Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Norfolk Southern Corp (NSC, Financial) achieved a 3% increase in revenue compared to the prior year, with adjusted earnings per share rising by 23%.
- The company delivered a 570 basis point improvement in adjusted operating ratio, bringing it down to 63.4%, indicating enhanced operational efficiency.
- NSC successfully managed to recover quickly from the disruptions caused by Hurricane Helene, showcasing strong operational resilience.
- The company completed significant line sales, generating $380 million in gains and nearly $400 million in cash, aiding in balance sheet repair.
- NSC's intermodal segment saw a 4% revenue growth with a 9% increase in volume, demonstrating strong demand and operational capability.
Negative Points
- The FRA personal injury rate increased, although serious injuries and total accidents declined, indicating room for improvement in safety metrics.
- Coal revenue declined by 2% due to lower export prices and unfavorable mix, highlighting challenges in the coal market.
- The merchandise segment faced impacts from Hurricane Helene, affecting certain business segments in the Southeast.
- NSC anticipates a sequential uptick in operating ratio in the fourth quarter due to normal seasonality and additional hurricane cleanup costs.
- The company faces headwinds from easing export prices and challenged utility segment factors, including low natural gas prices and high stockpiles.
Q & A Highlights
Q: Can you discuss the progress made and expectations for the fourth quarter, particularly regarding the operating ratio?
A: Mark George, President and CEO, stated that they have strong momentum on the cost side and feel good about controllable factors. They are cautious about the auto and steel markets but expect intermodal to perform well. John Orr, COO, highlighted improvements in safety and terminal operations, contributing to cost reductions and operational efficiency. CFO Jason Zampi confirmed confidence in meeting the 64% to 65% operating ratio guidance for the second half, despite some expected headwinds.
Q: How do you view the capital intensity of the business going forward, especially with locomotives and cars going offline?
A: Mark George emphasized that taking over 500 locomotives offline allows for capital deployment elsewhere and expects CapEx to decrease next year. Jason Zampi added that they are pushing back capital commitments for locomotives and focusing on high-return projects, indicating a strategic shift to reduce capital intensity and potentially resume share repurchases.
Q: With volumes starting off down, do you expect to achieve positive growth, and how do you view coal pricing trends?
A: Claude Elkins, CMO, expects coal prices to drift lower but not significantly. He noted a strong recovery in volumes post-disruptions and expressed confidence in capturing market opportunities, particularly in intermodal and spot markets, despite some headwinds in automotive and steel sectors.
Q: What is the outlook for 2025, considering potential market challenges and productivity improvements?
A: Mark George stated they are on track to meet cost reduction targets and are confident in achieving further reductions in 2025. He acknowledged market uncertainties but highlighted opportunities for share recapture and productivity gains, which should support margin improvements even in a challenging economic environment.
Q: Are there any structural changes you envision for Norfolk Southern, and how do you plan to achieve the sub-60% operating ratio target?
A: Mark George confirmed the commitment to achieving a sub-60% operating ratio within three to four years, contingent on modest top-line growth. He emphasized the importance of execution, operational excellence, and fostering a culture of two-way communication to drive improvements and capture growth opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
