Norfolk Southern reports third-quarter 2016 results
- Diluted earnings per share were $1.55.
- Operating ratio improved to 67.5 percent, reflecting a 10 percent reduction in operating expenses coupled with a 7 percent decline in operating revenues.
NORFOLK, Va., Oct. 26, 2016 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported financial results for third-quarter 2016. Net income was $460 million, 2 percent higher compared with $452 million during the same period of 2015. Diluted earnings per share were $1.55, 4 percent higher compared with $1.49 per diluted share earned in the third quarter last year.
"Our continued focus on efficiency and asset utilization, balanced with our commitment to customer service, drove an operating ratio of 67.5 percent for the quarter and a record 68.7 percent for the first nine months, setting us well on the way to achieving productivity savings of about $250 million and an operating ratio below 70 percent for the year -- even in the face of economic headwinds," said Chairman, President and CEO James A. Squires. "As we move forward, we are well positioned for growth opportunities longer term and confident in our ability to drive shareholder value."
Third-quarter summary
- Railway operating revenues were $2.5 billion, down 7 percent compared with third-quarter 2015, due to reduced volumes and lower fuel surcharge revenues. Overall volume declined 4 percent to 1.9 million units for the quarter.
- General merchandise revenues were $1.6 billion, 4 percent lower than the same period last year. Volume declined 4 percent, due to fewer crude oil, vehicles, pulpboard, and feed market shipments. The five merchandise commodity groups reported the following year-over-year revenue results:
- Chemicals: $408 million, down 10 percent
- Agriculture: $380 million, even
- Metals/Construction: $337 million, up 2 percent
- Automotive: $236 million, down 4 percent
- Paper/Forest: $191 million, down 6 percent
- Intermodal revenues were $575 million, 7 percent lower compared with third-quarter 2015. Volume declined one percent due to lower Triple Crown Services volume, a result of last year's restructuring. Domestic volume, excluding Triple Crown Services, and International volume were up 8 percent and one percent, respectively.
- Coal revenues were $397 million, 18 percent lower compared with the same quarter last year. Above-normal stockpiles and low natural gas prices combined to decrease volume by 15 percent.
- Railway operating expenses declined 10 percent to $1.7 billion, primarily due to targeted expense reduction initiatives, reduced fuel expenses, the absence of last year's restructuring costs, and gains from the disposition of operating property. These decreases were partially offset by higher incentive compensation expense related to improved operating results.
- Income from railway operations was $820 million, flat compared with third-quarter 2015.
- The composite service metric, which measures train performance, terminal operations, and operating plan adherence, improved 8 percent in the quarter, and 14 percent for the first nine months, compared with the same periods last year.
- The railway operating ratio, or operating expenses as a percentage of revenue, was 67.5 percent, a 220 basis point improvement compared with 69.7 percent in the third quarter of last year.
About Norfolk Southern
Norfolk Southern Corporation (NYSE: NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 20,000 route milesin 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products.
Norfolk Southern Corporation and Subsidiaries |
|||||||||||||||
Third Quarter |
First Nine Months |
||||||||||||||
2016 |
2015 |
2016 |
2015 |
||||||||||||
($ in millions, except per share amounts) |
|||||||||||||||
Railway operating revenues |
|||||||||||||||
Merchandise |
$ |
1,552 |
$ |
1,610 |
$ |
4,678 |
$ |
4,757 |
|||||||
Intermodal |
575 |
621 |
1,635 |
1,846 |
|||||||||||
Coal |
397 |
482 |
1,085 |
1,390 |
|||||||||||
Total railway operating revenues |
2,524 |
2,713 |
7,398 |
7,993 |
|||||||||||
Railway operating expenses |
|||||||||||||||
Compensation and benefits |
691 |
702 |
2,081 |
2,209 |
|||||||||||
Purchased services and rents |
386 |
451 |
1,149 |
1,312 |
|||||||||||
Fuel |
181 |
221 |
504 |
740 |
|||||||||||
Depreciation |
258 |
275 |
767 |
767 |
|||||||||||
Materials and other |
188 |
242 |
584 |
723 |
|||||||||||
Total railway operating expenses |
1,704 |
1,891 |
5,085 |
5,751 |
|||||||||||
Income from railway operations |
820 |
822 |
2,313 |
2,242 |
|||||||||||
Other income – net |
29 |
39 |
49 |
79 |
|||||||||||
Interest expense on debt |
144 |
137 |
421 |
403 |
|||||||||||
Income before income taxes |
705 |
724 |
1,941 |
1,918 |
|||||||||||
Provision for income taxes |
|||||||||||||||
Current |
169 |
251 |
512 |
667 |
|||||||||||
Deferred |
76 |
21 |
177 |
56 |
|||||||||||
Total income taxes |
245 |
272 |
689 |
723 |
|||||||||||
Net income |
$ |
460 |
$ |
452 |
$ |
1,252 |
$ |
1,195 |
|||||||
Earnings per share |
|||||||||||||||
Basic |
$ |
1.56 |
$ |
1.50 |
$ |
4.23 |
$ |
3.93 |
|||||||
Diluted |
1.55 |
1.49 |
4.21 |
3.90 |
|||||||||||
Weighted average shares outstanding |
|||||||||||||||
Basic |
292.7 |
300.1 |
294.9 |
303.2 |
|||||||||||
Diluted |
294.7 |
302.5 |
296.7 |
305.8 |
See accompanying notes to consolidated financial statements.
Norfolk Southern Corporation and Subsidiaries |
|||||||||||||||
Third Quarter |
First Nine Months |
||||||||||||||
2016 |
2015 |
2016 |
2015 |
||||||||||||
($ in millions) |
|||||||||||||||
Net income |
$ |
460 |
$ |
452 |
$ |
1,252 |
$ |
1,195 |
|||||||
Other comprehensive income, before tax: |
|||||||||||||||
Pension and other postretirement benefits |
7 |
10 |
20 |
31 |
|||||||||||
Other comprehensive loss of |
|||||||||||||||
equity investees |
— |
— |
— |
(4) |
|||||||||||
Other comprehensive income, before tax |
7 |
10 |
20 |
27 |
|||||||||||
Income tax expense related to items of other |
|||||||||||||||
comprehensive income |
(3) |
(3) |
(8) |
(11) |
|||||||||||
Other comprehensive income, net of tax |
4 |
7 |
12 |
16 |
|||||||||||
Total comprehensive income |
$ |
464 |
$ |
459 |
$ |
1,264 |
$ |
1,211 |
See accompanying notes to consolidated financial statements.
Norfolk Southern Corporation and Subsidiaries |
|||||||||
September 30, |
December 31, |
||||||||
2016 |
2015 |
||||||||
($ in millions) |
|||||||||
Assets |
|||||||||
Current assets: |
|||||||||
Cash and cash equivalents |
$ |
984 |
$ |
1,101 |
|||||
Accounts receivable – net |
960 |
946 |
|||||||
Materials and supplies |
301 |
271 |
|||||||
Other current assets |
72 |
194 |
|||||||
Total current assets |
2,317 |
2,512 |
|||||||
Investments |
2,779 |
2,572 |
|||||||
Properties less accumulated depreciation of $11,663 and |
|||||||||
$11,478, respectively |
29,467 |
28,992 |
|||||||
Other assets |
69 |
63 |
|||||||
Total assets |
$ |
34,632 |
$ |
34,139 |
|||||
Liabilities and stockholders' equity |
|||||||||
Current liabilities: |
|||||||||
Accounts payable |
$ |
1,131 |
$ |
1,091 |
|||||
Short-term debt |
— |
200 |
|||||||
Income and other taxes |
218 |
203 |
|||||||
Other current liabilities |
333 |
237 |
|||||||
Current maturities of long-term debt |
550 |
500 |
|||||||
Total current liabilities |
2,232 |
2,231 |
|||||||
Long-term debt |
9,555 |
9,393 |
|||||||
Other liabilities |
1,322 |
1,385 |
|||||||
Deferred income taxes |
9,127 |
8,942 |
|||||||
Total liabilities |
22,236 |
21,951 |
|||||||
Stockholders' equity: |
|||||||||
Common stock $1.00 per share par value, 1,350,000,000 shares |
|||||||||
authorized; outstanding 291,942,235 and 297,795,016 shares, |
|||||||||
respectively, net of treasury shares |
293 |
299 |
|||||||
Additional paid-in capital |
2,169 |
2,143 |
|||||||
Accumulated other comprehensive loss |
(433) |
(445) |
|||||||
Retained income |
10,367 |
10,191 |
|||||||
Total stockholders' equity |
12,396 |
12,188 |
|||||||
Total liabilities and stockholders' equity |
$ |
34,632 |
$ |
34,139 |
See accompanying notes to consolidated financial statements.
Norfolk Southern Corporation and Subsidiaries |
|||||||
First Nine Months |
|||||||
2016 |
2015 |
||||||
($ in millions) |
|||||||
Cash flows from operating activities |
|||||||
Net income |
$ |
1,252 |
$ |
1,195 |
|||
Reconciliation of net income to net cash provided |
|||||||
by operating activities: |
|||||||
Depreciation |
770 |
770 |
|||||
Deferred income taxes |
177 |
56 |
|||||
Gains and losses on properties and investments |
(38) |
(20) |
|||||
Changes in assets and liabilities affecting operations: |
|||||||
Accounts receivable |
8 |
(48) |
|||||
Materials and supplies |
(30) |
(52) |
|||||
Other current assets |
130 |
295 |
|||||
Current liabilities other than debt |
149 |
88 |
|||||
Other – net |
(106) |
(76) |
|||||
Net cash provided by operating activities |
2,312 |
2,208 |
|||||
Cash flows from investing activities |
|||||||
Property additions |
(1,304) |
(1,777) |
|||||
Property sales and other transactions |
87 |
43 |
|||||
Investment purchases |
(119) |
(5) |
|||||
Investment sales and other transactions |
6 |
32 |
|||||
Net cash used in investing activities |
(1,330) |
(1,707) |
|||||
Cash flows from financing activities |
|||||||
Dividends |
(523) |
(537) |
|||||
Common stock transactions |
33 |
1 |
|||||
Purchase and retirement of common stock |
(603) |
(997) |
|||||
Proceeds from borrowings – net |
594 |
594 |
|||||
Debt repayments |
(600) |
(102) |
|||||
Net cash used in financing activities |
(1,099) |
(1,041) |
|||||
Net decrease in cash and cash equivalents |
(117) |
(540) |
|||||
Cash and cash equivalents |
|||||||
At beginning of year |
1,101 |
973 |
|||||
At end of period |
$ |
984 |
$ |
433 |
|||
Supplemental disclosures of cash flow information |
|||||||
Cash paid during the period for: |
|||||||
Interest (net of amounts capitalized) |
$ |
337 |
$ |
320 |
|||
Income taxes (net of refunds) |
409 |
350 |
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
- Stock Repurchase Program
We repurchased and retired 7.2 million and 10.3 million shares of common stock under our stock repurchase program in the first nine months of 2016 and 2015, respectively, at a cost of $603 million and $997 million, respectively. The timing and volume of purchases is guided by our assessment of market conditions and other pertinent factors. Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings. Since the beginning of 2006, we have repurchased and retired 158.3 million shares at a total cost of $10.1 billion. - Restructuring Costs
Third quarter 2015 operating expenses include $37 million of costs associated with the restructuring of our Triple Crown Services subsidiary and the closure of our Roanoke, Virginia, office which reduced net income by $23 million, or $0.08 per diluted share. - New Accounting Pronouncement- Deferred Taxes
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, "Balance Sheet Classification of Deferred Taxes." This update requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet rather than as separate current and noncurrent amounts. We adopted the provisions of this ASU during the first quarter of 2016 and applied it retrospectively. The adoption of ASU 2015-17 resulted in the presentation of $121 million of current deferred income tax assets as a reduction of "Deferred income taxes" in the long-term liabilities section of the Consolidated Balance Sheet at September 30, 2016. We retrospectively presented the December 31, 2015, Consolidated Balance Sheet to reflect the reclassification of $121 million of deferred income tax assets from "Deferred income taxes" in the current assets section of the balance sheet to "Deferred income taxes" in the long-term liabilities section of the balance sheet. - New Accounting Pronouncement- Stock-Based Compensation
In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." We adopted the provisions of this ASU during the first quarter of 2016. This update principally affects the recognition of excess tax benefits and deficiencies and the cash flow classification of share-based compensation-related transactions. The requirement to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement was applied prospectively, with a benefit of $12 million recognized in the "Provision for income taxes" line item for the nine months ended September 30, 2016. The classification requirements on the Consolidated Statements of Cash Flows for the adoption of ASU 2016-09 resulted in a $29 million increase in "Current liabilities other than debt" within the operating activities section and a corresponding decrease in "Common stock transactions" within the financing activities section for the first nine months of 2016. We retrospectively presented the Consolidated Statements of Cash Flows for the first nine months of 2015 to reflect a $29 million increase in "Current liabilities other than debt" within the operating activities section and a corresponding decrease in "Common stock transactions" within the financing activities section.
SOURCE Norfolk Southern Corporation
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