Norfolk Southern Corporation — Q1 2024 Form 10-Q
Reporting period: First quarter ended March 31, 2024. Norfolk Southern operates a freight railroad across 22 states and the District of Columbia. Financial amounts below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Railway operating revenues | $3,004 | $3,132 | (4%) |
| Railway operating expenses | $2,791 | $2,421 | 15% |
| Income from railway operations | $213 | $711 | (70%) |
| Net income | $53 | $466 | (89%) |
| Diluted EPS | $0.23 | $2.04 | (89%) |
| Railway operating ratio | 92.9% | 77.3% | Higher by 15.6 percentage points |
| Operating cash flow | $839 | $1,173 | Down $334 |
Q1 2024 results included $592 million of Eastern Ohio incident expense and $99 million of restructuring and other charges. On the company’s non-GAAP adjusted basis, railway operating income was $904 million versus $1,098 million, net income was $565 million versus $759 million, diluted EPS was $2.49 versus $3.32, and the operating ratio was 69.9% versus 64.9%. These company-defined adjustments exclude specified incident, restructuring, shareholder advisory and tax items; they are supplemental, not GAAP measures.
Revenue by major group: merchandise $1,863 million (down 1%), intermodal $745 million (down 8%), and coal $396 million (down 10%). Total units rose 4%, but average revenue per unit declined 8%, reflecting lower fuel surcharge revenue, pricing and mix. Fuel surcharge revenue was $260 million versus $375 million. Compensation, purchased services and depreciation increased; lower fuel expense partly offset those increases.
Cash, debt and liquidity
- Cash and cash equivalents were $652 million at March 31, down from $1,568 million at year-end. Working capital was negative $1.1 billion, compared with positive $639 million at December 31.
- Operating cash flow was $839 million; investing cash outflow was $1,844 million, including $1,642 million paid during the quarter for the Cincinnati Southern Railway asset acquisition. Financing provided $89 million. Cash declined by $916 million during the quarter.
- At March 31, short-term debt was $400 million and long-term debt was $17,179 million, with $4 million of current maturities. The company reported a debt-to-total-capitalization ratio of 58.4%, versus 57.3% at year-end.
- The $400 million accounts-receivable securitization facility was fully drawn at quarter-end and was scheduled to expire in May 2024; the company repaid $150 million on April 15. The company also had an undrawn $800 million credit agreement through January 2029 and an undrawn $1.0 billion delayed-draw term loan facility, scheduled to expire in July 2024 if unused. It reported compliance with credit-agreement covenants.
- Quarterly dividends were $1.35 per share, totaling $305 million. No shares were repurchased under the repurchase program during the quarter.
Material developments, outlook and risks
- Eastern Ohio incident: The company reported $1.7 billion in cumulative incident expenses since the February 2023 derailment, including $209 million of recognized insurance recoveries. Incident-related accruals for probable and estimable liabilities were reported at $939 million at March 31. Separately, the filing disclosed $292 million of environmental liabilities and $676 million of non-environmental incident lawsuit liabilities; the disclosed figures do not reconcile to the stated aggregate in the filing text.
- On April 9, 2024, after quarter-end, the company announced an agreement in principle to settle the Ohio class action for $600 million, subject to final written terms and court approval. The settlement would resolve specified class claims; third-party claims are preserved. Payments could begin by year-end if approved. The company said losses beyond recorded amounts may be material and that it cannot currently estimate a potential excess loss range.
- The NTSB and FRA investigations remain ongoing. Potential fines, penalties or other outcomes are uncertain; the company stated its incident accruals do not include estimates for certain unresolved fines, penalties or settlements. Insurance coverage is disputed or subject to insurers’ review, and unrecognized potential recoveries have not been recorded.
- The company expects 2024 revenue to be higher than 2023, driven by increased volume. It did not provide specific EPS or margin guidance in the supplied filing text. Management cited lower fuel surcharge revenue, adverse traffic mix, pricing pressure, inflation, increased headcount and volume-related costs as factors affecting results.
- A workforce-reduction program is expected to separate approximately 350 nonagreement employees by May 2024. Q1 restructuring and other charges included $64 million for separation programs and $35 million related to the new COO’s appointment. A postretirement-benefit curtailment gain is expected in Q2 2024.
- Approximately 80% of railroad employees are covered by collective bargaining agreements; neither party can compel mandatory bargaining on new proposals before November 1, 2024.
Key facts for investors to verify
- Whether the $600 million Ohio class-action settlement receives court approval, when payments begin, and whether related claims or litigation lead to additional material costs.
- Changes in incident accruals, environmental remediation estimates, insurance recoveries and the outcomes of regulatory investigations.
- Whether revenue growth from higher volumes offsets weaker revenue per unit, lower fuel surcharges and adverse traffic mix.
- Liquidity and refinancing developments, including the securitization facility’s May 2024 expiry, the post-quarter $150 million repayment and the undrawn term-loan facility’s July 2024 expiry.
- The reported incident-accrual total of $939 million versus the separately disclosed $292 million environmental and $676 million non-environmental liabilities.