10-QPeriod: Q1 FY2018

NORFOLK SOUTHERN CORP Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 25, 2018For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported strong first-quarter 2018 results, exceeding previous year's performance across key metrics. Railway operating revenues increased by 6% to $2.72 billion, driven by robust growth in intermodal traffic and improved pricing across most segments. Net income saw a significant jump of 27% to $552 million, translating to a 30% increase in diluted earnings per share to $1.93. The company achieved a record first-quarter operating ratio of 69.3%, indicating improved operational efficiency. Key drivers for the strong performance include higher average revenue per unit, fueled by pricing gains and increased fuel surcharge revenues, alongside a 3% rise in overall traffic volume. While the company faced increased fuel and network velocity-related expenses, these were effectively managed. NSC also benefited from a lower effective tax rate following the 2017 tax reform. The company continued its commitment to shareholder returns through significant share repurchases, while also managing its debt levels and maintaining a strong liquidity position, expecting sufficient cash to meet ongoing obligations.

Financial Highlights

46 data points
Beta

Revenue

$2.72B

Net Income

$552.00M

20.3% Net Margin

EPS (Diluted)

$1.93

Total Assets

$36.16B

Cash & Equivalents

$1.07B

Free Cash Flow

$433.00M

Financial Statements
Beta
Revenue$2.72B
Operating Expenses$1.88B
Operating Income$835.00M
Interest Expense$136.00M
Net Income$552.00M
EPS (Basic)$1.94
EPS (Diluted)$1.93
Shares Outstanding (Basic)283.50M
Shares Outstanding (Diluted)285.90M

Key Highlights

  • 1Railway operating revenues increased 6% to $2.72 billion, driven by intermodal growth and pricing.
  • 2Net income surged 27% to $552 million, with diluted EPS up 30% to $1.93.
  • 3Achieved a record first-quarter operating ratio of 69.3%, indicating improved efficiency.
  • 4Traffic volume increased by 3% year-over-year.
  • 5Benefited from a lower effective tax rate due to 2017 tax reform, leading to a significant reduction in income taxes paid.
  • 6Repurchased $300 million of common stock in Q1 2018, a substantial increase from $200 million in Q1 2017.
  • 7Maintained a healthy liquidity position with $1.07 billion in cash and cash equivalents at quarter-end.

Frequently Asked Questions

Revenue growth was primarily driven by a 6% increase in railway operating revenues to $2.72 billion. This was fueled by a combination of factors including a 3% increase in overall traffic volume, higher average revenue per unit due to pricing gains, and increased fuel surcharge revenues. The intermodal segment showed particularly strong revenue growth of 19%.

Profitability improved significantly. Net income increased by 27% to $552 million from $433 million in the prior year's first quarter. Diluted earnings per share saw an even more substantial rise of 30%, reaching $1.93 compared to $1.48 in the first quarter of 2017. This improvement was supported by higher revenues and a lower effective tax rate.

For the remainder of the year, Norfolk Southern anticipates increased merchandise revenues due to higher average revenue per unit and volume growth. Intermodal revenues are also expected to rise, driven by greater volume and higher average revenue per unit. However, coal revenues are projected to be flat, influenced by market conditions affecting pricing and traffic mix. The company aims to continue improving network fluidity and resilience for growth and efficiency.

Railway operating expenses increased by 4% to $1.88 billion. Key expense drivers included higher fuel costs (up 25%) and increased purchased services and rents (up 6%), attributed partly to intermodal volume and network velocity issues. However, compensation and benefits expenses decreased by 3% due to lower employment levels. The company achieved a record first-quarter operating ratio of 69.3%, indicating improved operational efficiency despite rising costs.