Norfolk Southern continues gains on earnings, operating ratio

ATLANTA — Norfolk Southern delivered significant gains in earnings and operating ratio during 2024’s third quarter, with new CEO Mark George noting the railroad is “continuing to close the margin gap” with its peers.

The railroad announced adjusted quarterly earnings of $1.1 billion on revenues of $3.05 billion, with an adjusted operating ratio of 63.4%. The adjusted earnings are a 23% increase over the same quarter in 2023, while the operation ratio is an improvement of 570 basis points, as well as a gain of 650 basis points since the first quarter, Chief Financial Officer Jason Zampi said during an earnings call with analysts today (Tuesday, Oct. 22).

The adjusted earnings per share of $3.24 were up 23% from 2023’s third quarter. Revenue was up 3%.

The railroad’s positive results came despite challenges arising from Hurricane Helene, which the company said had the greatest impact on its rail network since Hurricane Katrina in 2005. George said the “fast and effective actions” of NS railroaders “resulted in us being able to recover and serve our communities within days.”

While the railroad’s line into Asheville, N.C., is likely to remain closed for months, its key routes were reopened with 72 hours. Recovery efforts included clearing more than 15,000 downed trees, dealing with more than 1,000 locations where commercial power was out, and replacing some 150 tons of ballast. Some 35 miles of track sustained damage, along with five bridges and 54 slide fences.

Chief Operating Officer John Orr highlighted efficiency and cost control moves including a reduction of 130 crew starts per day and a 20% reduction in overtime. The improved productivity has allowed the railroad to store 500 locomotives so far this year — an increase of 200 from the second quarter — as well as reducing the number of cars on line by 1,000 during the quarter and 8,000 in the year to date. George said the resulting fluidity was reflected in the ability to recover from Helene.

“I would tell you a year ago some of the events we saw in the quarter would have set us back three months,” he said. “But we were back within a week. And now we’re actually at record network speeds and low dwell.”

Dwell is at 22.5 hours, down from 23.2 in the third quarter a year ago and a high of 24.6 hours in the fourth quarter of 2023. Train speed is at 22.3 mph systemwide, 20 mph for merchandise, compared to 20.5 mph for the system and 18.1 for merchandise in 2023’s third quarter, while car-miles per day has risen to 114 from 101 in the same quarter a year ago.

The railroad’s overall volume was up 7%, with a 2% gain in merchandise (563,900 carloads) and 3% gain in merchandise revenue ($1.86 billion). Intermodal volume (1,052,200 units) was up 9%, with revenue ($763 million) up 4%, while coal volume was up 11% at 185,300, but revenue was down 2% at $427 million.

“Stagnant truck prices continue to pressure domestic intermodal rates,” said Chief Marketing Officer Ed Elkins, “and unfavorable mixed trends continue, with strong gains in international and domestic outpacing our premium market volumes in intermodal.” The brief longshoremen’s strike at East and Gulf Coast ports in early October “negatively impacted our international volumes,” he said, “but we expect the majority of this volume will be recovered in the months ahead.”

Elkins said the railroad expects “our markets to experience tempered growth” for the remainder of 2024, “albeit with some discrete headwinds from market trajectory and mixed impacts on certain sectors.” Merchandise traffic should see “sedate” growth, he said, while automotive and metals markets face challenges. Intermodal demand should be strong, but coal faces downward pricing for seaborne metallurgical coal but gains in thermal exports.

“We are on track for our second half and full year of commitments,” said George, “even if the full-year revenue falls a little short of our guidance, which is to be up roughly 1%.”

It was the first NS earnings call featuring George as CEO. He was named to that position in September following the ouster of Alan Shaw [see “Norfolk Southern dismisses CEO Alan Shaw …,” Trains News Wire, Sept. 11, 2024]. It was also the first since Zampi was named to succeed George as chief financial officer [see “Norfolk Southern names new chief financial officer …,” News Wire, Sept. 25, 2024].