01—Abstract
Summary
Summary of the 10-Q filed April 29, 2020. Cited figures are marked; the original filing is the authoritative source.
Norfolk Southern Corporation (NSC) reported its first quarter 2020 financial results, marked by a significant decrease in net income and earnings per share compared to the prior year.
This decline was substantially influenced by a $385 milliona loss on asset disposal related to locomotive retirements and the emerging impact of the COVID-19 pandemic, which began to affect volumes and economic uncertainty towards the end of the quarter. Despite these headwinds, the company demonstrated operational efficiencies, with adjusted railway operating expenses decreasing and an improved adjusted railway operating ratio.
02—Key points
Key Highlights
- Railway operating revenues declined by 8% to $2.625 billion, primarily driven by an 11% drop in shipment volumes across Merchandise, Intermodal, and Coal segments.
- Net income significantly decreased by 44% to $381 million ($1.47 diluted EPS) in Q1 2020, compared to $677 million ($2.51 diluted EPS) in Q1 2019, heavily impacted by a $385 million loss on asset disposal.
- Excluding the loss on asset disposal, adjusted net income was $669 million and adjusted diluted EPS was $2.58, representing a slight decrease of 1% and an increase of 3% respectively compared to Q1 2019.
- Operating expenses saw a notable reduction of 11% (adjusted) due to lower compensation and benefits, fuel, and materials costs, contributing to an improved adjusted railway operating ratio of 63.7% from 66.0%.
- The company experienced a substantial 31% decrease in Coal volumes, attributed to low natural gas prices, increased renewable energy, and weak export pricing.
- Cash flow from operations remained strong, increasing to $955 million from $881 million in the prior year, supporting investing and financing activities.
- The company proactively addressed the COVID-19 pandemic, implementing measures to protect employees and acknowledging the potential for material adverse impacts on future results due to increasing volume declines.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2020filed April 29, 2020Financial Statements
Q1 FY2020 against Q1 FY2019
| Line item | Q1 FY2020Q1 FY2019 | Change |
|---|---|---|
| Revenue | $2.63B$2.84B | −7.6% |
| Operating Expenses | $2.06B$1.87B | +9.8% |
| Operating Income | $568.00M$966.00M | −41.2% |
| Interest Expense | $154.00M$149.00M | +3.4% |
| Net Income | $381.00M$677.00M | −43.7% |
| EPS (Basic) | $1.48$2.53 | −41.5% |
| EPS (Diluted) | $1.47$2.51 | −41.4% |
| Shares Outstanding (Basic) | 257.30M267.10M | −3.7% |
| Shares Outstanding (Diluted) | 258.70M269.40M | −4.0% |
05—Questions
Frequently Asked Questions
What was the primary driver for the significant decrease in net income?
The primary driver for the significant decrease in net income was a $385 million loss on asset disposal related to the retirement and write-down of locomotives deemed excess. Excluding this item, the company's adjusted net income and adjusted diluted EPS showed more stable performance year-over-year.
How did the COVID-19 pandemic impact Norfolk Southern's Q1 2020 results?
While the full impact of COVID-19 became more pronounced in the latter part of Q1 and into Q2, it began to affect volumes and economic uncertainty towards the end of the quarter. This led to accelerated volume declines in April, which the company expects will continue to impact revenues and potentially the full-year operating ratio.
What is the company doing to manage expenses in light of the economic uncertainty?
Norfolk Southern has been implementing operational efficiencies, leading to a reduction in adjusted railway operating expenses. This includes decreases in compensation and benefits, fuel consumption, and materials costs. The company also reported a reduction in employment levels and lower capitalized labor.
What is the outlook for coal volumes, which saw a significant decline?
Coal volumes decreased by 31% in the first quarter, driven by factors such as low natural gas prices, increased renewable energy capacity, mild winter weather, weak export pricing, and softening domestic steel demand. The company anticipates continued pressure on this segment.
06—Continue