10-QPeriod: Q2 FY2019

NORFOLK SOUTHERN CORP Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 24, 2019For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported solid financial results for the second quarter and first six months of 2019, demonstrating growth in key profitability metrics. Railway operating revenues saw a modest increase, primarily driven by higher average revenue per unit across most commodity groups, reflecting successful pricing strategies. Despite a slight decrease in overall traffic volumes, particularly in Merchandise and Coal, the company achieved record low operating ratios and significant year-over-year increases in income from railway operations and net income. The company's strategic plan implementation is showing positive traction, as evidenced by improved operational efficiency. Expenses were managed effectively, with decreases in fuel costs and benefits from increased network velocity, although depreciation and casualties/claims saw increases. Share repurchases continued to be a significant focus, contributing to a stronger diluted earnings per share growth exceeding net income growth. NSC maintains a strong liquidity position, with ample cash flow from operations to meet its obligations and a stable debt-to-capitalization ratio.

Financial Highlights

45 data points
Beta

Revenue

$2.92B

Net Income

$722.00M

24.7% Net Margin

EPS (Diluted)

$2.70

Total Assets

$37.17B

Cash & Equivalents

$360.00M

Free Cash Flow

$559.00M

Financial Statements
Beta
Revenue$2.92B
Operating Expenses$1.86B
Operating Income$1.06B
Interest Expense$153.00M
Net Income$722.00M
EPS (Basic)$2.72
EPS (Diluted)$2.70
Shares Outstanding (Basic)264.80M
Shares Outstanding (Diluted)267.10M

Key Highlights

  • 1Second quarter diluted earnings per share (EPS) increased by 8% to $2.70, and first six months diluted EPS rose 18% to $5.21 compared to the prior year.
  • 2Income from railway operations increased by 4% for the second quarter and 9% for the first six months, driven by higher average revenue per unit.
  • 3Record low second-quarter operating ratio of 63.6%, indicating improved operational efficiency.
  • 4Railway operating revenues grew 1% in Q2 to $2.925 billion and 3% in the first six months to $5.765 billion, primarily due to pricing gains.
  • 5Significant share repurchases totaling $1.1 billion in the first six months of 2019, compared to $700 million in the same period of 2018, boosting EPS growth.
  • 6Railway operating expenses decreased by 1% for both the second quarter and the first six months, aided by lower fuel costs and improved network velocity.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in average revenue per unit across most commodity groups, reflecting successful pricing gains. While overall traffic volumes saw a slight decrease, higher pricing effectively offset this, leading to a 1% revenue increase in Q2 and a 3% increase for the first six months of 2019 compared to the prior year.

Operating expenses saw a slight decrease of 1% for both the second quarter and the first six months of 2019. This was largely due to lower fuel costs and efficiencies gained from increased network velocity. However, these savings were partially offset by increases in depreciation expense and higher costs related to casualties and claims, including environmental remediation.

Norfolk Southern continued its robust share repurchase program, buying back approximately $1.1 billion worth of common stock in the first six months of 2019, up from $700 million in the same period of 2018. This active repurchase strategy contributed to the strong growth in diluted earnings per share, which outpaced net income growth.

The company is involved in various lawsuits, including an antitrust class action regarding fuel surcharges, which it believes are without merit and does not expect to have a material impact. Environmental liabilities are accrued when probable and reasonably estimable, with $63 million recorded at June 30, 2019. While potential environmental liabilities exist, the company believes recorded liabilities are adequate and unlikely to have a material adverse effect on its financial position, results of operations, or liquidity.