Norfolk Southern, having shaken off unwanted suitor Canadian Pacific, reported “strong first-quarter [2016] results [that] demonstrate the significant progress we are making in line with our strategic plan,” according to Chairman, President and CEO James A. Squires.
On the down side, NS’s railway operating revenues were $2.4 billion, 6% lower compared with the first quarter of 2015, and volume declined 2%. Average revenue per unit decreased 3% as the effects of higher rates were more than offset by a $114 million, or 70%, decline in fuel surcharge revenues. On the plus side, railway operating expenses were $1.7 billion, down 13% year-over-year, and income from railway operations was $723 million, up 19%. The final tally: Net income was $387 million, up 25% year-over-year, diluted earnings per share were $1.29, up 29%, and the railway operating ratio was 70.1%, an improvement of 8% over the prior year and a Norfolk Southern first-quarter record.
Merchandise revenues were $1.5 billion, 2% higher than the same period last year. Led by an 18% increase in automotive traffic, volume grew in all business groups except chemicals, which was impacted by fewer crude oil shipments. NS’s five merchandise commodity groups reported the following year-over-year revenue results:
• Chemicals: $419 million, down 3%.
• Agriculture: $386 million, up 3%.
• Metals/Construction: $300 million, down 3%.
• Automotive: $254 million, up 16%.
• Paper/Forest: $190 million, up 3%.
Intermodal revenues were $522 million, down 12% compared with first-quarter 2015. Volume was even for the quarter as growth in international volumes was offset by lower domestic volumes due to the restructuring of the company’s Triple Crown Services subsidiary. Coal revenues were $349 million, 23% lower, due to “mild winter temperatures, low natural gas prices, and a weak global export market.”
“Since I became CEO in June, our team has been committed to streamlining operations, reducing expenses and maintaining superior customer service levels,” said Squires. “Our focus on strengthening Norfolk Southern is yielding results, and the company is now on track to achieve productivity savings of about $200 million and an operating ratio below 70 in 2016. We are confident the continued execution of our strategic plan will deliver superior shareholder value by best positioning Norfolk Southern to succeed while ensuring the company is prepared to capture revenue and volume growth opportunities in 2016 and beyond.”
NS said its strategic plan “to reduce costs, drive profitability and enhance value for all shareholders” will enable it to achieve annual productivity savings of more than $650 million by 2020 and an operating ratio below 65% by 2020.