10-QPeriod: Q2 FY2021

NORFOLK SOUTHERN CORP Quarterly Report for Q2 Ended Jun 30, 2021

Filed July 28, 2021For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported a significant rebound in its second quarter and first six months of 2021, demonstrating strong recovery and growth compared to the pandemic-affected periods of 2020. Railway operating revenues surged by 34% in the second quarter and 15% for the first six months, driven by robust volume increases across all major commodity groups, including Merchandise, Intermodal, and Coal, reflecting a strengthening economy and increased demand. Profitability saw substantial improvements, with net income more than doubling year-over-year for both periods. This was further underscored by a significant improvement in the operating ratio, which decreased to 58.3% in Q2 2021 from 70.7% in Q2 2020, indicating enhanced operational efficiency. The company also continued its capital allocation strategy, with substantial share repurchases funded by strong operating cash flows. Overall, the results suggest a positive trajectory for Norfolk Southern, benefiting from economic recovery and effective operational management.

Financial Highlights

45 data points
Beta

Revenue

$2.80B

Net Income

$819.00M

29.3% Net Margin

EPS (Diluted)

$3.28

Total Assets

$38.75B

Cash & Equivalents

$1.67B

Free Cash Flow

$720.00M

Financial Statements
Beta
Revenue$2.80B
Operating Expenses$1.63B
Operating Income$1.17B
Interest Expense$161.00M
Net Income$819.00M
EPS (Basic)$3.29
EPS (Diluted)$3.28
Shares Outstanding (Basic)248.90M
Shares Outstanding (Diluted)250.00M

Key Highlights

  • 1Railway operating revenues increased significantly, up 34% to $2.8 billion in Q2 2021 and 15% to $5.4 billion in the first six months of 2021, driven by broad-based volume growth across commodity groups.
  • 2Net income more than doubled, reaching $819 million in Q2 2021 and $1.49 billion in the first six months of 2021, a substantial recovery from 2020 figures.
  • 3Diluted Earnings Per Share (EPS) saw a strong increase, rising to $3.28 in Q2 2021 and $5.94 in the first six months of 2021, compared to $1.53 and $3.00 respectively in the prior year.
  • 4The operating ratio improved considerably, decreasing to 58.3% in Q2 2021 from 70.7% in Q2 2020, signaling enhanced operational efficiency and cost management.
  • 5Railway operating expenses increased by 11% in Q2 2021 but decreased by 8% for the first six months, largely due to the absence of a $385 million loss on asset disposal in the prior year and higher fuel costs.
  • 6The company repurchased $1.5 billion of Common Stock in the first six months of 2021, a significant increase from $669 million in the same period of 2020, indicating a commitment to returning capital to shareholders.
  • 7Cash provided by operating activities was robust, totaling $2.1 billion for the first six months of 2021, up from $1.8 billion in the prior year, supporting both operational needs and capital returns.

Frequently Asked Questions

The primary drivers were a strong economic recovery leading to increased demand for transportation services, resulting in significant volume growth across all major commodity groups. Additionally, higher average revenue per unit, partly due to increased fuel surcharge revenues and pricing gains, contributed to the revenue uplift. The absence of a $385 million loss on asset disposal in 2020 also significantly boosted year-over-year net income comparisons.

The operating ratio improved substantially, falling from 70.7% in Q2 2020 to 58.3% in Q2 2021. For the first six months, it decreased from 75.0% to 59.9%. This significant improvement indicates that Norfolk Southern is becoming more efficient in managing its operating expenses relative to its revenues, suggesting effective cost control measures and operational leverage.

Norfolk Southern actively returned capital to shareholders through share repurchases, significantly increasing these activities in the first six months of 2021 ($1.5 billion) compared to 2020 ($669 million). The company also managed its debt, issuing $1.1 billion in new senior notes in May 2021 while maintaining a debt-to-total capitalization ratio of 48.9% at June 30, 2021. They also renewed their accounts receivable securitization program and have access to an undrawn credit agreement.

The company is subject to various ongoing lawsuits and claims, including antitrust class actions and a lawsuit regarding a jointly-owned terminal railroad company. While management believes they will prevail or that the outcomes will not be material, these could potentially result in additional accruals. The company also faces inherent risks in railroad operations, such as casualty claims (employee personal injury, occupational, and third-party claims) and environmental matters, for which liabilities are accrued when probable and estimable. Management believes current accruals are adequate, but acknowledges the inherent uncertainties in predicting outcomes.