Norfolk Southern reports third-quarter 2017 results

Achieves record quarterly operating ratio of 65.9 percent

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Oct 25, 2017, 08:00 ET

NORFOLK, Va., Oct. 25, 2017 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported third-quarter financial results.

Third-quarter net income was $506 million, up 10 percent year-over-year, driven by an 11 percent increase in income from railway operations – yielding a record quarterly operating ratio of 65.9 percent. Diluted earnings per share were $1.75, up 13 percent year-over-year.

"Norfolk Southern continues to deliver strong financial results through execution of our strategic plan. We are unwavering in our commitment to improve productivity as demonstrated by seven consecutive quarters of year-over-year improvement in our operating ratio," said James A. Squires, Norfolk Southern chairman, president and CEO. "Our balanced approach focuses on increasing efficiency and delivering a strong customer service product, giving us the ability to achieve our goals and deliver sustainable shareholder value."

For the first nine months of 2017, net income was $1.4 billion, up 15 percent compared with the same period of 2016. Record diluted earnings per share of $4.93 were 17 percent higher. The strong results reflected 11 percent growth in income from railway operations and a record nine-month operating ratio of 67.4 percent.

Third-quarter summary

Railway operating revenues of $2.7 billion increased 6 percent compared with third-quarter 2016, as overall volumes were 4 percent higher, reflecting growth within our major commodity categories of coal and intermodal.

Railway operating expenses increased $55 million, or 3 percent, compared with third-quarter 2016, to $1.8 billion as targeted expense reductions and gains from the disposition of operating property helped offset volume and inflation-related expenses and higher incentive compensation.

Income from railway operations was $911 million, up 11 percent year-over-year, and the operating ratio, or operating expenses as a percentage of revenues, was 65.9 percent, an all-time quarterly 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.

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

	Third Quarter				First Nine Months
	2017		2016		2017		2016
	($ in millions, except per share amounts)

Railway operating revenues
Merchandise	$	1,600	$	1,552	$	4,781	$	4,678
Intermodal		621		575		1,785		1,635
Coal		449		397		1,316		1,085
Total railway operating revenues		2,670		2,524		7,882		7,398

Railway operating expenses
Compensation and benefits		755		691		2,201		2,081
Purchased services and rents		377		386		1,146		1,149
Fuel		198		181		601		504
Depreciation		265		258		788		767
Materials and other		164		188		574		584

Total railway operating expenses		1,759		1,704		5,310		5,085

Income from railway operations		911		820		2,572		2,313

Other income – net		23		29		79		49
Interest expense on debt		134		144		416		421

Income before income taxes		800		705		2,235		1,941

Provision for income taxes
Current		189		169		580		512
Deferred		105		76		219		177
Total income taxes		294		245		799		689

Net income	$	506	$	460	$	1,436	$	1,252

Earnings per share
Basic	$	1.76	$	1.56	$	4.96	$	4.23
Diluted		1.75		1.55		4.93		4.21

Weighted average shares outstanding
Basic		287.1		292.7		288.8		294.9
Diluted		289.5		294.7		291.2		296.7

See accompanying notes to consolidated financial statements.

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

	Third Quarter				First Nine Months
	2017		2016		2017		2016
	($ in millions)

Net income	$	506	$	460	$	1,436	$	1,252
Other comprehensive income, before tax:
Reclassification adjustments for costs
included in net income		7		7		21		20
Other comprehensive loss of
equity investees		—		—		(1)		—
Other comprehensive income, before tax		7		7		20		20

Income tax expense related to reclassification
adjustments for costs included in net income		(2)		(3)		(8)		(8)

Other comprehensive income, net of tax		5		4		12		12

Total comprehensive income	$	511	$	464	$	1,448	$	1,264

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)

	September 30,		December 31,
	2017		2016
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	724	$	956
Accounts receivable – net		973		945
Materials and supplies		245		257
Other current assets		57		133
Total current assets		1,999		2,291

Investments		2,888		2,777
Properties less accumulated depreciation of $11,987 and
$11,737, respectively		30,163		29,751
Other assets		103		73

Total assets	$	35,153	$	34,892

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,287	$	1,215
Short-term debt		—		100
Income and other taxes		206		245
Other current liabilities		320		229
Current maturities of long-term debt		600		550
Total current liabilities		2,413		2,339

Long-term debt		9,280		9,562
Other liabilities		1,366		1,442
Deferred income taxes		9,367		9,140
Total liabilities		22,426		22,483

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 286,148,766 and 290,417,610 shares,
respectively, net of treasury shares		288		292
Additional paid-in capital		2,249		2,179
Accumulated other comprehensive loss		(475)		(487)
Retained income		10,665		10,425

Total stockholders' equity		12,727		12,409

Total liabilities and stockholders' equity	$	35,153	$	34,892

See accompanying notes to consolidated financial statements.

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

	First Nine Months
	2017		2016
	($ in millions)
Cash flows from operating activities
Net income	$	1,436	$	1,252
Reconciliation of net income to net cash provided by operating activities:
Depreciation		791		770
Deferred income taxes		219		177
Gains and losses on properties		(62)		(38)
Changes in assets and liabilities affecting operations:
Accounts receivable		(59)		8
Materials and supplies		12		(30)
Other current assets		68		130
Current liabilities other than debt		165		149
Other – net		(105)		(106)

Net cash provided by operating activities		2,465		2,312

Cash flows from investing activities
Property additions		(1,315)		(1,304)
Property sales and other transactions		137		87
Investment purchases		(4)		(119)
Investment sales and other transactions		8		6

Net cash used in investing activities		(1,174)		(1,330)

Cash flows from financing activities
Dividends		(529)		(523)
Common stock transactions		75		33
Purchase and retirement of common stock		(712)		(603)
Proceeds from borrowings – net		293		594
Debt repayments		(650)		(600)

Net cash used in financing activities		(1,523)		(1,099)

Net decrease in cash and cash equivalents		(232)		(117)

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

At end of period	$	724	$	984

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	345	$	337
Income taxes (net of refunds)		594		409

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Stock Repurchase Program
We repurchased and retired 6.0 million and 7.2 million shares of common stock under our stock repurchase program in the first nine months of 2017 and 2016, respectively, at a cost of $712 million and $603 million, respectively. Since the beginning of 2006, we have repurchased and retired 166.3 million shares at a total cost of $11.0 billion.

SOURCE Norfolk Southern Corporation