Norfolk Southern reports second-quarter 2015 results

Jul 27, 2015

NORFOLK, Va., July 27, 2015 /PRNewswire/ --

SECOND-QUARTER 2015 RESULTS

Railway operating revenues totaled $2.7 billion.
Income from railway operations was $814 million.
Net income totaled $433 million.
Diluted earnings per share were $1.41.
The railway operating ratio was 70.0 percent.

Norfolk Southern Corporation (NYSE: NSC) today reported financial results for second-quarter 2015. Net income for the quarter was $433 million, 23 percent lower compared with the $562 million record results from the same period of 2014. Diluted earnings per share were $1.41 compared with $1.79 per diluted share earned in the second quarter last year.

"While we face short-term pressure, particularly as we clear fuel surcharge revenue and coal headwinds, Norfolk Southern is well positioned to continue improving service, which will reduce costs and add value to our customers," said CEO James A. Squires. "Growth within the intermodal franchise, consumer spending, housing-related momentum and improved manufacturing activity all support an optimistic longer-term outlook. We have a strong legacy of success, and we are taking the right steps to continue value creation for our customers, the communities we serve, our employees, and our shareholders."

SECOND-QUARTER SUMMARY

Railway operating revenues were $2.7 billion, 11 percent lower compared with second-quarter 2014, a result of lower fuel surcharges and coal volumes. Total volume decreased 2 percent, or about 46,000 units. Gains in intermodal and merchandise traffic were offset by losses in coal.
General merchandise revenues were $1.6 billion, 5 percent lower than the same period last year, reflecting lower fuel surcharges. Volume grew by 1 percent, with strong growth in chemicals offsetting declines in steel. Automotive and paper volume increased with higher vehicle production and strength in pulpboard and lumber. The five general merchandise commodity groups reported mostly lower revenue results on a year-over-year basis:
- Chemicals: $454 million, about even with 2014
- Agriculture: $ 379 million, down 2 percent
- Metals/Construction: $344 million, down 16 percent
- Automotive: $254 million, down 6 percent
- Paper/Forest: $196 million, down 2 percent
Intermodal revenues were $633 million, 3 percent lower compared with second-quarter 2014, as lower fuel surcharges more than offset volume gains. Higher shipments in our international business drove overall volume growth of 2 percent in the quarter compared with the same period of 2014.
Coal revenues were $453 million, 33 percent lower compared with the second quarter of 2014. Coal revenues were affected by continuing low natural gas prices and declining fuel surcharges. Volume was down 21 percent, driven by declines of 23 percent in domestic utility and 38 percent in export.
Railway operating expenses declined 6 percent to $1.9 billion, primarily due to lower fuel costs, compared with the same period of 2014.
Income from railway operations was $814 million, 20 percent lower compared with second-quarter 2014.
The operating ratio, or operating expenses as a percentage of revenue, was 70.0 percent, compared with 66.5 percent in the same quarter of 2014.

About Norfolk Southern

Norfolk Southern Corporation is one of the nation's premier transportation companies. Its Norfolk Southern Railway 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
	2015		2014		2015		2014
	($ in millions, except per share amounts)

Railway operating revenues
Coal	$	453	$	672	$	908	$	1,213
General merchandise		1,627		1,720		3,147		3,272
Intermodal		633		650		1,225		1,246
Total railway operating revenues		2,713		3,042		5,280		5,731

Railway operating expenses
Compensation and benefits		724		715		1,507		1,455
Purchased services and rents		438		414		861		806
Fuel		255		408		519		840
Depreciation		247		238		492		475
Materials and other		235		248		481		469

Total railway operating expenses		1,899		2,023		3,860		4,045

Income from railway operations		814		1,019		1,420		1,686

Other income – net		19		18		40		44
Interest expense on debt		134		139		266		278

Income before income taxes		699		898		1,194		1,452

Provision for income taxes
Current		243		311		416		505
Deferred		23		25		35		17
Total income taxes		266		336		451		522

Net income	$	433	$	562	$	743	$	930

Earnings per share
Basic	$	1.43	$	1.81	$	2.43	$	2.99
Diluted		1.41		1.79		2.41		2.97

Weighted average shares outstanding (note 1)
Basic		302.9		309.5		304.8		309.5
Diluted		305.5		312.8		307.5		312.7

See accompanying notes to consolidated financial statements.

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

	Second Quarter				First Six Months
	2015		2014		2015		2014
	($ in millions)

Net income	$	433	$	562	$	743	$	930
Other comprehensive income, before tax:
Pension and other postretirement benefits		11		7		21		306
Other comprehensive income (loss) of
equity investees		—		7		(4)		10

Other comprehensive income, before tax		11		14		17		316
Income tax expense related to items of other
comprehensive income		(5)		(4)		(8)		(118)

Other comprehensive income, net of tax		6		10		9		198

Total comprehensive income	$	439	$	572	$	752	$	1,128

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

	June 30,		December 31,
	2015		2014
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	889	$	973
Accounts receivable – net		1,055		1,055
Materials and supplies		277		236
Deferred income taxes		125		167
Other current assets		67		347
Total current assets		2,413		2,778

Investments		2,724		2,679
Properties less accumulated depreciation of $11,188 and
$10,814, respectively		28,075		27,694
Other assets (note 2)		98		49

Total assets	$	33,310	$	33,200

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,144	$	1,233
Short-term debt		—		100
Income and other taxes		295		217
Other current liabilities		264		228
Current maturities of long-term debt		500		2
Total current liabilities		2,203		1,780

Long-term debt (note 2)		8,890		8,883
Other liabilities		1,322		1,312
Deferred income taxes		8,818		8,817

Total liabilities		21,233		20,792

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 301,386,849 and 308,240,130 shares,
respectively, net of treasury shares		303		310
Additional paid-in capital		2,146		2,148
Accumulated other comprehensive loss		(389)		(398)
Retained income		10,017		10,348

Total stockholders' equity		12,077		12,408

Total liabilities and stockholders' equity	$	33,310	$	33,200

See accompanying notes to consolidated financial statements.

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

	First Six Months
	2015		2014
	($ in millions)
Cash flows from operating activities
Net income	$	743	$	930
Reconciliation of net income to net cash provided by operating activities:
Depreciation		494		478
Deferred income taxes		35		17
Gains and losses on properties and investments		(18)		(3)
Changes in assets and liabilities affecting operations:
Accounts receivable		—		(98)
Materials and supplies		(41)		(28)
Other current assets		282		30
Current liabilities other than debt		(1)		144
Other – net		(21)		(33)

Net cash provided by operating activities		1,473		1,437

Cash flows from investing activities
Property additions		(886)		(809)
Property sales and other transactions		32		44
Investments, including short-term		(3)		(3)
Investment sales and other transactions		5		121

Net cash used in investing activities		(852)		(647)

Cash flows from financing activities
Dividends		(360)		(335)
Common stock issued		28		82
Purchase and retirement of common stock (note 1)		(765)		(100)
Proceeds from borrowings – net		494		—
Debt repayments		(102)		(213)

Net cash used in financing activities		(705)		(566)

Net increase (decrease) in cash and cash equivalents		(84)		224

Cash and cash equivalents
At beginning of year		973		1,443

At end of period	$	889	$	1,667

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	249	$	255
Income taxes (net of refunds)		55		313

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. Stock Repurchase Program

We repurchased 7.4 million and 1.0 million shares of common stock in the first six months of 2015 and 2014, respectively, at a cost of $765 million and $100 million, respectively. We have remaining authorization from our Board of Directors to repurchase up to 27.8 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 147.2 million shares at a total cost of $9.2 billion.

2. New Accounting Pronouncement

In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." This update requires that debt issuance costs be presented in the balance sheet as a reduction from the related debt liability rather than as an asset, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. We early adopted the provisions of this ASU during the second quarter of 2015 and applied it retrospectively. The adoption of ASU 2015-03 resulted in the presentation of $43 million of debt issuance costs as a reduction of "Long-term debt" at June 30, 2015. We retrospectively adjusted the December 31, 2014 consolidated balance sheet and related disclosures to reflect the reclassification of $41 million of debt issuance costs from "Other assets" to "Long-term debt." There was no other impact on our consolidated financial statements from the adoption of ASU 2015-03.

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SOURCE Norfolk Southern Corporation