10-QPeriod: Q3 FY2011

NORFOLK SOUTHERN CORP Quarterly Report for Q3 Ended Sep 30, 2011

Filed October 28, 2011For Securities:NSC

Summary

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 million 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% 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.

Financial Highlights

45 data points
Beta

Revenue

$2.89B

Net Income

$554.00M

19.2% Net Margin

EPS (Diluted)

$1.59

Total Assets

$28.31B

Cash & Equivalents

$242.00M

Free Cash Flow

$519.00M

Financial Statements
Beta
Revenue$2.89B
Operating Expenses$1.95B
Operating Income$938.00M
Interest Expense$114.00M
Net Income$554.00M
EPS (Basic)$1.61
EPS (Diluted)$1.59

Key Highlights

  • 1Revenue 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.
  • 2Net income rose by 24% to $554 million in Q3 2011 and by 31% to $1.4 billion for the first nine months of 2011.
  • 3Diluted Earnings Per Share (EPS) improved to $1.59 in Q3 2011 from $1.19 in Q3 2010.
  • 4The railway operating ratio improved to 67.5% in Q3 2011 from 69.6% in Q3 2010, indicating improved operational efficiency.
  • 5Cash provided by operating activities was $2.8 billion for the first nine months of 2011, up from $2.1 billion in the prior year.
  • 6The company repurchased 12.2 million shares of common stock in Q3 2011 at a cost of $819 million, demonstrating a commitment to shareholder value.
  • 7Fuel 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.

Frequently Asked Questions

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.

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.

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.

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.