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July 28, 2022 12:22 PM, EDT

Norfolk Southern Posts Record Q2 Results

Norfolk Southern trainNorfolk Southern

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Norfolk Southern Corp. on July 27 posted record second-quarter financial results that beat the expectations of Wall Street analysts.

The Class I railroad said Q2 net income was flat versus year-ago levels, at $819 million. On a per-share basis, however, profit came in at $3.45 a share, compared with $3.28 per share in 2021. The per-share result outpaced by a penny the $3.44 average estimate of eight analysts surveyed by Zacks Investment Research.

Revenue for the quarter grew by 16% year-over-year to $3.25 billion, exceeding 2021’s $2.79 billion. At the halfway point of the year the railroad has generated $6.16 billion in revenue, compared with $5.43 billion a year ago.

2q2022 Earnings Release by Transport Topics

The revenue estimates also topped Wall Street forecasts; analysts surveyed by Zacks expected $3.14 billion.

“Thanks to the combined efforts of our team we delivered solid financial performance in the second quarter with record revenue and earnings per share,” Norfolk Southern CEO Alan Shaw said on a conference call with investors and analysts. “A 20% increase in revenue per unit more than offset a 3% volume decline. Expenses grew by 21% year-over-year due primarily to higher fuel prices.”

There are seven Class I freight railroads operating in the U.S., Mexico and Canada. To be considered a Class I operator, a carrier must produce an annual revenue of at least $504.8 million.

Atlanta-based Norfolk Southern said it is making slow, steady progress resolving ongoing service complaints from shippers and the leadership of the U.S. Surface Transportation Board, which earlier this year held two days of what it called emergency public hearings into the operation of not only Norfolk Southern but all freight carriers.

“Service is not yet where we want it to be, but I am encouraged by our progress and inspired by the commitment and shared vision of our talented team,” Shaw emphasized.

Like many railroads, Norfolk Southern is accelerating hiring after the COVID-19 pandemic forced it to cut staff. It also continues work on its goal of increasing efficiency by running longer trains with fewer employees under a process called precision scheduled railroading.

The company said it hired 988 conductor trainees in the second quarter, up 53% from the 647 trainees it had the first quarter, and up 737% from 118 in the second quarter of 2021. Through July, it had 895 conductor trainees. Norfolk Southern recently said it was boosting conductor trainee pay to $25 a hour.

The railroad’s qualified train and engine workforce was up fractionally from the first quarter to 6,966 compared with 6,947 in the first three months of 2022. However, through July 25, the qualified T&E workforce increased to 7,190.

“As we promote more of the conductor trainees currently in our pipeline, we will see additional highly productive crew starts that will support more volume and further increases to the record train size we have produced this year,” COO Cindy Sanborn said. “We’re maintaining a very strong pipeline of conductor trainees. And even more encouraging, as you can see that in July, we’re really making progress on getting those employees qualified more than offsetting ongoing attrition.”

The railroad’s operating ratio was 60.9, declining from 58.3 a year ago.

Operating ratio measures a company’s expenses as a percentage of revenue and determines efficiency. The lower the ratio, the more ability the company has to make a profit.

All seven of the railroad’s business divisions showed an increase in Q2 revenue year-over-year.

Agriculture, forest and consumer products saw an 8% increase to $624 million from $578 million in 2021.

Chemical shipments were up 12% to $552 million from $494 million.

Metals and construction notched upward 4% to $420 million from $402 million.

Automotive revenue showed a 25% year-over-year increase to $257 million from $206 million.

Merchandise revenue increased by 10% to $1.85 billion from $1.68 billion a year ago.

Intermodal revenue shot upward 21% to $972 million from $801 million.

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Coal revenue also showed a 34% increase year-over-year to $425 million from $318 million.

Earlier this month, President Joe Biden blocked a freight railroad strike that threatened to disrupt shipments of goods for at least 60 days by naming a board of arbitrators to intervene in an ongoing contract dispute and labor negotiations.

The group that represents Union Pacific, BNSF, CSX, Norfolk Southern, Kansas City Southern and other railroads and the unions have expressed optimism that this new presidential board will be able to help them resolve a dispute that began more than two years ago. A presidential board of arbitrators is now reviewing the status of the contract talks and could announce a decision by early to mid-August on a possible settlement.