01—Abstract
Summary
Summary of the 10-Q filed October 23, 2019. Cited figures are marked; the original filing is the authoritative source.
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%a, 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.
02—Key points
Key Highlights
- For 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.
- Net 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.
- For 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.
- The 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.
- Operating expenses decreased by 4% in Q3 2019, mainly driven by lower compensation and benefits (down 6%) and fuel costs (down 18%).
- Coal 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.
- Norfolk 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.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed October 23, 2019Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $2.84B$2.95B | −3.6% |
| Operating Expenses | $1.84B$1.93B | −4.3% |
| Operating Income | $996.00M$1.02B | −2.4% |
| Interest Expense | $150.00M$142.00M | +5.6% |
| Net Income | $657.00M$702.00M | −6.4% |
| EPS (Basic) | $2.50$2.54 | −1.6% |
| EPS (Diluted) | $2.49$2.52 | −1.2% |
| Shares Outstanding (Basic) | 262.10M275.50M | −4.9% |
| Shares Outstanding (Diluted) | 264.30M278.20M | −5.0% |
05—Questions
Frequently Asked Questions
What were the primary drivers of the revenue decline in the third quarter of 2019?
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.
How did Norfolk Southern manage its operating expenses in the third quarter?
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.
What is the company's outlook for key commodity segments like Coal and Intermodal?
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.
How is the company addressing shareholder returns through its capital allocation strategy?
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.
06—Continue