Norfolk Southern reports record second-quarter 2014 results

Jul 23, 2014

NORFOLK, Va., July 23, 2014 /PRNewswire/ -- For the second quarter of 2014 Norfolk Southern (NYSE: NSC) reported record net income of $562 million, 21 percent higher compared with $465 million in second-quarter 2013. Diluted earnings per share increased 23 percent to a record $1.79, compared with $1.46 per diluted share in the same period last year. The railway operating ratio, or operating expenses as a percentage of revenue, improved 5 percent to 66.5 percent.

All-time Quarter Records

Railway operating revenues increased 9 percent to $3.0 billion.
Income from railway operations improved 22 percent to $1.0 billion.
Net income increased 21 percent to $562 million.
Diluted earnings per share rose 23 percent to $1.79.
The railway operating ratio was 66.5 percent, a 5 percent improvement.

"Norfolk Southern delivered excellent financial performance during the second quarter, reporting the highest railway operating revenues in its history," said CEO Wick Moorman. "We see continued strength across most of our business segments and are optimistic that overall economic conditions will drive growth. Our focus remains unchanged. We are committed to running the safest railroad, providing superior service, increasing efficiency, and driving superior returns to our shareholders."

Second-quarter railway operating revenues increased to a record $3.0 billion, 9 percent higher compared with the same period of 2013, driven by an 8 percent increase in volume.

General merchandise revenues increased 8 percent to a record $1.7 billion compared with the second quarter of 2013. Shipments of metals and construction, chemicals, and agricultural products fueled a 7 percent increase in traffic volume.

Second-Quarter Revenue by Commodity Group

Intermodal up 11 percent
Metals and Construction up 17 percent
Coal up 7 percent
Chemicals up 10 percent
Agriculture up 5 percent
Automotive up 3 percent
Paper up 2 percent

Coal revenues increased 7 percent to $672 million in the second quarter compared with the same period of 2013, with volume up 3 percent, the result of increased demand for utility coal from stockpile replenishment in response to a severe winter and higher natural gas prices, which offset lower export volume.

Intermodal revenues increased 11 percent to a record $650 million compared with the second-quarter 2013. Volume increased 11 percent, the result of continued domestic growth coupled with new international business.

Railway operating expenses were $2.0 billion, 3 percent higher compared with second-quarter 2013, principally due to costs associated with higher business volumes.

Income from railway operations for the second quarter was a record $1.0 billion, 22 percent higher compared with the same period of 2013.

The railway operating ratio, or operating expenses as a percentage of revenue, was a record 66.5 percent, a 5 percent improvement compared with the same period of 2013.

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 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)

	Second Quarter				First Six Months
	2014		2013		2014		2013
	(in millions, except per share amounts)

Railway operating revenues
Coal	$	672	$	626	$	1,213	$	1,261
General merchandise		1,720		1,588		3,272		3,118
Intermodal		650		588		1,246		1,161
Total railway operating revenues		3,042		2,802		5,731		5,540

Railway operating expenses
Compensation and benefits		715		726		1,455		1,506
Purchased services and rents		414		410		806		803
Fuel		408		391		840		820
Depreciation		238		226		475		453
Materials and other		248		213		469		431
Total railway operating expenses		2,023		1,966		4,045		4,013

Income from railway operations		1,019		836		1,686		1,527

Other income – net (note 1)		18		29		44		164
Interest expense on debt		139		128		278		257

Income before income taxes		898		737		1,452		1,434

Provision for income taxes
Current		311		203		505		376
Deferred		25		69		17		143
Total income taxes		336		272		522		519

Net income	$	562	$	465	$	930	$	915

Earnings per share (note 1)
Basic	$	1.81	$	1.47	$	2.99	$	2.90
Diluted		1.79		1.46		2.97		2.87

Weighted average shares outstanding (note 2)
Basic		309.5		314.1		309.5		314.3
Diluted		312.8		317.8		312.7		317.9

See accompanying notes to consolidated financial statements.

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

	Second Quarter				First Six Months
	2014		2013		2014		2013
	($ in millions)

Net income	$	562	$	465	$	930	$	915
Other comprehensive income, before tax:
Pension and other postretirement benefits		7		36		306		72
Other comprehensive income of equity investees		7		1		10		2
Other comprehensive income, before tax		14		37		316		74
Income tax expense related to items of other
comprehensive income		(4)		(14)		(118)		(28)
Other comprehensive income, net of tax		10		23		198		46

Total comprehensive income	$	572	$	488	$	1,128	$	961

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
	2014			2013
	($ in millions)
Assets
Current assets:
Cash and cash equivalents		$	1,667		$	1,443
Short-term investments			-			118
Accounts receivable - net			1,122			1,024
Materials and supplies			251			223
Deferred income taxes			161			180
Other current assets			65			87
Total current assets			3,266			3,075

Investments			2,505			2,439
Properties less accumulated depreciation of $10,634 and
$10,387, respectively			26,927			26,645
Other assets			342			324

Total assets		$	33,040		$	32,483

Liabilities and stockholders' equity
Current liabilities:
Accounts payable		$	1,245		$	1,265
Short-term debt			-			100
Income and other taxes			359			225
Other current liabilities			331			270
Current maturities of long-term debt			433			445
Total current liabilities			2,368			2,305

Long-term debt			8,814			8,903
Other liabilities			1,122			1,444
Deferred income taxes			8,659			8,542
Total liabilities			20,963			21,194

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 309,515,208 and 308,878,402 shares,
respectively, net of treasury shares			311			310
Additional paid-in capital			2,113			2,021
Accumulated other comprehensive loss			(183)			(381)
Retained income			9,836			9,339

Total stockholders' equity			12,077			11,289

Total liabilities and stockholders' equity		$	33,040		$	32,483

See accompanying notes to consolidated financial statements.

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

	First Six Months
	2014		2013
	($ in millions)
Cash flows from operating activities
Net income	$	930	$	915
Reconciliation of net income to net cash provided by operating activities:
Depreciation		478		456
Deferred income taxes		17		143
Gains and losses on properties and investments (note 1)		(3)		(99)
Changes in assets and liabilities affecting operations:
Accounts receivable		(98)		37
Materials and supplies		(28)		(12)
Other current assets		30		28
Current liabilities other than debt		144		6
Other – net		(33)		32
Net cash provided by operating activities		1,437		1,506

Cash flows from investing activities
Property additions		(809)		(884)
Property sales and other transactions		44		68
Investments, including short-term		(3)		(7)
Investment sales and other transactions		121		16
Net cash used in investing activities		(647)		(807)

Cash flows from financing activities
Dividends		(335)		(315)
Common stock issued – net		82		80
Purchase and retirement of common stock (note 2)		(100)		(314)
Debt repayments		(213)		(216)
Net cash used in financing activities		(566)		(765)

Net increase (decrease) in cash and cash equivalents		224		(66)

Cash and cash equivalents
At beginning of period		1,443		653

At end of period	$	1,667	$	587

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	255	$	244
Income taxes (net of refunds)		313		238

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
1. Other Income – Net
	In first quarter 2013, we recognized a $97 million gain on a land sale, which increased net income by $60 million or $0.19 per share.
2. Stock Repurchase Program
	We repurchased 1.0 million shares of common stock in the first six months of 2014, totaling $100 million, and 4.2 million shares at a cost of $314 million for the same period of 2013. We have remaining authorization from our Board of Directors to repurchase up to 37.2 million shares through December 31, 2017. 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 137.8 million shares at a total cost of $8.2 billion.