01—Abstract
Summary
Summary of the 10-Q filed July 27, 2016. Cited figures are marked; the original filing is the authoritative source.
Norfolk Southern Corporation (NSC) reported a decrease in railway operating revenues for both the second quarter and the first six months of 2016 compared to the prior year, primarily driven by a decline in volumes and lower average revenue per unit, largely due to reduced fuel surcharge revenues and weakness in the coal markets.
Despite these revenue pressures, the company demonstrated strong operational efficiency, with its operating ratio improving to 68.6% for the second quarter and achieving a record 69.4% for the first six months. This improvement was attributed to significant reductions in railway operating expenses, particularly in fuel, compensation, and purchased services, stemming from cost control initiatives and lower fuel prices. Net income for the second quarter of 2016 was $405 milliona ($1.36 diluted EPS), a decrease from $433 million ($1.41 diluted EPS) in the prior year's second quarter.
For the first six months, net income rose to $792 millionb ($2.65 diluted EPS) from $743 million ($2.41 diluted EPS) in the comparable period of 2015. The company continued its commitment to returning capital to shareholders through dividends and share repurchases, though repurchase activity decreased year-over-year. NSC maintained a solid financial position, with a debt-to-capitalization ratio of 45.1% at the end of the second quarter.
02—Key points
Key Highlights
- Railway operating revenues declined by 10% in Q2 2016 and 8% in the first six months of 2016 compared to the prior year, driven by lower volumes and reduced fuel surcharge revenues.
- Operating ratio improved significantly, reaching 68.6% in Q2 2016 (vs. 70.0% in Q2 2015) and a record 69.4% for the first six months of 2016 (vs. 73.1% in the prior year).
- Net income for Q2 2016 was $405 million ($1.36 diluted EPS), down from $433 million ($1.41 diluted EPS) in Q2 2015. First six months' net income increased to $792 million ($2.65 diluted EPS) from $743 million ($2.41 diluted EPS).
- Railway operating expenses decreased by 11% in Q2 2016 and 12% in the first six months of 2016, primarily due to lower fuel costs, compensation, and purchased services.
- The company repurchased $400 million of its common stock in the first six months of 2016, a decrease from $765 million in the same period of 2015.
- Cash provided by operating activities was $1.43 billion for the first six months of 2016, down from $1.50 billion in the prior year, impacted by higher income tax payments.
- The company issued $600 million of 2.9% senior notes due 2026 during the second quarter of 2016.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2016filed July 27, 2016Financial Statements
Q2 FY2016 against Q2 FY2015
| Line item | Q2 FY2016Q2 FY2015 | Change |
|---|---|---|
| Revenue | $2.45B$2.71B | −9.5% |
| Operating Expenses | $1.68B$1.90B | −11.3% |
| Operating Income | $770.00M$814.00M | −5.4% |
| Interest Expense | $138.00M$134.00M | +3.0% |
| Net Income | $405.00M$433.00M | −6.5% |
| EPS (Basic) | $1.37$1.43 | −4.2% |
| EPS (Diluted) | $1.36$1.41 | −3.5% |
| Shares Outstanding (Basic) | 294.70M302.90M | −2.7% |
| Shares Outstanding (Diluted) | 296.60M305.50M | −2.9% |
05—Questions
Frequently Asked Questions
What were the main drivers of the revenue decline in the second quarter of 2016?
The primary drivers of the revenue decline were a 7% drop in volumes and lower average revenue per unit. This was largely attributable to continued weakness in coal markets and reduced fuel surcharge revenues, which more than offset price increases.
How did Norfolk Southern manage its expenses despite lower revenues?
Norfolk Southern implemented cost control initiatives and benefited from lower fuel prices, leading to a significant reduction in railway operating expenses. Specific areas of savings included fuel, compensation and benefits, and purchased services and rents.
What is the company's outlook regarding its operating ratio?
The company remains committed to its strategic plan and believes it is well-positioned to achieve an operating ratio below 70% for the full year 2016, supported by ongoing productivity savings and expense management efforts.
What is the company's approach to share repurchases and dividends?
Norfolk Southern continues to return capital to shareholders through dividends and share repurchases. While share repurchase activity decreased in the first six months of 2016 compared to the prior year, the timing and volume of future repurchases will be guided by market conditions. The company maintained its dividend payment.
06—Continue