Highlights

  • 12017 Net Income significantly boosted by a $3.3 billion tax benefit from the Tax Cuts and Jobs Act, resulting in diluted EPS of $18.61, compared to $5.62 in 2016.
  • 2Excluding the tax reform impact, adjusted net income was $1.92 billion and adjusted diluted EPS was $6.61, showing robust year-over-year growth.
  • 3Railway operating revenues increased by 7% to $10.6 billion, driven by a 5% increase in total volume and positive revenue per unit, with notable growth in coal and intermodal segments.
  • 4Railway operating ratio improved to 66.0% (or 67.4% adjusted), indicating enhanced operational efficiency compared to the prior year.
  • 5Capital expenditures totaled $1.7 billion in 2017, with a planned $1.8 billion for 2018, reflecting ongoing investment in infrastructure and equipment.
  • 6The company repurchased approximately $1.0 billion of its common stock in 2017, continuing its commitment to share buybacks.
  • 7Approximately 80% of railroad employees are covered by collective bargaining agreements, with ongoing negotiations mentioned.

Frequently Asked Questions

The primary driver of the significant increase in net income in 2017 was the enactment of the Tax Cuts and Jobs Act of 2017. This legislation provided a substantial one-time tax benefit of $3.3 billion, primarily from the remeasurement of deferred tax liabilities due to the reduction in the federal corporate tax rate from 35% to 21%.

Operational efficiency improved in 2017, as indicated by the railway operating ratio, which decreased to 66.0% from 68.9% in 2016. Excluding the impact of tax reform on operating expenses, the adjusted operating ratio was 67.4%, still an improvement year-over-year, demonstrating better cost management relative to revenues.

Norfolk Southern's key revenue segments are Merchandise (60% of revenue), Intermodal (23%), and Coal (17%). In 2017, Merchandise revenues grew 3%, Intermodal revenues increased by 11%, and Coal revenues saw a significant 17% rise. This growth was primarily driven by increased volumes, particularly in coal and intermodal, supported by improved pricing and fuel surcharge adjustments.

For 2018, Norfolk Southern budgeted $1.8 billion for property additions, indicating continued investment in its infrastructure and rolling stock to support growth and efficiency. The company also actively engaged in share repurchases, buying back approximately $1.0 billion of its stock in 2017, and has a board-authorized program for future repurchases, signaling a commitment to enhancing shareholder value.