10-QPeriod: Q3 FY2010

NORFOLK SOUTHERN CORP Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 29, 2010For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported a strong third quarter and nine-month performance for 2010, driven by a significant increase in railway operating revenues. This growth was primarily fueled by higher traffic volumes across key segments like coal, general merchandise, and intermodal, coupled with improved average revenue per unit, notably boosted by fuel surcharges. Net income saw a substantial year-over-year increase of 47% for the quarter and 50% for the nine months, reflecting the company's ability to leverage increased volumes and manage operating expenses effectively, resulting in an improved operating ratio. Financially, NSC demonstrated robust cash flow from operations, enabling substantial capital expenditures, share repurchases, and dividend payments. The company maintained a healthy liquidity position with significant cash and short-term investments. Management expressed confidence in the ongoing recovery and the company's ability to meet its financial obligations. Strategic initiatives, including investments in infrastructure projects like the Crescent Corridor and the CREATE project, underscore NSC's commitment to long-term growth and operational efficiency.

Financial Highlights

47 data points
Beta

Revenue

$2.46B

Net Income

$445.00M

18.1% Net Margin

EPS (Diluted)

$1.19

Total Assets

$28.06B

Cash & Equivalents

$1.13B

Free Cash Flow

$408.00M

Financial Statements
Beta
Revenue$2.46B
Operating Expenses$1.71B
Operating Income$746.00M
Interest Expense$113.00M
Net Income$445.00M
EPS (Basic)$1.21
EPS (Diluted)$1.19
Shares Outstanding (Basic)366.30M
Shares Outstanding (Diluted)371.60M

Key Highlights

  • 1Net income for Q3 2010 increased by 47% to $445 million compared to Q3 2009, and for the first nine months of 2010, it rose by 50% to $1.1 billion.
  • 2Railway operating revenues grew significantly, up 19% for Q3 and 22% for the first nine months, driven by a 15% increase in traffic volumes for the quarter and strong performance across coal, general merchandise, and intermodal segments.
  • 3The railway operating ratio improved to 69.6% in Q3 2010 from 72.8% in Q3 2009, indicating improved operational efficiency.
  • 4Cash provided by operating activities was robust at $2.1 billion for the first nine months of 2010, up from $1.4 billion in the prior year, supporting capital expenditures and shareholder returns.
  • 5Norfolk Southern repurchased 5.8 million shares of common stock in Q3 2010 for $323 million, demonstrating a commitment to returning capital to shareholders and managing its share count.
  • 6The company is making strategic investments in infrastructure, including the Crescent Corridor and CREATE projects, totaling significant capital commitments for future growth.
  • 7Despite increased operational activity and fuel costs, the company managed its expenses effectively, with total railway operating expenses increasing by 14% for both the quarter and nine months, largely in line with revenue growth.

Frequently Asked Questions

The substantial increase in net income was primarily driven by a 19% rise in railway operating revenues, which resulted from a 15% increase in traffic volumes and higher average revenue per unit, boosted by fuel surcharges. Improved operational efficiency, reflected in a lower operating ratio, also contributed significantly to the earnings growth.

While railway operating expenses increased by 14% due to higher traffic volumes and fuel prices, the growth was largely in line with the revenue increase. Key expense drivers included compensation and benefits, fuel, and materials. The company managed these increases through operational efficiencies and the benefit of higher fuel surcharges, which helped offset some of the rising fuel costs.

Norfolk Southern maintained a strong liquidity position, with $1.4 billion in cash, cash equivalents, and short-term investments as of September 30, 2010. The company generated $2.1 billion in operating cash flow for the first nine months of 2010, which was used for capital expenditures (estimated at $1.5 billion for 2010), share repurchases ($437 million in the first nine months), and dividend payments.

The filing mentions ongoing legal proceedings, including antitrust class actions related to fuel surcharges and environmental matters, such as alleged violations of water laws in Ohio and proposed penalties in Pennsylvania. While the company believes these matters will not have a material adverse effect on its financial position, results of operations, or liquidity, they represent ongoing risks inherent in the railroad industry.