01—Abstract
Summary
Summary of the 10-Q filed October 28, 2011. Cited figures are marked; the original filing is the authoritative source.
Norfolk Southern Corporation (NSC) reported a strong third quarter and first nine months of 2011, demonstrating resilience and growth in a recovering economy.
Revenue surged by 18% year-over-year, driven by increased traffic volume and higher average revenue per unit, bolstered by fuel surcharges. This top-line growth translated into a significant increase in net income, up 24% for the quarter to $554 milliona and 31% year-to-date to $1.4 billion, with diluted EPS rising to $1.59 from $1.19 in the prior year's quarter. The company effectively managed its operating expenses, which increased by 14% for the quarter, resulting in an improved operating ratio of 67.5% compared to 69.6% in Q3 2010.
Key drivers for revenue growth included strong performance in the Coal and Intermodal segments, while General Merchandise also saw notable improvements. Despite rising fuel costs, which increased by 49%b for the quarter, the company's fuel surcharge mechanisms helped offset these expenses and contribute to revenue growth. NSC also continued its commitment to shareholder returns through a robust share repurchase program, buying back over 12 million shares in the third quarter alone.
02—Key points
Key Highlights
- Revenue increased by 18% to $2.9 billion in Q3 2011 and by 18% to $8.4 billion for the first nine months of 2011, driven by higher average revenue per unit and increased traffic volume.
- Net income rose by 24% to $554 million in Q3 2011 and by 31% to $1.4 billion for the first nine months of 2011.
- Diluted Earnings Per Share (EPS) improved to $1.59 in Q3 2011 from $1.19 in Q3 2010.
- The railway operating ratio improved to 67.5% in Q3 2011 from 69.6% in Q3 2010, indicating improved operational efficiency.
- Cash provided by operating activities was $2.8 billion for the first nine months of 2011, up from $2.1 billion in the prior year.
- The company repurchased 12.2 million shares of common stock in Q3 2011 at a cost of $819 million, demonstrating a commitment to shareholder value.
- Fuel surcharges contributed significantly to revenue growth, with an increase of $179 million in Q3 2011 and $431 million for the first nine months of 2011.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2011filed October 28, 2011Financial Statements
Q3 FY2011 against Q3 FY2010
| Line item | Q3 FY2011Q3 FY2010 | Change |
|---|---|---|
| Revenue | $2.89B$2.46B | +17.6% |
| Operating Expenses | $1.95B$1.71B | +14.1% |
| Operating Income | $938.00M$746.00M | +25.7% |
| Interest Expense | $114.00M$113.00M | +0.9% |
| Net Income | $554.00M$445.00M | +24.5% |
| EPS (Basic) | $1.61$1.21 | +33.1% |
| EPS (Diluted) | $1.59$1.19 | +33.6% |
05—Questions
Frequently Asked Questions
What were the main drivers of Norfolk Southern's revenue growth in the third quarter of 2011?
Norfolk Southern's revenue growth in Q3 2011 was primarily driven by an 18% increase to $2.9 billion. This was a result of higher average revenue per unit, which includes the impact of fuel surcharges, and an increase in traffic volume. Specifically, the Coal and Intermodal segments showed strong performance.
How did Norfolk Southern manage its operating expenses in the face of rising fuel costs?
Despite a 49% increase in fuel expense during the third quarter of 2011, Norfolk Southern managed its overall operating expenses well. Total railway operating expenses increased by 14% for the quarter. The company's fuel surcharge mechanisms, which are tied to market-based fuel prices, helped to offset a significant portion of the increased fuel costs, contributing to an improved operating ratio.
What is Norfolk Southern's approach to returning capital to shareholders?
Norfolk Southern demonstrates a commitment to returning capital to shareholders primarily through its share repurchase program. In the third quarter of 2011, the company repurchased approximately 12.2 million shares of common stock for $819 million. Year-to-date, 23.8 million shares were repurchased for $1.6 billion. The company also pays dividends, with $0.43 per share paid in the third quarter of 2011.
Are there any significant legal or regulatory matters that could impact Norfolk Southern's financial performance?
Norfolk Southern is involved in several legal proceedings, including rate reasonableness complaints with customers like DuPont and South Mississippi Electric Power Association (SMEPA), and is subject to environmental regulations. While the company disputes the rate reasonableness allegations and has settled the SMEPA claim without material impact, the DuPont case is expected to resolve later. The company believes that the outcomes of these matters are unlikely to have a material adverse effect on its financial position, results of operations, or liquidity, though it acknowledges inherent uncertainties.
06—Continue