Norfolk Southern reports second-quarter 2019 results

Achieves record second-quarter operating income, operating ratio, net income, and earnings per share

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Jul 24, 2019, 08:00 ET

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

Second-quarter net income was $722 million, up 2 percent year-over-year, a result of a 4 percent increase in income from railway operations – yielding a record second-quarter operating ratio of 63.6 percent. Diluted earnings per share were $2.70, up 8 percent year-over-year and a second-quarter record.

"Norfolk Southern's record financial results underscore our unrelenting commitment to shareholder value as we advance along the path of our strategic transformation," said James A. Squires, Norfolk Southern chairman, president and CEO. "Our strong financial and operational performance in the second quarter was achieved while also finalizing preparations for the successful implementation of our new operating plan, TOP'21. This execution reflects the strength of our team, commitment to our customers, and power of our balanced strategic plan to deliver enhanced shareholder value."

Second-quarter summary

Railway operating revenues of $2.9 billion increased 1 percent compared with prior year, as a 5 percent increase in average revenue per unit was offset by a 4 percent decline in total volume.

Railway operating expenses were $1.9 billion, a decrease of $12 million, compared with the same period last year as fuel price declines and lower purchased services and rents were offset by increased depreciation expense.

Income from railway operations was $1.1 billion, an increase of 4 percent year-over-year, a second-quarter record. The railway operating ratio, or operating expenses as a percentage of revenues, was 63.6 percent, also a second-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)

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

Railway operating revenues
Merchandise	$	1,756	$	1,718	$	3,442	$	3,323
Intermodal	701		714		1,420		1,392
Coal	468		466		903		900
Total railway operating revenues	2,925		2,898		5,765		5,615

Railway operating expenses
Compensation and benefits	712		706		1,439		1,443
Purchased services and rents	418		430		842		831
Fuel	254		272		504		538
Depreciation	284		273		567		545
Materials and other	192		191		382		397
Total railway operating expenses	1,860		1,872		3,734		3,754

Income from railway operations	1,065		1,026		2,031		1,861

Other income – net	22		29		66		37
Interest expense on debt	153		131		302		267

Income before income taxes	934		924		1,795		1,631

Income taxes
Current	136		170		263		280
Deferred	76		44		133		89
Total income taxes	212		214		396		369

Net income	$	722	$	710	$	1,399	$	1,262

Earnings per share - diluted	$	2.70	$	2.50	$	5.21	$	4.43

Weighted average shares outstanding - diluted	267.1		283.7		268.3		284.8

See accompanying notes to consolidated financial statements.

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

	Second Quarter				First Six Months
	2019		2018		2019		2018
	($ in millions)

Net income	$	722	$	710	$	1,399	$	1,262
Other comprehensive income, before tax:
Pension and other postretirement benefits	5		8		10		1
Other comprehensive income (loss) of
equity investees	—		1		(1)		2
Other comprehensive income, before tax	5		9		9		3

Income tax expense related to items of
other comprehensive income	(2)		(2)		(3)		—

Other comprehensive income, net of tax	3		7		6		3

Total comprehensive income	$	725	$	717	$	1,405	$	1,265

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)

	June 30,		December 31,
	2019		2018
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	274	$	358
Accounts receivable – net	1,039		1,009
Materials and supplies	256		207
Other current assets	345		288
Total current assets	1,914		1,862

Investments	3,301		3,109
Properties less accumulated depreciation of $12,372
and $12,374, respectively	31,201		31,091
Other assets	756		177

Total assets	$	37,172	$	36,239

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,407	$	1,505
Income and other taxes	270		255
Other current liabilities	373		246
Current maturities of long-term debt	401		585
Total current liabilities	2,451		2,591

Long-term debt	11,076		10,560
Other liabilities	1,738		1,266
Deferred income taxes	6,596		6,460

Total liabilities	21,861		20,877

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 263,406,773 and 268,098,472 shares,
respectively, net of treasury shares	265		269
Additional paid-in capital	2,226		2,216
Accumulated other comprehensive loss	(557)		(563)
Retained income	13,377		13,440

Total stockholders' equity	15,311		15,362

Total liabilities and stockholders' equity	$	37,172	$	36,239

See accompanying notes to consolidated financial statements.

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

	First Six Months
	2019		2018
	($ in millions)
Cash flows from operating activities
Net income	$	1,399	$	1,262
Reconciliation of net income to net cash provided by operating activities:
Depreciation	567		546
Deferred income taxes	133		89
Gains and losses on properties	(7)		(14)
Changes in assets and liabilities affecting operations:
Accounts receivable	(30)		(92)
Materials and supplies	(49)		(38)
Other current assets	55		19
Current liabilities other than debt	(30)		134
Other – net	(86)		(80)

Net cash provided by operating activities	1,952		1,826

Cash flows from investing activities
Property additions	(979)		(836)
Property sales and other transactions	214		48
Investment purchases	(12)		(4)
Investment sales and other transactions	(75)		6

Net cash used in investing activities	(852)		(786)

Cash flows from financing activities
Dividends	(458)		(408)
Common stock transactions	18		15
Purchase and retirement of common stock	(1,050)		(700)
Proceeds from borrowings – net of issuance costs	1,054		543
Debt repayments	(750)		(750)

Net cash used in financing activities	(1,186)		(1,300)

Net decrease in cash, cash equivalents, and restricted cash	(86)		(260)

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

At end of period	$	360	$	430

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	271	$	246
Income taxes (net of refunds)	215		126

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

Comprehensive income:
Net income							722		722
Other comprehensive income					3				3
Total comprehensive income									725
Dividends on common stock,
$0.86 per share							(228)		(228)
Share repurchases	(2)		(22)				(526)		(550)
Stock-based compensation			35				(2)		33

Balance at June 30, 2019	$	265	$	2,226	$	(557)	$	13,377	$	15,311

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, 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

Comprehensive income:
Net income							710		710
Other comprehensive income					7				7
Total comprehensive income									717
Dividends on common stock,
$0.72 per share							(203)		(203)
Share repurchases	(3)		(20)				(377)		(400)
Stock-based compensation			28				(1)		27

Balance at June 30, 2018	$	281	$	2,263	$	(441)	$	14,456	$	16,559

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Stock Repurchase Program
We repurchased and retired 5.7 million shares and 4.8 million shares of common stock under our stock repurchase program in the first six months of 2019 and 2018, respectively, at a cost of $1.1 billion and $700 million, respectively. Since the beginning of 2006, we have repurchased and retired 191.3 million shares at a total cost of $15.2 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 and lease liabilities on the balance sheet for leases greater than twelve months. As a result of the adoption, the Consolidated Balance Sheet at June 30, 2019 includes the recognition of ROU assets of $586 million included in "Other assets," current lease liabilities of $98 million included in "Other current liabilities," and non-current lease liabilities of $488 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 $86 million at June 30, 2019 and $88 million at 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 income," with no impact on "Total stockholders' equity."

SOURCE Norfolk Southern Corporation