10-QPeriod: Q1 FY2017

NORFOLK SOUTHERN CORP Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 26, 2017For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported a solid first quarter for 2017, with net income rising 12% year-over-year to $433 million, or $1.48 per diluted share. This improvement was driven by a 6% increase in railway operating revenues to $2.575 billion, primarily due to higher volumes and increased fuel surcharge revenues across key segments like coal and intermodal. Despite rising fuel costs contributing to a 6% increase in total operating expenses, the company managed to improve its operating ratio slightly to 70.0%. Shareholder returns were maintained with consistent dividend payments and significant share repurchases totaling $200 million in the quarter. Key operational drivers included strong growth in coal volumes, particularly for export, and a rebound in metals and construction shipments. The intermodal segment also saw robust revenue growth from increased volumes and surcharges. While merchandise volumes were relatively flat, higher average revenue per unit provided a boost. The company continues to focus on cost control and strategic execution to further enhance its operating performance and profitability.

Financial Highlights

46 data points
Beta

Revenue

$2.58B

Net Income

$433.00M

16.8% Net Margin

EPS (Diluted)

$1.48

Total Assets

$35.15B

Cash & Equivalents

$955.00M

Free Cash Flow

$408.00M

Financial Statements
Beta
Revenue$2.58B
Operating Expenses$1.82B
Operating Income$757.00M
Interest Expense$142.00M
Net Income$433.00M
EPS (Basic)$1.49
EPS (Diluted)$1.48
Shares Outstanding (Basic)290.30M
Shares Outstanding (Diluted)292.80M

Key Highlights

  • 1Net income increased 12% to $433 million ($1.48 per diluted share) in Q1 2017 compared to Q1 2016.
  • 2Railway operating revenues grew 6% to $2.575 billion, driven by higher volumes and fuel surcharges, particularly in coal and intermodal segments.
  • 3Operating ratio improved slightly to 70.0% from 70.1% in the prior year's quarter, indicating efficient cost management.
  • 4Coal volumes surged 21%, with a significant 71% increase in export coal tonnage, benefiting from tightening international supply.
  • 5Intermodal revenues rose 9% due to increased traffic volumes and fuel surcharges, supported by domestic and international growth.
  • 6The company repurchased $200 million of its common stock in Q1 2017, maintaining its commitment to shareholder returns.
  • 7Effective income tax rate decreased to 33.9% from 35.5%, partly due to tax benefits from stock-based compensation.

Frequently Asked Questions

Revenue growth was primarily driven by a 6% increase in railway operating revenues to $2.575 billion. This was fueled by higher volumes across key segments, notably a 21% increase in coal (with export coal up 71%) and a 4% rise in intermodal units. Increased fuel surcharge revenues and higher average revenue per unit also contributed significantly.

Total railway operating expenses increased by 6% to $1.802 billion. The primary driver was a 43% surge in fuel costs due to higher prices. However, the company partially offset these increases through effective cost management in areas like purchased services and rents (down 1%). Despite the expense pressures, the company managed to improve its operating ratio to 70.0%.

Management expressed optimism for the remainder of the year. They expect merchandise revenues to increase due to higher average revenue per unit and stable volumes. Intermodal revenues are also projected to grow, driven by volume increases and higher average revenue per unit. Coal revenues are anticipated to be higher than the previous year, primarily due to continued export and utility volume increases and improving average revenue per unit.

The company is involved in several ongoing lawsuits, including an antitrust class action regarding fuel surcharges and a rate reasonableness complaint from a chemical customer. However, management believes the outcome of these proceedings will not have a material effect on the company's financial position, results of operations, or liquidity. Environmental liabilities are recorded where probable and reasonably estimable, and management believes current accruals are adequate, with no individually material sites identified.