10-QPeriod: Q2 FY2010

NORFOLK SOUTHERN CORP Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 30, 2010For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported a strong second quarter and first six months of 2010, driven by a significant rebound in railway operating revenues, up 31% and 23% year-over-year respectively. This revenue growth was primarily fueled by increased traffic volumes and higher average revenue per unit, bolstered by rising fuel surcharges. Net income for the quarter surged by 59% to $392 million ($1.04 diluted EPS), and for the six-month period, it increased by 53% to $649 million ($1.72 diluted EPS). The company's operating ratio improved to 69.8% in Q2 2010 from 74.8% in Q2 2009, indicating improved operational efficiency. NSC demonstrated robust operating cash flow generation, providing $1.4 billion in the first half of 2010, which supported capital expenditures, debt maturities, dividends, and significant share repurchases. The company also announced an expansion of its share repurchase program, authorizing the buyback of up to an additional 50 million shares. While fuel prices increased, the company benefited from higher fuel surcharges, and management believes current liquidity and cash flow are sufficient to meet ongoing obligations.

Financial Highlights

47 data points
Beta

Revenue

$2.43B

Net Income

$392.00M

16.1% Net Margin

EPS (Diluted)

$1.04

Total Assets

$27.63B

Cash & Equivalents

$855.00M

Free Cash Flow

$311.00M

Financial Statements
Beta
Revenue$2.43B
Operating Expenses$1.70B
Operating Income$733.00M
Interest Expense$115.00M
Net Income$392.00M
EPS (Basic)$1.06
EPS (Diluted)$1.04
Shares Outstanding (Basic)369.70M
Shares Outstanding (Diluted)375.10M

Key Highlights

  • 1Railway operating revenues increased significantly by 31% year-over-year in Q2 2010 to $2.43 billion, and by 23% for the first six months to $4.67 billion, driven by higher traffic volumes and improved average revenue per unit.
  • 2Net income for the second quarter of 2010 was $392 million, a 59% increase compared to the prior year, resulting in diluted earnings per share of $1.04.
  • 3For the first six months of 2010, net income rose 53% to $649 million, with diluted earnings per share of $1.72.
  • 4The railway operating ratio improved to 69.8% in Q2 2010, down from 74.8% in Q2 2009, reflecting improved operational efficiency.
  • 5Cash provided by operating activities for the first six months of 2010 was $1.38 billion, a substantial increase from $643 million in the same period of 2009.
  • 6Norfolk Southern repurchased 2.0 million shares of common stock in the first six months of 2010 for $114 million and announced a new authorization to repurchase up to an additional 50 million shares.
  • 7The company experienced increased fuel expenses but benefited more from higher fuel surcharge revenues, with fuel surcharges contributing $199 million in Q2 2010.

Frequently Asked Questions

Revenue growth was primarily driven by a 31% increase in railway operating revenues, reaching $2.43 billion. This was due to higher traffic volumes across most segments, including coal, general merchandise, and intermodal, coupled with improved average revenue per unit. Higher fuel surcharges, reflecting increased oil prices, also significantly contributed to the revenue uplift.

While fuel expenses increased significantly due to higher prices and consumption, Norfolk Southern benefited from a larger increase in fuel surcharge revenues. These surcharges, often tied to indices like West Texas Intermediate crude oil, helped offset the increased operating costs. The company noted that for Q2 2010, the increase in fuel surcharge revenue exceeded the increase in fuel expense.

The company reported strong operating cash flow generation of $1.38 billion for the first six months of 2010. With $1.1 billion in cash, cash equivalents, and short-term investments, management believes its liquidity is sufficient to meet ongoing obligations. Capital expenditures are planned at approximately $1.5 billion for 2010, with additional significant investments anticipated for Positive Train Control (PTC) implementation.

Yes, Norfolk Southern paid a quarterly dividend of $0.34 per share in Q2 2010, totaling $0.68 for the first six months. Additionally, the company repurchased 2.0 million shares for $114 million in the first half of 2010. A significant development was the Board's authorization on July 27, 2010, for the repurchase of up to an additional 50 million shares through December 31, 2014.