10-QPeriod: Q3 FY2008

NORFOLK SOUTHERN CORP Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 24, 2008For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported a solid third quarter of 2008, with net income increasing by 35% year-over-year to $520 million, driven by strong growth in railway operating revenues. This top-line expansion was primarily fueled by higher average revenue per unit, significantly boosted by increased fuel surcharges which more than offset a slight decline in traffic volume. The company also improved its railway operating ratio to 69.1% from 71.1% in the prior year, indicating enhanced operational efficiency. For the nine-month period, net income also showed a healthy increase of 19% to $1.3 billion. Despite macroeconomic headwinds and a challenging business environment, NSC demonstrated resilience through effective pricing strategies, particularly with fuel surcharges, and disciplined expense management. The company continued its share repurchase program and maintained a strong liquidity position, expecting sufficient cash flow from operations to meet its obligations.

Financial Highlights

24 data points
Beta

Revenue

$2.89B

Net Income

$520.00M

18.0% Net Margin

EPS (Diluted)

$1.37

Cash & Equivalents

$557.00M

Free Cash Flow

$971.00M

Financial Statements
Beta
Revenue$2.89B
Operating Expenses$2.00B
Operating Income$894.00M
Interest Expense$111.00M
Net Income$520.00M
EPS (Basic)$1.39
EPS (Diluted)$1.37

Key Highlights

  • 1Net income for Q3 2008 increased 35% to $520 million, compared to $386 million in Q3 2007.
  • 2Railway operating revenues grew 23% to $2.9 billion in Q3 2008, largely due to a 52% increase in coal revenues and strong performance in general merchandise and intermodal segments.
  • 3The railway operating ratio improved to 69.1% in Q3 2008 from 71.1% in Q3 2007, indicating improved efficiency.
  • 4Diluted earnings per share (EPS) rose to $1.37 in Q3 2008, up from $0.97 in Q3 2007.
  • 5Cash provided by operating activities for the first nine months of 2008 was $2.1 billion, supporting capital expenditures, dividends, and share repurchases.
  • 6The company repurchased approximately 6.1 million shares of common stock in the third quarter of 2008, demonstrating a commitment to returning capital to shareholders.

Frequently Asked Questions

The primary driver of the increase in net income was a significant rise in railway operating revenues, up 23% year-over-year. This growth was largely attributed to higher average revenue per unit, significantly bolstered by increased fuel surcharges, which more than offset a slight decline in overall traffic volume.

Fuel surcharges played a crucial role, contributing to a substantial increase in railway operating revenues. For the third quarter of 2008, fuel surcharges amounted to $535 million, an increase of $339 million compared to the same period in the prior year. This helped offset rising fuel expenses and contributed positively to operating income.

Norfolk Southern expects that its cash on hand, combined with cash flows from operations, will be sufficient to meet its ongoing obligations. The company had $557 million in cash and cash equivalents and short-term investments at the end of the third quarter of 2008 and has access to a $1 billion credit facility.

The company is involved in various legal proceedings, including antitrust class actions related to fuel surcharges and an environmental lawsuit stemming from the 2005 Graniteville derailment. While these matters are being vigorously defended, management does not believe their ultimate resolution will have a material adverse effect on its financial position, results of operations, or liquidity. Environmental liabilities are recorded when probable and estimable, with $39 million accrued as of September 30, 2008, for environmental exposures.