Norfolk Southern reports third-quarter 2018 results
Third-quarter records for operating income, operating ratio, net income and earnings per share

NORFOLK, Va., Oct. 24, 2018 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported record third-quarter financial results.

Net income was $702 million, up 39 percent year-over-year, a result of a 14 percent increase in income from railway operations and a lower effective income tax rate. Diluted earnings per share were $2.52, up 44 percent year-over-year and a third-quarter record.

"Norfolk Southern continues to deliver record financial results that reflect our careful and determined pursuit of a balanced and flexible strategy," said James A. Squires, Norfolk Southern chairman, president and CEO. "Our demonstrated progress toward the goals of our strategic plan is significant, and our ongoing pursuit of new initiatives to benefit customers and shareholders will further strengthen our organization."

Third-quarter summary

  • Railway operating revenues of $2.9 billion increased 10 percent compared with third-quarter 2017, due to higher volumes and an increase in revenue per unit, including higher fuel surcharge revenue as well as increased rates. Overall volumes were up 5 percent reflecting growth in the major commodity categories of intermodal and merchandise, which offset a decline in coal.  
  • Railway operating expenses increased $152 million, or 9 percent, to $1.9 billion compared with the same period last year, driven by higher fuel prices, increases in volume-related expenses, and increased costs associated with overall lower network velocity. 
  • Income from railway operations was $1.0 billion, a 14 percent increase year-over-year, and a third-quarter record. The railway operating ratio, or operating expenses as a percentage of revenues, was 65.4 percent, also a third-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 operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products.

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)  




Third Quarter


First Nine Months


2018


2017


2018


2017


($ in millions, except per share amounts)













Railway operating revenues












Merchandise

$

1,737


$

1,600


$

5,060


$

4,781

Intermodal


746



621



2,138



1,785

Coal


464



449



1,364



1,316

Total railway operating revenues


2,947



2,670



8,562



7,882
















Railway operating expenses












Compensation and benefits


725



771



2,168



2,249

Purchased services and rents


450



377



1,281



1,146

Fuel


274



198



812



601

Depreciation


276



265



821



788

Materials and other


202



164



599



574













Total railway operating expenses


1,927



1,775



5,681



5,358













Income from railway operations


1,020



895



2,881



2,524













Other income – net


30



39



67



127

Interest expense on debt


142



134



409



416













Income before income taxes


908



800



2,539



2,235













Income taxes












Current


157



189



437



580

Deferred


49



105



138



219

Total income taxes


206



294



575



799













Net income

$

702


$

506


$

1,964


$

1,436














Earnings per share - diluted

$

2.52


$

1.75


$

6.95


$

4.93

















Weighted average shares outstanding - diluted


278.2



289.5



282.6



291.2


See accompanying notes to consolidated financial statements.

 

 

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)




Third Quarter


First Nine Months


2018


2017


2018


2017


($ in millions)













Net income

$

702


$

506


$

1,964


$

1,436

Other comprehensive income, before tax:












Pension and other postretirement benefit


8



7



9



21

Other comprehensive income (loss) of
















equity investees






2



(1)

Other comprehensive income, before tax


8



7



11



20

















Income tax expense related to items of












other comprehensive income


(2)



(2)



(2)



(8)













Other comprehensive income, net of tax


6



5



9



12













Total comprehensive income

$

708


$

511


$

1,973


$

1,448


See accompanying notes to consolidated financial statements.

 

 

Norfolk Southern Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)



September 30,


December 31,


2018


2017


($ in millions)

Assets








Current assets:








Cash and cash equivalents

$


729


$


690

Accounts receivable – net



1,043




955

Materials and supplies



267




222

Other current assets



70




282

Total current assets



2,109




2,149











Investments



3,109




2,981

Properties less accumulated depreciation of $12,276 and








$11,909, respectively



30,712




30,330

Other assets



392




251









Total assets

$


36,322


$


35,711









Liabilities and stockholders' equity








Current liabilities:








Accounts payable

$


1,394


$


1,401

Short-term debt






100

Income and other taxes



230




211

Other current liabilities



317




233

Current maturities of long-term debt



500




600

Total current liabilities



2,441




2,545









Long-term debt



10,635




9,136

Other liabilities



1,302




1,347

Deferred income taxes



6,464




6,324









Total liabilities



20,842




19,352









Stockholders' equity:








Common stock $1.00 per share par value, 1,350,000,000 shares








  authorized; outstanding 272,346,940 and 284,157,187 shares,








  respectively, net of treasury shares



274




285

Additional paid-in capital



1,996




2,254

Accumulated other comprehensive loss



(435)




(356)

Retained income



13,645




14,176









Total stockholders' equity



15,480




16,359









Total liabilities and stockholders' equity

$


36,322


$


35,711


See accompanying notes to consolidated financial statements.

 

 

Norfolk Southern Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)




First Nine Months


2018


2017


($ in millions)

Cash flows from operating activities






Net income

$

1,964


$

1,436

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








Depreciation


822



791

Deferred income taxes


138



219

Gains and losses on properties


(26)



(62)

Changes in assets and liabilities affecting operations:






Accounts receivable


(102)



(59)

Materials and supplies


(45)



12

Other current assets


45



68

Current liabilities other than debt


173



165

Other – net


(85)



(105)







Net cash provided by operating activities


2,884



2,465







Cash flows from investing activities






Property additions


(1,326)



(1,315)

Property sales and other transactions


93



137

Investment purchases


(4)



(4)

Investment sales and other transactions


96



8







Net cash used in investing activities


(1,141)



(1,174)







Cash flows from financing activities






Dividends


(627)



(529)

Common stock transactions


38



75

Purchase and retirement of common stock


(2,300)



(712)

Proceeds from borrowings – net of issuance costs


2,023



293

Debt repayments


(750)



(650)







Net cash used in financing activities


(1,616)



(1,523)







Net increase (decrease) in cash, cash equivalents, and restricted cash


127



(232)







Cash, cash equivalents, and restricted cash






At beginning of year


690



956







At end of period

$

817


$

724







Supplemental disclosures of cash flow information






Cash paid during the period for:






Interest (net of amounts capitalized)

$

327


$

345

Income taxes (net of refunds)


314



594


See accompanying notes to consolidated financial statements.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

  1. Pensions and Other Postretirement Benefits
    We adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-07 on January 1, 2018.  The retrospective application resulted in the reclassification of $16 million and $48 million of pension and other postretirement benefits from the "Compensation and benefits" line item within "Railway operating expenses" to "Other income – net" on the Consolidated Statements of Income for the third quarter and first nine months of 2017, respectively.

  2. Stock Repurchase Programs
    We repurchased and retired 12.8 million shares (5.7 million shares under an accelerated stock repurchase program (ASR) and 7.1 million shares under our ongoing program) and 6.0 million shares of common stock under our stock repurchase programs in the first nine months of 2018 and 2017, respectively, at a cost of $2.1 billion and $712 million, respectively.  We entered into an ASR on August 2, 2018 with two third-party financial institutions to repurchase common stock, at which time we made a payment of $1.2 billion to the financial institutions and received an initial delivery of 5.7 million shares valued at $960 million.  The remaining balance of $240 million, included in "Additional paid-in capital" on the Consolidated Balance Sheets, will be settled no later than the end of January 2019, with the final number of shares to be delivered by the financial institutions equal to the volume-weighted average price per share of common stock over the ASR term, less a negotiated discount.

    Since the beginning of 2006, we have repurchased and retired 181.3 million shares at a total cost of $13.4 billion.

  3. Reclassification of Stranded Tax Effects
    In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This update is intended to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017 from accumulated other comprehensive income to retained earnings.  In the first quarter of 2018, we adopted the provisions of ASU 2018-02 resulting in an increase to "Accumulated other comprehensive loss" of $88 million and a corresponding increase to "Retained income," with no impact on "Total stockholders' equity."

  4. 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 September 30, 2018 which reflects 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 assets" on the Consolidated Balance Sheets.

 

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SOURCE Norfolk Southern Corporation

For further information: Media Inquiries: Susan Terpay, 757-823-5204 (susan.terpay@nscorp.com) or Investor Inquiries: Clay Moore, 757-629-2861 (clay.moore@nscorp.com)