01—Abstract
Summary
Summary of the 10-Q filed July 29, 2011. Cited figures are marked; the original filing is the authoritative source.
Norfolk Southern Corporation (NSC) reported strong financial performance for the second quarter and first six months of 2011, driven by a significant increase in railway operating revenues.
Revenue growth was primarily attributed to higher average revenue per unit, fueled by increased traffic volumes and, importantly, higher fuel surcharges. This top-line growth, coupled with effective cost management which saw operating expenses rise at a slightly lower rate than revenues, led to a substantial increase in net income and earnings per share compared to the prior year.
The company also benefited from favorable income tax adjustments, further boosting profitability. NSC demonstrated robust operating cash flow, which supported capital expenditures, share repurchases, debt repayments, and dividend payments, indicating a healthy financial position and a commitment to returning value to shareholders.
02—Key points
Key Highlights
- Railway operating revenues increased by 18% to $2.9 billion in Q2 2011 and by 18% to $5.5 billion for the first six months of 2011, driven by higher traffic volumes and increased average revenue per unit, including fuel surcharges.
- Net income significantly grew by 42% to $557 million ($1.56 diluted EPS) in Q2 2011 and by 36% to $882 million ($2.45 diluted EPS) for the first six months of 2011, compared to the prior year.
- Operating expenses rose 17% in Q2 and 19% for the first six months, primarily due to higher fuel prices and increased volume-related costs. Fuel expense alone increased by 60% in Q2.
- The company benefited from $63 million in favorable income tax adjustments during the first six months of 2011, stemming from an IRS examination resolution and state tax law changes, which boosted net income and EPS.
- Cash provided by operating activities was strong at $1.7 billion for the first six months of 2011, enabling significant capital expenditures ($888 million), share repurchases ($792 million), debt repayments, and dividend payments ($283 million).
- NSC repurchased approximately 6.3 million shares of common stock in the second quarter of 2011 for $449 million, as part of its ongoing share repurchase program.
- The operating ratio improved to 69.5% in Q2 2011 from 69.8% in Q2 2010, indicating improved operational efficiency.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2011filed July 29, 2011Financial Statements
Q2 FY2011 against Q2 FY2010
| Line item | Q2 FY2011Q2 FY2010 | Change |
|---|---|---|
| Revenue | $2.87B$2.43B | +17.9% |
| Operating Expenses | $1.99B$1.70B | +17.3% |
| Operating Income | $875.00M$733.00M | +19.4% |
| Interest Expense | $113.00M$115.00M | −1.7% |
| Net Income | $557.00M$392.00M | +42.1% |
| EPS (Basic) | $1.58$1.06 | +49.1% |
| EPS (Diluted) | $1.56$1.04 | +50.0% |
05—Questions
Frequently Asked Questions
What were the primary drivers of revenue growth in the second quarter and first half of 2011?
Revenue growth was primarily driven by an 18% increase in railway operating revenues for both the second quarter and the first six months of 2011. This was attributed to higher average revenue per unit, which includes the impact of fuel surcharges, and increased traffic volumes across various segments like Coal, General Merchandise, and Intermodal.
How did operating expenses change, and what were the main contributing factors?
Operating expenses increased by 17% in the second quarter and 19% for the first six months of 2011. The primary drivers for this increase were higher fuel prices (with locomotive fuel prices rising significantly) and increased volume-related expenses such as compensation and benefits, purchased services, and materials. Fuel expense itself saw a substantial jump of 60% in the second quarter.
What impact did income taxes have on the company's profitability?
The company experienced a favorable impact from income taxes during this period. Specifically, the second quarter and year-to-date effective income tax rates were lower than the prior year due to a $40 million benefit from the resolution of an IRS examination and $19 million from state tax law changes. These tax adjustments contributed positively to net income and earnings per share.
What is the company's liquidity position and how is it managing its cash flow?
Norfolk Southern demonstrated strong liquidity, with $1.7 billion in cash provided by operating activities for the first six months of 2011. The company maintained a healthy working capital of $562 million and had $906 million in cash, cash equivalents, and short-term investments. This strong cash flow allowed the company to fund significant capital expenditures, execute a robust share repurchase program ($792 million in the first half), repay debt, and pay dividends, indicating solid financial management.
06—Continue