10-QPeriod: Q3 FY2016

NORFOLK SOUTHERN CORP Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 26, 2016For Securities:NSC

Summary

Norfolk Southern Corporation's (NSC) Q3 2016 earnings report shows a slight increase in net income to $460 million from $452 million in the prior year quarter, largely driven by reduced operating expenses. Despite a 7% decline in railway operating revenues, primarily due to lower volumes in energy-related markets and the restructuring of its Triple Crown Services (TCS) subsidiary, the company improved its operating ratio to 67.5% from 69.7% in Q3 2015. This operational efficiency gain highlights the company's success in cost-control initiatives, lower fuel expenses, and service improvements. For the first nine months of 2016, net income rose 5% to $1.3 billion, with an all-time best operating ratio of 68.7%. Revenue declines were primarily attributed to depressed coal volumes, TCS restructuring, and lower average revenue per unit due to reduced fuel surcharges. The company is focused on executing its strategic plan, aiming for productivity savings and a further improved operating ratio.

Financial Highlights

45 data points
Beta

Revenue

$2.52B

Net Income

$460.00M

18.2% Net Margin

EPS (Diluted)

$1.55

Total Assets

$34.63B

Cash & Equivalents

$984.00M

Free Cash Flow

$508.00M

Financial Statements
Beta
Revenue$2.52B
Operating Expenses$1.70B
Operating Income$820.00M
Interest Expense$144.00M
Net Income$460.00M
EPS (Basic)$1.56
EPS (Diluted)$1.55
Shares Outstanding (Basic)292.70M
Shares Outstanding (Diluted)294.70M

Key Highlights

  • 1Net income for Q3 2016 increased by 2% to $460 million, while diluted EPS rose to $1.55 from $1.49.
  • 2Railway operating revenues decreased by 7% to $2.5 billion in Q3 2016 compared to the prior year, primarily due to volume declines in energy markets and the restructuring of Triple Crown Services.
  • 3Operating expenses for Q3 2016 decreased by 10% to $1.7 billion, driven by cost control initiatives, lower fuel costs, and absence of prior year restructuring costs.
  • 4The operating ratio improved to 67.5% in Q3 2016, a significant improvement from 69.7% in Q3 2015, indicating enhanced operational efficiency.
  • 5For the first nine months of 2016, net income increased by 5% to $1.3 billion, and the operating ratio reached an all-time best of 68.7%.
  • 6Cash provided by operating activities for the first nine months of 2016 was $2.3 billion, an increase from $2.2 billion in the prior year period.
  • 7The company repurchased 7.2 million shares of Common Stock for $603 million in the first nine months of 2016, a decrease from the $997 million spent in the same period of 2015.

Frequently Asked Questions

The primary drivers for the revenue decline were volume decreases, particularly in energy-related markets (like coal and chemicals from oil fields), and the restructuring of the Triple Crown Services (TCS) subsidiary. Additionally, lower average revenue per unit, largely due to reduced fuel surcharges, contributed to the decline, partially offset by price increases.

Norfolk Southern implemented strong cost-control initiatives, leading to significant reductions in operating expenses. Key areas of savings included lower fuel costs, reduced purchased services and rents, optimized materials and supplies usage, and decreased compensation and benefits due to lower employee levels and overtime. The absence of restructuring costs incurred in the prior year also contributed to the expense reduction.

The company remains committed to its strategic plan, which focuses on cost control and service improvements. It anticipates achieving productivity savings of approximately $250 million and an operating ratio below 70% for the full year 2016, demonstrating confidence in its ability to improve operational efficiency.

Norfolk Southern's financial condition and liquidity appear stable. Cash provided by operating activities is the primary source of liquidity, and the company expects this, combined with cash on hand, to be sufficient for its obligations. During Q2 2016, the company issued $600 million in senior notes. Its total debt-to-total capitalization ratio remained consistent. The company also renewed its credit agreement and accounts receivable securitization facility, maintaining access to funding.