10-QPeriod: Q1 FY2009

NORFOLK SOUTHERN CORP Quarterly Report for Q1 Ended Mar 31, 2009

Filed April 24, 2009For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported a significant decrease in its first-quarter 2009 financial performance compared to the same period in 2008, primarily driven by the weak economic environment. Railway operating revenues fell by 22% to $1.94 billion, impacted by a 20% decline in traffic volume across most of its market segments, including coal, general merchandise, and intermodal. This revenue decline, coupled with lower fuel surcharge contributions, led to a 39% drop in net income to $177 million, or $0.47 per diluted share. Despite the challenging revenue environment, the company managed to reduce operating expenses by 19%, largely due to lower fuel costs and a reduction in stock-based compensation. The company maintained a strong liquidity position, with cash and cash equivalents increasing to $884 million. NSC also issued $500 million in unsecured notes to bolster its financial flexibility. Investors should note the ongoing impact of the economic downturn on freight volumes and revenues, although expense management and strategic debt issuance provide some mitigation.

Financial Highlights

24 data points
Beta

Revenue

$1.94B

Net Income

$177.00M

9.1% Net Margin

EPS (Diluted)

$0.47

Cash & Equivalents

$884.00M

Free Cash Flow

$111.00M

Financial Statements
Beta
Revenue$1.94B
Operating Expenses$1.56B
Operating Income$383.00M
Interest Expense$117.00M
Net Income$177.00M
EPS (Basic)$0.48
EPS (Diluted)$0.47

Key Highlights

  • 1Net income decreased by 39% to $177 million in Q1 2009 compared to Q1 2008.
  • 2Railway operating revenues declined by 22% to $1.94 billion, driven by a 20% decrease in traffic volume.
  • 3Operating expenses were reduced by 19% to $1.56 billion, primarily due to lower fuel costs and reduced compensation and benefits.
  • 4Diluted earnings per share (EPS) fell to $0.47 from $0.76 in the prior year's quarter.
  • 5Cash provided by operating activities decreased to $354 million from $604 million year-over-year.
  • 6The company issued $500 million in unsecured notes in January 2009 to strengthen its financial position.
  • 7The railway operating ratio increased to 80.3% from 76.9% year-over-year, indicating increased efficiency challenges.
  • 8NSC reported an increase in cash and cash equivalents to $884 million as of March 31, 2009.

Frequently Asked Questions

The primary driver was the significantly weaker economic environment, which led to a substantial decrease in railway operating revenues due to lower traffic volumes across various market segments. This revenue decline, combined with lower fuel surcharge contributions, more than offset the company's expense reduction efforts.

Norfolk Southern implemented expense reduction measures, resulting in a 19% decrease in total railway operating expenses. Key contributors to this reduction included significantly lower fuel costs (down 61%), a decrease in compensation and benefits expenses (down 9%) primarily due to lower stock-based and incentive compensation, and reduced materials and other expenses.

The company maintained a strong liquidity position, with cash and cash equivalents increasing to $884 million at the end of the quarter. In January 2009, Norfolk Southern issued $500 million in unsecured notes to enhance its financial flexibility. Cash flow from operations, though lower than the prior year, along with these proceeds, was sufficient to cover capital expenditures, debt maturities, and dividend payments.

Fuel prices had a dual impact. The decrease in fuel prices significantly lowered operating expenses by $245 million due to lower costs and reduced consumption. However, it also reduced revenue through lower fuel surcharge contributions, which had a greater negative impact on revenue than the savings from reduced fuel expenses.