Norfolk Southern reports first-quarter 2019 results

Achieves record first-quarter railway operating revenues, operating income, operating ratio, net income and earnings per share

News provided by

Norfolk Southern Corporation

Apr 24, 2019, 08:00 ET

NORFOLK, Va., April 24, 2019 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported first-quarter financial results.

First-quarter net income was $677 million, up 23 percent year-over-year, a result of a 16 percent increase in income from railway operations and an increase in other income. Diluted earnings per share were $2.51, up 30 percent year-over-year and a first-quarter record.

"Our first-quarter results reflect the initial steps in the implementation of our new strategic plan that are transforming our company," said James A. Squires, Norfolk Southern chairman, president and CEO. "We set company records for many financial measures in the first quarter, while improving our service product for our customers. We are intensely focused on the execution of the initiatives in our strategic plan that will drive shareholder value."

First-quarter summary

Railway operating revenues of $2.8 billion, a first-quarter record, increased 5 percent compared with prior year, due to an increase in revenue per unit, resulting from increased rates as well as higher fuel surcharge revenue.
Railway operating expenses were $1.9 billion, a decrease of $8 million, compared with the same period last year as fuel price declines and lower compensation and benefits expenses were offset by increased purchased services and rents.
Income from railway operations was $966 million, an increase of 16 percent year-over-year, and a first-quarter record. The railway operating ratio, or operating expenses as a percentage of revenues, was 66.0 percent, also a first-quarter 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 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.

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. 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.

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

	First Quarter
	2019		2018
	($ in millions, except per share amounts)

Railway operating revenues
Merchandise	$	1,686	$	1,605
Intermodal		719		678
Coal		435		434
Total railway operating revenues		2,840		2,717

Railway operating expenses
Compensation and benefits		727		737
Purchased services and rents		424		401
Fuel		250		266
Depreciation		283		272
Materials and other		190		206
Total railway operating expenses		1,874		1,882

Income from railway operations		966		835

Other income – net		44		8
Interest expense on debt		149		136

Income before income taxes		861		707

Income taxes
Current		127		110
Deferred		57		45
Total income taxes		184		155

Net income	$	677	$	552

Earnings per share – diluted	$	2.51	$	1.93

Weighted average shares outstanding – diluted		269.4		285.9



See accompanying notes to consolidated financial statements.

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

	First Quarter
	2019		2018
	($ in millions)

Net income	$	677	$	552
Other comprehensive income (loss), before tax:
Pension and other postretirement benefits (expense)		5		(7)
Other comprehensive income (loss) of
equity investees		(1)		1
Other comprehensive income (loss), before tax		4		(6)

Income tax benefit (expense) related to items of
other comprehensive income (loss)		(1)		2

Other comprehensive income (loss), net of tax		3		(4)

Total comprehensive income	$	680	$	548



See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

	March 31,		December 31,
	2019		2018
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	411	$	358
Accounts receivable – net		1,048		1,009
Materials and supplies		228		207
Other current assets		235		288
Total current assets		1,922		1,862

Investments		3,198		3,109
Properties less accumulated depreciation of $12,374 at
both periods		31,158		31,091
Other assets		784		177

Total assets	$	37,062	$	36,239

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,334	$	1,505
Short-term debt		250		—
Income and other taxes		338		255
Other current liabilities		378		246
Current maturities of long-term debt		585		585
Total current liabilities		2,885		2,591

Long-term debt		10,569		10,560
Other liabilities		1,759		1,266
Deferred income taxes		6,518		6,460

Total liabilities		21,731		20,877

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 265,967,039 and 268,098,472 shares,
respectively, net of treasury shares		267		269
Additional paid-in capital		2,213		2,216
Accumulated other comprehensive loss		(560)		(563)
Retained income		13,411		13,440

Total stockholders' equity		15,331		15,362

Total liabilities and stockholders' equity	$	37,062	$	36,239



See accompanying notes to consolidated financial statements.

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

	First Three Months
	2019		2018
	($ in millions)
Cash flows from operating activities
Net income	$	677	$	552
Reconciliation of net income to net cash provided by operating activities:
Depreciation		283		272
Deferred income taxes		57		45
Gains and losses on properties		(18)		(8)
Changes in assets and liabilities affecting operations:
Accounts receivable		(39)		(26)
Materials and supplies		(21)		(23)
Other current assets		12		13
Current liabilities other than debt		(27)		12
Other – net		(43)		(21)

Net cash provided by operating activities		881		816

Cash flows from investing activities
Property additions		(467)		(383)
Property sales and other transactions		152		13
Investment purchases		(2)		(2)
Investment sales and other transactions		(33)		1

Net cash used in investing activities		(350)		(371)

Cash flows from financing activities
Dividends		(230)		(205)
Common stock transactions		2		(1)
Purchase and retirement of common stock		(500)		(300)
Proceeds from borrowings – net of issuance costs		250		543
Debt repayments		—		(100)

Net cash used in financing activities		(478)		(63)

Net increase in cash, cash equivalents, and restricted cash		53		382

Cash, cash equivalents, and restricted cash
At beginning of year		446		690

At end of period	$	499	$	1,072

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	112	$	69
Income taxes (net of refunds)		9		7



See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)


	Common Stock		Additional Paid-in Capital		Accum. Other Comprehensive Loss		Retained Income		Total
	($ in millions, except per share amounts)

Balance at December 31, 2018	$	269	$	2,216	$	(563)	$	13,440	$	15,362

Comprehensive income:
Net income							677		677
Other comprehensive income					3				3
Total comprehensive income									680
Dividends on common stock,
$0.86 per share							(230)		(230)
Share repurchases	(3)		(22)				(475)		(500)
Stock-based compensation	1		19				(1)		19

Balance at March 31, 2019	$	267	$	2,213	$	(560)	$	13,411	$	15,331


	Common Stock		Additional Paid-in Capital		Accum. Other Comprehensive Loss		Retained Income		Total
	($ in millions, except per share amounts)

Balance at December 31, 2017	$	285	$	2,254	$	(356)	$	14,176	$	16,359

Comprehensive income:
Net income							552		552
Other comprehensive loss					(4)				(4)
Total comprehensive income									548
Dividends on common stock,
$0.72 per share							(205)		(205)
Share repurchases	(2)		(16)				(282)		(300)
Stock-based compensation	1		17				(2)		16
Reclassification of stranded
tax effects					(88)		88		—

Balance at March 31, 2018	$	284	$	2,255	$	(448)	$	14,327	$	16,418



See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:


1.	Stock Repurchase Program
	We repurchased and retired 2.9 million shares and 2.1 million shares of common stock under our stock repurchase program in the first three months of 2019 and 2018, respectively, at a cost of $500 million and $300 million, respectively. Since the beginning of 2006, we have repurchased and retired 188.5 million shares at a total cost of $14.6 billion.

2.	Leases
	On January 1, 2019, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, "Leases (Topic 842)" which requires lessees to recognize right-of-use (ROU) assets a nd lease liabilities on the balance sheet for leases greater than twelve months. As a result of the adoption, the Consolidated Balance Sheet at March 31, 2019 includes the recognition of ROU assets of $593 million included in "Other assets," current lease liabilities of $93 million included in "Other current liabilities," and non-current lease liabilities of $500 million included in "Other liabilities."

3.	Restricted Cash
	The "Cash, cash equivalents, and restricted cash" line item in the Consolidated Statements of Cash Flows includes restricted cash of $88 million at March 31, 2019 and December 31, 2018, reflecting deposits held by a third-party bond agent as collateral for certain debt obligations maturing in 2019. The restricted cash balance is included as part of "Other current assets" on the Consolidated Balance Sheets in both periods.

4.	Reclassification of Stranded Tax Effects
	In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." We adopted the provisions of ASU 2018-02 in the first quarter of 2018 resulting in an increase to "Accumulated other comprehensive loss" of $88 million and a corresponding increase to "Retained i ncome," with no impact on "Total stockholders' equity."