Norfolk Southern reports first-quarter 2018 results

Apr 25, 2018

NORFOLK, Va., April 25, 2018 /PRNewswire/ -- Norfolk Southern Corporation (NYSE: NSC) today reported first-quarter financial results.

First-quarter net income was $552 million, up 27 percent year-over-year, a result of a 10 percent increase in income from railway operations and a lower effective income tax rate. Diluted earnings per share were $1.93, up 30 percent year-over-year and a first-quarter record.

"We are pleased with the continued improvement in our financial performance and the growth in our business," said James A. Squires, Norfolk Southern chairman, president and CEO. "We are focused on improving service for our customers to position us for future growth and efficiency that will benefit both our customers and shareholders. The outlook for 2018 is promising, and we are increasing our expected annual share repurchases to $1.5 billion, confident that we will deliver strong financial performance."

First-quarter summary

Railway operating revenues of $2.7 billion increased 6 percent compared with first-quarter 2017, as overall volumes were up 3 percent, reflecting 8 percent growth in our intermodal category that offset declines in merchandise and coal volumes.
Railway operating expenses increased $64 million, or 4 percent, to $1.9 billion compared with the same period last year, as higher fuel prices and increased costs associated with overall lower network velocity were offset, in part, by efficiency gains.
Income from railway operations was $835 million, an increase of 10 percent year-over-year, a first-quarter record. The railway operating ratio, or operating expenses as a percentage of revenues, was 69.3 percent, also a first-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.

http://www.norfolksouthern.com

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

	First Quarter
	2018		2017
	($ in millions, except per share amounts)

Railway operating revenues
Merchandise	$	1,605	$	1,584
Intermodal		678		571
Coal		434		420
Total railway operating revenues		2,717		2,575

Railway operating expenses
Compensation and benefits		737		759
Purchased services and rents		401		377
Fuel		266		213
Depreciation		272		259
Materials and other		206		210

Total railway operating expenses		1,882		1,818

Income from railway operations		835		757

Other income – net		8		40
Interest expense on debt		136		142

Income before income taxes		707		655

Income taxes
Current		110		166
Deferred		45		56
Total income taxes		155		222

Net income	$	552	$	433

Earnings per share – diluted	$	1.93	$	1.48

Weighted average shares outstanding – diluted		285.9		292.8





See accompanying notes to consolidated financial statements.

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

	First Quarter
	2018		2017
	($ in millions)

Net income	$	552	$	433
Other comprehensive income (loss), before tax:
Pension and other post retirement benefit (expense)		(7)		7
Other comprehensive income (loss) of equity investees		1		(2)
Other comprehensive income (loss), before tax		(6)		5

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

Other comprehensive income (loss), net of tax		(4)		2

Total comprehensive income	$	548	$	435





See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)

	March 31,		December 31,
	2018		2017
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	1,072	$	690
Accounts receivable – net		973		955
Materials and supplies		245		222
Other current assets		189		282
Total current assets		2,479		2,149

Investments		3,020		2,981
Properties less accumulated depreciation of $12,076 and
$11,909, respectively		30,396		30,330
Other assets		267		251

Total assets	$	36,162	$	35,711

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,217	$	1,401
Short-term debt		50		100
Income and other taxes		217		211
Other current liabilities		304		233
Current maturities of long-term debt		600		600
Total current liabilities		2,388		2,545

Long-term debt		9,637		9,136
Other liabilities		1,352		1,347
Deferred income taxes		6,367		6,324
Total liabilities		19,744		19,352

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 282,541,886 and 284,157,187 shares,
respectively, net of treasury shares		284		285
Additional paid-in capital		2,255		2,254
Accumulated other comprehensive loss		(448)		(356)
Retained income		14,327		14,176

Total stockholders' equity		16,418		16,359

Total liabilities and stockholders' equity	$	36,162	$	35,711





See accompanying notes to consolidated financial statements.

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

	First Three Months
	2018		2017
	($ in millions)
Cash flows from operating activities
Net income	$	552	$	433
Reconciliation of net income to net cash provided by operating activities:
Depreciation		272		260
Deferred income taxes		45		56
Gains and losses on properties		(8)		(9)
Changes in assets and liabilities affecting operations:
Accounts receivable		(26)		(53)
Materials and supplies		(23)		(24)
Other current assets		13		31
Current liabilities other than debt		12		188
Other – net		(21)		(36)

Net cash provided by operating activities		816		846

Cash flows from investing activities
Property additions		(383)		(438)
Property sales and other transactions		13		35
Investment purchases		(2)		(2)
Investment sales and other transactions		1		1

Net cash used in investing activities		(371)		(404)

Cash flows from financing activities
Dividends		(205)		(177)
Common stock transactions		(1)		34
Purchase and retirement of common stock		(300)		(200)
Proceeds from borrowings – net of issuance costs		543		—
Debt repayments		(100)		(100)

Net cash used in financing activities		(63)		(443)

Net increase (decrease) in cash and cash equivalents		382		(1)

Cash and cash equivalents
At beginning of year		690		956

At end of period	$	1,072	$	955

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	69	$	70
Income taxes (net of refunds)		7		12





See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

Pension 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 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 quarter ended March 31, 2017.
Stock Repurchase Program
We repurchased and retired 2.1 million and 1.7 million shares of common stock under our stock repurchase program in the first quarters of 2018 and 2017, respectively, at a cost of $300 million and $200 million, respectively. Since the beginning of 2006, we have repurchased and retired 170.6 million shares at a total cost of $11.6 billion.
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."