ATLANTA – Norfolk Southern set quarterly revenue, operating income, and earnings per share records despite lower volume and service problems related to ongoing crew shortages.
“In the second quarter we stabilized service levels, expanded our pipeline of conductor trainees, and launched the next evolution of our operating plan, TOP | SPG, with our signature no surprises approach,” CEO Alan Shaw told investors and analysts on the railroad’s Wednesday morning earnings call. “Service is not yet where we want it to be, but I am encouraged by our progress.”
Quarterly operating income rose 9%, to $1.3 billion, as revenue grew 16%, to $3.2 billion. Operating expenses rose 21% largely due to higher fuel costs, however, and the railroad’s operating ratio rose 2.6 points, to 60.9%. Earnings per share grew 5%, to $3.45.
Overall volume was down 3%, with declines in all three business units. Merchandise traffic declined 1%, while intermodal and coal were both down 4%. NS posted record revenue per unit for the quarter, with double-digit percentage increases in all three business segments.
Key performance metrics, including average train speed and terminal dwell, deteriorated compared to the first quarter. “Train speed and terminal dwell remained challenged in the quarter but we are really encouraged by the improvements we are seeing here in July,” says Chief Operating Officer Cindy Sanborn.
So far in July, train speed is up 6% and dwell is down 3%.
NS posted record train length, train weight, and fuel efficiency during the quarter. But it was unable to operate as many trains as it would have liked due to a shortage of crews at key locations.
NS had 988 conductors in training during the second quarter, with 895 currently learning the craft. The railroad currently has 7,190 qualified train and engine employees, up 224 over the second quarter average. “The impact on our network is being felt,” Sanborn says, noting the railroad is adding conductors at a faster pace than attrition.
NS aims to have 7,330 active train and engine employees in service by November and 7,500 by May 2023. Shaw says he’s confident NS will be able to improve service and handle more volume as crew levels rise.
NS updated its financial guidance for the year. The railroad now expects 12%-plus revenue growth, up from upper single-digit growth, and now expects the operating ratio to rise by a half point to one point. NS previously forecast a half-point to one-point improvement in the key efficiency metric.
— Updated at 11 a.m. CDT on July 28 to correct quarterly operating income figure.
Alternate summary: NS is earning more by moving less. Taking the less is more approach to an absurd conclusion, would one really expect them to earn an infinite amount by moving one car load – of “golden geese” – over its rails? Probably not.
Probably the only way to get all publicly traded corporations off the short term, quarterly results mentality, is for the SEC to waive the requirements to release quarterly earnings reports? Would this force executives to think longer term? At the expense of shareholders and analysts being “left in the dark” ?
In summary this is how you “starve a railroad into prosperity”. But without top line revenue growth this is simply a short-term recipe for long-term extinction. To paraphrase Mr. Churchill, is this the beginning of the end for NS or the end of the beginning???
In summary, in 2dQtr CY2022, NS was only capable of running fewer trains than before, and they were on average longer, heavier, slower, and stayed in yards longer. Management is encouraged by its progress.