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Norfolk Southern Corp. followed the trend of Class 1 railroads reporting record operating ratios, but net income and revenue dropped in the third quarter.
Net income declined 6%, to $657 million, or $2.49 a share, from $702 million, or $2.51, last year. Third-quarter revenue dropped 4%, to $2.84 billion from $2.94 billion in 2018.
Norfolk Southern $NSC remains fully dedicated to our strategic plan for the creation of shareholder value through sweeping productivity improvements while maintaining a superior service product for our customers.-James A. Squires, chairman, president & CEO https://t.co/BCbjVyu9aP— Norfolk Southern (@nscorp) October 23, 2019
The Atlanta-based railroad’s freight volume dropped by 6%, with coal shipments showing a huge fall-off, as more electric power plants shift away from coal, especially along the East Coast and Midwest, where Norfolk Southern operates.
Operating ratio set a third-quarter record of 64.9, an improvement from 65.4 in the third quarter of 2018. Operating ratio, or operating expenses as a percentage of revenue, is a key industry metric used to measure efficiency. The lower the ratio, the greater the company’s ability to generate profit.
Norfolk Southern calls its efficiency program TOP21, which is based on the principles of precision scheduled railroading.
“Our team achieved a record third-quarter operating ratio while successfully rolling out the first phase of our TOP21 operating plan, followed by the swift transition to the plan’s second phase,” CEO James Squires said. “These efforts produced an 11% reduction in crew starts and re-crews compared to the third quarter last year, robustly outpacing the 6% volume decline while maintaining resilient service that supported an 11th consecutive quarter of year-over-year revenue per unit growth.
“Additional productivity will be generated as we advance to the third phase of TOP21 and execute initiatives surrounding fuel efficiency, distributed power, intermodal operations and our mechanical network, just to name a few.”
Norfolk Southern’s operating expenses were $1.8 billion, a decrease of $82 million compared with 2018. Lower compensation and benefits, equipment rents and fuel prices were partially offset by a $32 million write-off from increased depreciation expenses and a legal dispute that impacted its operating ratio and earnings-per-share price.
Revenue was mixed across the company. Coal revenue nosedived 12%, to $403 million from $464 million in 2018. Chemicals remained flat at $481 million, identical to the amount generated in the third quarter of 2018.
Agriculture products revenue increased 2%, to $394 million from $388 million. Metals and construction items fell 2%, to $391 million from $401 million last year. Automotive income was up 1%, to $247 million from $245 million. Forest and consumer products dipped 2%, to $218 million from $222 million. Intermodal dropped 5%, to $707 million from $746 million. Merchandise remained flat year-over-year at $1.73 billion.
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