10-QPeriod: Q3 FY2021

NORFOLK SOUTHERN CORP Quarterly Report for Q3 Ended Sep 30, 2021

Filed October 27, 2021For Securities:NSC

Summary

Norfolk Southern Corporation (NSC) reported a strong third quarter and first nine months of 2021, demonstrating significant year-over-year improvements in profitability. Railway operating revenues saw a substantial increase, driven by growth across most commodity groups, particularly Merchandise, Intermodal, and Coal. This revenue growth outpaced the rise in operating expenses, leading to a significant jump in net income and diluted earnings per share. The company's operating ratio improved considerably, reflecting enhanced efficiency. Key financial highlights include robust revenue growth and a healthy increase in net income. Despite rising fuel and compensation costs, the company managed its expenses effectively, resulting in improved profitability. Significant investments in stock repurchases were also noted, indicating a commitment to returning value to shareholders. While facing ongoing supply chain challenges and the potential impact of the federal vaccine mandate, Norfolk Southern remains focused on operational safety and customer service.

Financial Highlights

45 data points
Beta

Revenue

$2.85B

Net Income

$753.00M

26.4% Net Margin

EPS (Diluted)

$3.06

Total Assets

$38.60B

Cash & Equivalents

$1.47B

Free Cash Flow

$818.00M

Financial Statements
Beta
Revenue$2.85B
Operating Expenses$1.72B
Operating Income$1.14B
Interest Expense$164.00M
Net Income$753.00M
EPS (Basic)$3.07
EPS (Diluted)$3.06
Shares Outstanding (Basic)245.30M
Shares Outstanding (Diluted)246.40M

Key Highlights

  • 1Railway operating revenues increased by 14% in Q3 2021 to $2,852 million and by 15% for the first nine months to $8,290 million compared to the prior year.
  • 2Net income rose by 32% in Q3 2021 to $753 million and by 67% for the first nine months to $2,245 million.
  • 3Diluted earnings per share (EPS) saw a significant increase, up 38% in Q3 2021 to $3.06 and 73% for the first nine months to $8.99.
  • 4The railway operating ratio improved by 9% in Q3 2021 to 60.2% and by 17% for the first nine months to 60.0%, indicating improved operational efficiency.
  • 5Significant stock repurchases were made, with $2.5 billion spent in the first nine months of 2021, a substantial increase from $960 million in the same period of 2020.
  • 6Merchandise, Intermodal, and Coal revenues all showed strong growth, driven by a combination of increased volumes, higher fuel surcharge revenues, and pricing gains, although Automotive volumes declined in Q3 due to the chip shortage.

Frequently Asked Questions

Revenue growth was primarily driven by a 14% increase in railway operating revenues to $2.85 billion. This was fueled by strong performance across most commodity groups, including Merchandise (up 10%), Intermodal (up 16%), and Coal (up 32%). The increases were attributed to higher volumes, increased fuel surcharge revenues, and general pricing gains.

While railway operating expenses increased by 3% in Q3 2021 to $1.72 billion, the increase was less than the revenue growth, leading to improved profitability. Key expense drivers included higher fuel costs (up 65%) and compensation and benefits (up 5%). These increases were partially offset by decreases in purchased services and rents and materials and other expenses.

Norfolk Southern acknowledges the ongoing supply chain challenges and the potential impacts of the federal vaccine mandate, which could lead to employee absences or disputes. However, the company remains committed to operating safely and providing excellent service. For the remainder of the year, revenue is expected to continue rising due to increased average revenue per unit and volume growth, though some segments like Intermodal may see volume declines offset by higher pricing.

Norfolk Southern significantly increased its investment in share repurchases, spending $2.5 billion in the first nine months of 2021, compared to $960 million in the same period of 2020. The company's ability to fund these repurchases is supported by strong operating cash flows and available borrowing capacity.