01—Abstract
Summary
Summary of the 10-Q filed July 24, 2013. Cited figures are marked; the original filing is the authoritative source.
Norfolk Southern Corporation (NSC) reported a decrease in net income for the second quarter and the first six months of 2013 compared to the same periods in 2012.
This decline was primarily driven by a reduction in railway operating revenues, notably in the coal segment, which was only partially offset by lower income taxes and some improvements in general merchandise and intermodal revenues. Despite the revenue challenges, the company continued to generate substantial cash flow from operations, which supported capital investments, dividend payments, and significant share repurchases. Operating expenses saw a slight increase, with higher purchased services and rents impacting the results.
The company's financial position remained solid, with adequate liquidity and a manageable debt-to-capitalization ratio. Management expects continued strength in general merchandise and intermodal segments, while anticipating ongoing pressure in the coal market for the remainder of the year. Investors should note the company's ongoing efforts in share repurchases and capital expenditure programs aimed at enhancing its intermodal network, alongside potential risks related to regulatory matters and fluctuating commodity prices.
02—Key points
Key Highlights
- Net income for the second quarter of 2013 decreased by 11% to $465 million ($1.46 per diluted share) from $524 million ($1.60 per diluted share) in the prior year, primarily due to lower coal revenues.
- First six months net income decreased by 2% to $915 million ($2.87 per diluted share) from $934 million ($2.82 per diluted share) in the prior year.
- Railway operating revenues declined by 3% in Q2 2013 and 2% for the first six months, largely impacted by a significant drop in coal revenues (-17% in both periods).
- Operating expenses increased slightly by 1% in Q2 2013 and for the first six months, driven by higher purchased services and rents.
- Cash flow from operations remained strong, with $1.5 billion generated in the first six months of 2013, enabling capital expenditures, dividends, and share repurchases.
- The company repurchased approximately 4.2 million shares for $314 million in the first six months of 2013, a decrease from the 12.3 million shares for $850 million repurchased in the same period last year.
- The operating ratio worsened to 70.2% in Q2 2013 from 67.5% in Q2 2012, indicating higher operating expenses relative to revenues.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2013filed July 24, 2013Financial Statements
Q2 FY2013 against Q2 FY2012
| Line item | Q2 FY2013Q2 FY2012 | Change |
|---|---|---|
| Revenue | $2.80B$2.87B | −2.5% |
| Operating Expenses | $1.97B$1.94B | +1.3% |
| Operating Income | $836.00M$934.00M | −10.5% |
| Interest Expense | $128.00M$122.00M | +4.9% |
| Net Income | $465.00M$524.00M | −11.3% |
| EPS (Basic) | $1.47$1.62 | −9.3% |
| EPS (Diluted) | $1.46$1.60 | −8.8% |
05—Questions
Frequently Asked Questions
What was the primary driver of the decrease in net income for the second quarter of 2013?
The primary driver for the decrease in net income was a significant decline in railway operating revenues, particularly in the coal segment, which fell by 17% due to lower average revenue per unit and carload volume. This decline was partially offset by lower income taxes.
How did Norfolk Southern's share repurchase program perform in the first six months of 2013?
In the first six months of 2013, Norfolk Southern repurchased approximately 4.2 million shares of common stock for $314 million. This was a notable decrease compared to the first six months of 2012, when they repurchased 12.3 million shares for $850 million.
What is the company's outlook for the coal business for the remainder of the year?
Norfolk Southern expects coal revenues for the remainder of 2013 to be lower compared to the previous year, due to anticipated lower average revenue per unit and reduced volumes.
Are there any significant legal or environmental matters that could impact the company's financial position?
The company is involved in a few legal proceedings, including an antitrust class action regarding fuel surcharges and a rate reasonableness complaint from DuPont. They are also subject to environmental laws and regulations, with an estimated liability for environmental exposures of $53 million at June 30, 2013. While management believes these matters will not have a material adverse effect, ongoing developments could lead to future adjustments.
06—Continue