Norfolk Southern reports third-quarter 2020 results

NORFOLK, Va., Oct. 28, 2020 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported financial results for the quarter ended September 30, 2020. During the quarter, the company achieved net income of $569 million, diluted earnings per share of $2.22, and an operating ratio of 66.5%. These results include a previously announced $99 million non-cash impairment charge. Excluding the effects of the impairment charge, adjusted third-quarter net income was $643 million, adjusted diluted earnings per share were $2.51, and the adjusted operating ratio was 62.5%, which reflects a 240 basis point improvement compared with third-quarter 2019.

Norfolk Southern Corporation Logo (PRNewsfoto/Norfolk Southern Corporation)

"Since launching our Precision Scheduled Railroading strategy, we have significantly enhanced Norfolk Southern's operational and financial performance and delivered superior returns for shareholders," said James A. Squires, Norfolk Southern chairman, president and CEO. "Given the impact of the COVID-19 pandemic on our industry and the broader economy, we quickly executed a plan to align our assets and resources with demand and generate sustainable margin improvement. In addition to maintaining outstanding service levels with fewer resources and reduced headcount, we successfully idled our fifth hump in the last five quarters, helping Norfolk Southern achieve record productivity. With the resilience of our railroad, strong customer relationships and the hard work of our team, including new Chief Operating Officer and PSR veteran Cindy Sanborn, we are confident in our ability to achieve our goal of a 60% operating ratio with more to come, while delivering enhanced free cash flow and further value creation for Norfolk Southern shareholders."

Third-quarter summary

  • Railway operating revenues of $2.5 billion decreased 12% compared with third-quarter 2019, driven by a 7% decline in total volume and 5% decline in revenue per unit.
  • Railway operating expenses were $1.7 billion, including a $99 million non-cash impairment charge related to an equity-method investment.
    • Excluding the impairment charge, adjusted operating expenses declined $278 million, or 15%, compared with third-quarter 2019, driven by lower compensation and benefits, fuel, purchased services, materials, and the absence of last year's $32 million receivable write-off.
  • Income from railway operations was $840 million and the operating ratio was 66.5%.
    • Excluding the impairment charge, adjusted income from railway operations was $939 million, while the adjusted operating ratio improved to 62.5% versus the third-quarter record of 64.9% set in 2019.

About Norfolk Southern

Norfolk Southern Corporation (NYSE: NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 19,500 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern is a major transporter of industrial products, including chemicals, agriculture, and metals and construction materials. In addition, the railroad operates the most extensive intermodal network in the East and is a principal carrier of coal, automobiles, and automotive parts.

Non-GAAP Financial Measures

This news release includes certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures is provided in the table below, entitled "Reconciliation of Non-GAAP Financial Measures."

Forward-looking statements

This news release contains forward-looking statements that may be identified by the use of words like "believe," "expect," "anticipate," "estimate," "plan," "consider," "project," and similar references to the future. Forward-looking statements reflect our good-faith evaluation of information currently available. These forward-looking statements are subject to a number of risks and uncertainties, and our actual results may differ materially from those projected. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important. Additional risks include the impact of the COVID-19 pandemic on us, our customers, our supply chain and our operations. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. We undertake no obligation to update or revise forward-looking statements.

Reconciliation of Non-GAAP Financial Measures

Information included within this filing includes non-GAAP financial measures, as defined by SEC Regulation G. Non-GAAP financial measures should be considered in addition to, not as a substitute for, the financial measures reported in accordance with U.S. generally accepted accounting principles (GAAP).

GAAP financial results are adjusted to exclude the effects of an impairment charge in the third quarter of 2020 related to an equity method investment. 

Norfolk Southern believes that these non-GAAP financial measures provide valuable information regarding its earnings and business trends by excluding specific items that it believes are not indicative of the ongoing operating results of its business, providing a useful way for investors to make a comparison of our performance over time and against other companies in our industry by excluding the effects of the impairment charge. These non-GAAP financial measures are being provided as supplemental information to Norfolk Southern's GAAP financial measures, and Norfolk Southern believes these measures provide investors with additional meaningful financial information regarding our operational performance. Norfolk Southern also uses these non-GAAP measures as supplemental measures to evaluate its business and performance. 

($ in millions except per share amounts)

Third


Quarter 2020



Railway operating expenses

$

1,666

   Effect of impairment charge


(99)

Adjusted railway operating expenses

$

1,567



Income from railway operations

$

840

   Effect of impairment charge


99

Adjusted income from railway operations

$

939



Operating ratio (%)


66.5

   Effect of impairment charge (%)


(4.0)

Adjusted operating ratio (%)


62.5



Net income

$

569

   Effect of impairment charge


74

Adjusted net income

$

643



Diluted earnings per share

$

2.22

   Effect of impairment charge


0.29

Adjusted diluted earnings per share

$

2.51




Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)



Third Quarter


First Nine Months


2020


2019


2020


2019


(in millions, except per share amounts)









Railway operating revenues








Merchandise

$

1,556



$

1,731



$

4,535



$

5,173


Intermodal

700



707



1,924



2,127


Coal

250



403



757



1,306


Total railway operating revenues

2,506



2,841



7,216



8,606










Railway operating expenses








Compensation and benefits

578



682



1,786



2,121


Purchased services and rents

486



423



1,261



1,265


Fuel

126



226



399



730


Depreciation

293



286



867



853


Materials and other

183



228



500



610


Loss on asset disposal





385




Total railway operating expenses

1,666



1,845



5,198



5,579










Income from railway operations

840



996



2,018



3,027










Other income – net

39



22



110



88


Interest expense on debt

155



150



465



452










Income before income taxes

724



868



1,663



2,663










Income taxes








Current

133



119



243



382


Deferred

22



92



78



225


Total income taxes

155



211



321



607










Net income

$

569



$

657



$

1,342



$

2,056










Earnings per share – diluted

$

2.22



$

2.49



$

5.21



$

7.70










Weighted average shares outstanding – diluted

256.1



264.3



257.2



266.9














See accompanying notes to consolidated financial statements




Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets  

(Unaudited)



September 30,


December 31,


2020


2019


($ in millions)

Assets




Current assets:




Cash and cash equivalents

$

1,359



$

580


Accounts receivable – net

883



920


Materials and supplies

247



244


Other current assets

90



337


Total current assets

2,579



2,081






Investments

3,566



3,428


Properties less accumulated depreciation of $11,873




and $11,982, respectively

31,239



31,614


Other assets

795



800






Total assets

$

38,179



$

37,923






Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

1,273



$

1,428


Income and other taxes

257



229


Other current liabilities

386



327


Current maturities of long-term debt

89



316


Total current liabilities

2,005



2,300






Long-term debt

12,634



11,880


Other liabilities

1,701



1,744


Deferred income taxes

6,898



6,815






Total liabilities

23,238



22,739






Stockholders' equity:




Common stock $1.00 per share par value, 1,350,000,000 shares  authorized; outstanding 253,985,338 and 257,904,956 shares, respectively, net of treasury shares

255



259


Additional paid-in capital

2,246



2,209


Accumulated other comprehensive loss

(471)



(491)


Retained income

12,911



13,207






Total stockholders' equity

14,941



15,184






Total liabilities and stockholders' equity

$

38,179



$

37,923



See accompanying notes to consolidated financial statements




Norfolk Southern Corporation and Subsidiaries 

Consolidated Statements of Cash Flows  

(Unaudited)



First Nine Months


2020


2019


($ in millions)

Cash flows from operating activities




Net income

$

1,342



$

2,056


Reconciliation of net income to net cash provided by operating activities:




Depreciation

867



854


Deferred income taxes

78



225


Gains and losses on properties

(14)



(4)


Loss on asset disposal

385




Impairment of investment

99




Changes in assets and liabilities affecting operations:




Accounts receivable

36



34


Materials and supplies

(3)



(59)


Other current assets

55



40


Current liabilities other than debt

104



(72)


Other – net

(182)



(77)






Net cash provided by operating activities

2,767



2,997






Cash flows from investing activities




Property additions

(1,053)



(1,494)


Property sales and other transactions

291



282


Investment purchases

(6)



(12)


Investment sales and other transactions

(50)



(99)






Net cash used in investing activities

(818)



(1,323)






Cash flows from financing activities




Dividends

(722)



(705)


Common stock transactions

53



21


Purchase and retirement of common stock

(960)



(1,550)


Proceeds from borrowings – net of issuance costs

784



1,404


Debt repayments

(325)



(750)






Net cash used in financing activities

(1,170)



(1,580)






Net increase in cash, cash equivalents, and restricted cash

779



94






Cash, cash equivalents, and restricted cash




At beginning of year

580



446






At end of period

$

1,359



$

540






Supplemental disclosures of cash flow information




Cash paid during the period for:




Interest (net of amounts capitalized)

$

395



$

392


Income taxes (net of refunds)

118



404








See accompanying notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1.  Impairment of Investment

During the third quarter of 2020, we recorded an other-than-temporary impairment of $99 million related to the carrying value of an equity method investment.  This non-cash impairment charge is recorded in "Purchased services and rents" on the Consolidated Statements of Income and had a $74 million impact on net income for the third quarter and the first nine months of 2020. 

2.  Loss on Asset Disposal

In the first quarter of 2020, we committed to a plan to dispose of certain locomotives deemed excess and no longer needed for railroad operations.  Specifically, during the first nine months of 2020, the Company recorded a charge related to the loss on the sale of 574 locomotives disposed of in the first nine months, and a write-down of  129 additional locomotives that we are actively marketing to sell.   Accordingly, a $385 million loss was recorded to adjust their carrying amount to their estimated fair value.

3.  Stock Repurchase Program

We repurchased and retired 5.3 million and 8.4 million shares of common stock under our stock repurchase program during the first nine months of 2020 and 2019, respectively, at a cost of $960 million and $1.6 billion, respectively. 

4.  Restricted Cash

The "Cash, cash equivalents, and restricted cash" line item on the Consolidated Statements of Cash Flows  includes restricted cash of $88 million in 2019, reflecting deposits held by a third-party bond agent as collateral for certain debt obligations which matured on October 1, 2019.

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SOURCE Norfolk Southern Corporation

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