10-QPeriod: Q1 FY2022

NORFOLK SOUTHERN CORP Quarterly Report for Q1 Ended Mar 31, 2022

Filed April 27, 2022For Securities:NSC

Summary

Norfolk Southern Corporation reported strong first-quarter 2022 results, with railway operating revenues increasing by 10% to $2.9 billion, driven by higher average revenue per unit and robust pricing gains, including significant increases in fuel surcharge revenue. This revenue growth led to a 4% increase in net income to $703 million, or $2.93 per diluted share, up 10% year-over-year. The company also announced a new $10 billion share repurchase program, underscoring its commitment to returning capital to shareholders and demonstrating confidence in its financial outlook. Despite a 5% decline in overall volumes, partly due to network inefficiencies and supply chain challenges, the company saw growth in key segments like Intermodal and Coal. Operating expenses rose by 13%, primarily due to a significant increase in fuel costs and higher purchased services and rents. The railway operating ratio slightly worsened to 62.8% from 61.5% in the prior year, primarily due to the impact of higher fuel expenses. Nevertheless, the company's liquidity remains strong, supported by substantial cash flow from operations, and management expects sufficient resources to meet ongoing obligations.

Financial Highlights

45 data points
Beta

Revenue

$2.92B

Net Income

$703.00M

24.1% Net Margin

EPS (Diluted)

$2.93

Total Assets

$39.36B

Cash & Equivalents

$1.57B

Free Cash Flow

$605.00M

Financial Statements
Beta
Revenue$2.92B
Operating Expenses$1.83B
Operating Income$1.08B
Interest Expense$168.00M
Net Income$703.00M
EPS (Basic)$2.94
EPS (Diluted)$2.93
Shares Outstanding (Basic)239.30M
Shares Outstanding (Diluted)240.20M

Key Highlights

  • 1Revenue increased 10% to $2.9 billion, driven by higher average revenue per unit and pricing gains, including a substantial increase in fuel surcharge revenue.
  • 2Net income rose 4% to $703 million, resulting in diluted earnings per share of $2.93, a 10% increase year-over-year.
  • 3Total railway operating expenses increased 13% to $1.83 billion, significantly impacted by a 70% rise in fuel costs.
  • 4Volumes declined 5% overall, with notable decreases in Automotive and Intermodal, impacted by supply chain constraints and lower network velocity.
  • 5The company announced a new $10 billion share repurchase program, effective April 1, 2022, demonstrating a commitment to shareholder returns.
  • 6The railway operating ratio slightly deteriorated to 62.8% from 61.5% in the prior year, largely due to increased operating expenses, particularly fuel.
  • 7Cash flow from operating activities remained strong at $994 million, providing solid liquidity for the company.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in average revenue per unit, fueled by higher fuel surcharge revenues and pricing gains across various commodity groups, notably in Intermodal and Coal segments. Despite a 5% decrease in overall volumes, these pricing initiatives and surcharges more than compensated for the volume shortfall.

The significant increase in fuel costs (up 70%) directly impacted operating expenses. While a portion of this was recovered through fuel surcharge revenues, which also contributed to overall revenue growth, the net impact, combined with other inflationary pressures, led to a slight worsening of the operating ratio. The company expects higher fuel expenses to persist if current price environments continue.

The authorization of a new $10 billion share repurchase program, effective April 1, 2022, signifies management's confidence in the company's financial stability and future prospects. It demonstrates a strong commitment to returning capital to shareholders and is a significant capital allocation strategy that can also positively impact earnings per share by reducing the number of outstanding shares.

The company experienced a 5% decline in overall volumes, partly attributed to lower network velocity and supply chain challenges. Specific segments like Automotive were affected by plant shutdowns due to the global microchip shortage, while Intermodal volumes faced constraints from labor, capacity, and chassis availability. Management is actively working on initiatives to improve network fluidity and resiliency to address these issues.