10-QPeriod: Q3 FY2019

NORFOLK SOUTHERN CORP Quarterly Report for Q3 Ended Sep 30, 2019

Filed October 23, 2019For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported its third quarter and first nine months results for 2019, indicating a mixed performance. For the third quarter, the company saw a decrease in railway operating revenues, primarily due to lower volumes across most commodity groups, although pricing gains helped offset some of this decline. Net income and diluted earnings per share also saw a slight decrease year-over-year for the quarter. However, for the first nine months of 2019, railway operating revenues saw a modest increase, driven by pricing, and income from railway operations and net income showed growth. The company highlighted a record low third-quarter operating ratio of 64.9%, attributed to their new strategic plan focused on network efficiency. Despite revenue pressures, NSC managed operating expenses effectively, particularly in compensation and benefits and fuel, contributing to the improved operating ratio. Significant strategic initiatives include ongoing share repurchases and capital investments in property, indicating a focus on returning value to shareholders and maintaining operational infrastructure.

Financial Highlights

46 data points
Beta

Revenue

$2.84B

Net Income

$657.00M

23.1% Net Margin

EPS (Diluted)

$2.49

Total Assets

$37.50B

Cash & Equivalents

$540.00M

Free Cash Flow

$530.00M

Financial Statements
Beta
Revenue$2.84B
Operating Expenses$1.84B
Operating Income$996.00M
Interest Expense$150.00M
Net Income$657.00M
EPS (Basic)$2.50
EPS (Diluted)$2.49
Shares Outstanding (Basic)262.10M
Shares Outstanding (Diluted)264.30M

Key Highlights

  • 1For Q3 2019, Railway Operating Revenues decreased by 4% to $2.84 billion, primarily due to a 6% decline in volumes, partially offset by a 2% increase in average revenue per unit.
  • 2Net income for Q3 2019 was $657 million, a decrease of 6% from $702 million in Q3 2018. Diluted EPS was $2.49, down 1% from $2.52.
  • 3For the first nine months of 2019, Net Income increased by 5% to $2.06 billion from $1.96 billion in the prior year, with Diluted EPS up 11% to $7.70 from $6.95.
  • 4The company achieved a record low third-quarter operating ratio of 64.9%, an improvement from 65.4% in Q3 2018, reflecting successful implementation of their new strategic plan.
  • 5Operating expenses decreased by 4% in Q3 2019, mainly driven by lower compensation and benefits (down 6%) and fuel costs (down 18%).
  • 6Coal revenues saw a significant decrease of 14% in Q3 2019 and 8% for the first nine months, largely due to declining utility demand and export volumes.
  • 7Norfolk Southern repurchased $1.6 billion of common stock in the first nine months of 2019, down from $2.3 billion in the same period of 2018, as part of its ongoing share repurchase program.

Frequently Asked Questions

The primary driver of the revenue decline in the third quarter of 2019 was a decrease in volumes across most commodity groups, particularly in Coal (down 14%) and Intermodal (down 5%). While pricing gains did provide some offset, they were not sufficient to fully counteract the volume losses.

Norfolk Southern successfully managed operating expenses, which decreased by 4% in Q3 2019. Key reductions were seen in compensation and benefits (down 6%) due to lower employment levels and overtime, and fuel expenses (down 18%) driven by lower prices and consumption. These cost controls contributed to a record low operating ratio for the quarter.

The outlook for Coal revenue is expected to decline, impacted by continued low natural gas prices, increased renewable energy capacity, and weak export pricing. For Intermodal, revenues are also expected to decrease, driven by volume declines attributed to over-the-road competition and weaker customer demand, although pricing gains are expected to offer partial mitigation.

Norfolk Southern continues to focus on shareholder returns through its share repurchase program, although the pace of repurchases slowed in the first nine months of 2019 compared to the prior year. The company also invests in property additions to maintain and improve its operational infrastructure. The total-debt-to-total capitalization ratio remained at a manageable level.