Norfolk Southern reports second-quarter 2017 results

Achieves record operating ratio of 66.3 percent and increases 2017 share repurchase guidance to $1 billion

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Jul 26, 2017, 08:00 ET

NORFOLK, Va., July 26, 2017 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported second-quarter financial results.

Second-quarter net income was $497 million, up 23 percent year-over-year, driven by a 15 percent increase in income from railway operations, and a record operating ratio. Diluted earnings per share were $1.71, up 26 percent year-over-year.

"Norfolk Southern's strong financial results and all-time record operating ratio reflect the power of our team, successful execution of our dynamic plan, and focus on operating even more efficiently while providing high quality service to customers," said James A. Squires, Norfolk Southern chairman, president and CEO. "We remain committed to our core pillars of safety, service, stewardship and growth as we continue to enhance operations across the organization. We are confident in our ability to reach our goals and deliver sustainable shareholder value in the near and long terms. As a result of our achievements to date and the confidence we have in our outlook, we are increasing this year's share repurchase guidance by 25% to $1 billion."

Second-quarter summary

Railway operating revenues of $2.6 billion increased 7 percent compared with second-quarter 2016, as overall volumes were 6 percent higher, reflecting growth within our major commodity categories of coal and intermodal.
Railway operating expenses increased $65 million, or 4 percent, to $1.7 billion as targeted expense reductions helped offset volume and inflation-related expenses.
Income from railway operations was $888 million, up 15 percent year-over-year, and the operating ratio, or operating expenses as a percentage of revenues, was 66.3 percent, an all-time record.

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 operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products.

http://www.norfolksouthern.com

Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Income (Unaudited)

	Second Quarter				First Six Months
	2017		2016		2017		2016
	($ in millions, except per share amounts)

Railway operating revenues
Merchandise	$	1,597	$	1,577	$	3,181	$	3,126
Intermodal		593		538		1,164		1,060
Coal		447		339		867		688
Total railway operating revenues		2,637		2,454		5,212		4,874

Railway operating expenses
Compensation and benefits		703		667		1,446		1,390
Purchased services and rents		392		384		769		763
Fuel		190		174		403		323
Depreciation		264		257		523		509
Materials and other		200		202		410		396

Total railway operating expenses		1,749		1,684		3,551		3,381

Income from railway operations		888		770		1,661		1,493

Other income – net		32		4		56		20
Interest expense on debt		140		138		282		277

Income before income taxes		780		636		1,435		1,236

Provision for income taxes
Current		225		174		391		343
Deferred		58		57		114		101
Total income taxes		283		231		505		444

Net income	$	497	$	405	$	930	$	792

Earnings per share
Basic	$	1.72	$	1.37	$	3.20	$	2.67
Diluted		1.71		1.36		3.18		2.65

Weighted average shares outstanding
Basic		289.0		294.7		289.6		296.0
Diluted		291.2		296.6		292.0		297.7


See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Unaudited)

	Second Quarter				First Six Months
	2017		2016		2017		2016
	($ in millions)

Net income	$	497	$	405	$	930	$	792
Other comprehensive income, before tax:
Reclassification adjustments for costs
included in net income		7		6		14		13
Other comprehensive income (loss) of
equity investees		1		1		(1)		—
Other comprehensive income, before tax		8		7		13		13

Income tax expense related to reclassification
adjustments for costs included in net income		(3)		(2)		(6)		(5)

Other comprehensive income, net of tax		5		5		7		8

Total comprehensive income	$	502	$	410	$	937	$	800


See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)

	June 30,		December 31,
	2017		2016
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	642	$	956
Accounts receivable – net		926		945
Materials and supplies		289		257
Other current assets		79		133
Total current assets		1,936		2,291

Investments		2,848		2,777
Properties less accumulated depreciation of $11,984 and
$11,737, respectively		30,033		29,751
Other assets		105		73

Total assets	$	34,922	$	34,892

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,223	$	1,215
Short-term debt		—		100
Income and other taxes		268		245
Other current liabilities		252		229
Current maturities of long-term debt		600		550
Total current liabilities		2,343		2,339

Long-term debt		9,273		9,562
Other liabilities		1,385		1,442
Deferred income taxes		9,259		9,140

Total liabilities		22,260		22,483

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 288,181,852 and 290,417,610 shares,
respectively, net of treasury shares		290		292
Additional paid-in capital		2,228		2,179
Accumulated other comprehensive loss		(480)		(487)
Retained income		10,624		10,425

Total stockholders' equity		12,662		12,409

Total liabilities and stockholders' equity	$	34,922	$	34,892


See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)

	First Six Months
	2017		2016
	($ in millions)
Cash flows from operating activities
Net income	$	930	$	792
Reconciliation of net income to net cash provided by operating activities:
Depreciation		525		511
Deferred income taxes		114		101
Gains and losses on properties		(20)		(7)
Changes in assets and liabilities affecting operations:
Accounts receivable		(12)		(17)
Materials and supplies		(32)		(35)
Other current assets		48		103
Current liabilities other than debt		93		25
Other – net		(70)		(41)

Net cash provided by operating activities		1,576		1,432

Cash flows from investing activities
Property additions		(883)		(932)
Property sales and other transactions		60		40
Investment purchases		(4)		(23)
Investment sales and other transactions		3		3

Net cash used in investing activities		(824)		(912)

Cash flows from financing activities
Dividends		(354)		(350)
Common stock transactions		42		1
Purchase and retirement of common stock		(402)		(400)
Proceeds from borrowings – net		298		594
Debt repayments		(650)		(600)

Net cash used in financing activities		(1,066)		(755)

Net decrease in cash and cash equivalents		(314)		(235)

Cash and cash equivalents
At beginning of year		956		1,101

At end of period	$	642	$	866

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	270	$	260
Income taxes (net of refunds)		341		251


See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

Stock Repurchase Program
We repurchased and retired 3.4 million and 5.0 million shares of common stock under our stock repurchase program in the first six months of 2017 and 2016, respectively, at a cost of $402 million and $400 million, respectively. Since the beginning of 2006, we have repurchased and retired 163.7 million shares at a total cost of $10.7 billion.

SOURCE Norfolk Southern Corporation