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1/27/2016



Rail News: Norfolk Southern Railway

Norfolk Southern posts lower profit in 2015, initiates cost-cutting measures


Norfolk Southern Corp. today reported lower profits for fourth-quarter and full-year 2015, as the Class I faced the impact of declining traffic volumes throughout last year, particularly coal. The company also announced cost-cutting measures designed to improve profitability and accelerate growth.

NS posted net income of $361 million, or $1.20 per diluted share, for Q4 2015, down nearly 30 percent when compared with $511 million, or $1.64 per diluted share in fourth-quarter 2014. Analysts expected NS to earn $1.23 per share for Q4 2015.

Railway operating revenue for the quarter totaled $2.5 billion, down 12 percent compared with the year-ago quarter. Income from railway operations fell 28 percent to $642 million compared with Q4 2015.

Traffic volume during Q4 2015 slipped 6 percent, a result of lower coal volumes and the effect of low commodity prices, NS officials said in a press release.

Average revenue per unit fell 6 percent as the impact of higher rates were more than offset by a $226 million, or 73 percent, decline in fuel surcharge revenue.

Coal revenue dropped 20 percent to $433 million for the quarter. A weak global export market, record high temperatures in the East and low natural gas prices combined to decrease volume by 18 percent, NS officials said.

Railway operating expenses fell 5 percent to $1.9 billion compared with the same period in 2014, notwithstanding $49 million in expenses related to the Triple Crown restructuring and Roanoke office closure.

For the full year 2015, NS posted net income of $1.6 billion, or $5.10 per diluted share, compared with $2 billion, or $6.39 per diluted share, in 2014. Railway operating revenue declined 10 percent to $10.5 billion in 2015, reflecting a 64 percent reduction in surcharge revenue. Traffic volume fell 3 percent, driven by a sharp decline in coal.

Income from railway operations dropped 19 percent to $2.9 billion compared with 2014.

NS' operating ratio for the year was 72.6 percent, compared with 69.2 percent in 2014.

In a separate announcement, NS unveiled more details of a previously announced strategic plan to streamline operations and drive profitability and growth. The company expects to achieve annual productivity savings of more than $650 million per year by 2020, growing from an initial $130 million in 2016, NS officials said.

"This plan will enable us to achieve significant annual expense savings beginning in 2016 without compromising the company’s ability to capitalize on volume and revenue growth opportunities," said NS Chairman, President and Chief Executive Officer James Squires. "We are making progress despite a challenging operating environment, including successfully restoring our rail service to previous high levels, realigning resources, and completing strategic capacity investments to improve efficiency and productivity."

The plan focuses on reducing expenses and implementing other cost-control measures in compensation and benefits, purchased services and rents, materials, and fuel, NS officials said.

In the area of compensation and benefits, the company's plans include reducing its workforce. The company will:
  • cut the headcount by 2,000 employees by 2020;
  • decrease overtime by 50 percent from 2015 levels;reduce the number of employees affected by lower coal traffic and by rightsizing the company's coal infrastructure;
  • consolidate operating regions from three to two;
  • halt or reduce operations in several hump or secondary yards in 2016, which will reduce manpower needs and locomotive fleet requirements and consolidate traffic on fewer, larger trains; and
  • dispose of or downgrade 1,500 miles of secondary lines by 2020, including 1,000 miles in 2016, as traffic is rerouted onto higher-density lines and some parts of the system are more economically operated in collaboration with short lines.
Other details of NS plan can be found here.

"Through these actions, we are positioning Norfolk Southern for improved performance and value creation in 2016 and beyond," Squires said. "We are confident in our ability to deliver superior shareholder value through our strategic plan, which is built on exceptional customer service, growth through pricing and new business, cost reduction and control, and increasing returns on capital. Our fourth-quarter results reflect current challenges in domestic and global markets."

Through the initiatives announced today, NS expects to achieve an operating ratio below 65 percent by 2020, company officials said.
 


Contact Progressive Railroading editorial staff.

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