Norfolk Southern Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter report. Norfolk Southern operates a freight railroad across 22 states and the District of Columbia, with approximately 19,100 route miles.
Financial and operating results
| Metric | 2023 | 2022 |
|---|---|---|
| Railway operating revenue | $12.156 billion | $12.745 billion |
| Income from railway operations | $2.851 billion | $4.809 billion |
| Net income | $1.827 billion | $3.270 billion |
| Diluted earnings per share | $8.02 | $13.88 |
| Railway operating ratio | 76.5% | 62.3% |
| Cash from operating activities | $3.179 billion | $4.222 billion |
| Property additions | $2.349 billion | $1.948 billion |
Revenue fell 5% year over year. Merchandise revenue was approximately flat at $7.353 billion; intermodal revenue declined 16% to $3.090 billion; and coal revenue declined 1% to $1.713 billion. Total units were down 1%. Management attributed the revenue decrease mainly to lower fuel surcharge and intermodal storage revenue, reduced volumes, and weaker average revenue per unit, partly offset by pricing and mix.
Railway operating expenses rose 17% to $9.305 billion, including $1.116 billion of Eastern Ohio Incident expense, reported net of $101 million in insurance recoveries. Excluding the Incident, the company reported non-GAAP income from railway operations of $3.967 billion, net income of $2.673 billion, diluted EPS of $11.74, and an operating ratio of 67.4%. These adjusted figures are supplemental, non-GAAP measures.
The effective tax rate was 21.3%, versus 20.8% in 2022. The prior year included a $136 million deferred tax benefit from a Pennsylvania tax-rate change.
Liquidity, debt, and capital
- Cash and cash equivalents were $1.568 billion at year-end, compared with $456 million a year earlier. Working capital was $639 million, versus negative $642 million.
- Total debt, including current maturities and short-term debt, was approximately $17.179 billion, compared with $15.182 billion in 2022. Debt-to-total capitalization increased to 57.3% from 54.4%. The company reported no outstanding debt subject to floating interest rates at year-end.
- Operating cash flow of $3.179 billion less $2.349 billion of property additions leaves approximately $830 million before other investing and financing flows; this is a simple calculation, not a company-reported free-cash-flow measure.
- Dividends paid were $1.225 billion; share repurchases were $622 million. The board’s repurchase authorization had $6.9 billion remaining at year-end.
- In 2024, the company expects property additions of approximately $2.3 billion, excluding the Cincinnati Southern Railway (CSR) purchase. The approximately $1.7 billion purchase of the 337-mile Cincinnati–Chattanooga line was scheduled to close March 15, 2024.
Material changes and management outlook
- The February 3, 2023 East Palestine, Ohio derailment materially affected 2023 results. Revenue and operating performance also faced lower volumes and non-Incident cost increases from inflation, operational-resiliency investment, and service-related costs. Lower fuel prices partly offset expense pressures.
- Management expects 2024 revenue to increase modestly, driven by higher volumes, and forecasts an effective tax rate of 23%–24%. No earnings or EPS guidance is provided in the supplied filing text.
- Cash provided by operations declined from 2022, mainly reflecting lower operating results. Management stated that cash on hand and operating cash flows, together with borrowing capacity and other financial flexibility, should be sufficient for ongoing obligations.
Risks, contingencies, and unusual items
- East Palestine Incident: The company recorded $1.116 billion of 2023 expense and ended the year with $464 million of related liabilities, principally for environmental matters and legal proceedings. It paid $652 million of Incident costs net of insurance proceeds during the year. The company says additional losses may be material; it cannot estimate a possible loss range above accrued amounts for specified proceedings and matters.
- Environmental cleanup, government oversight, class actions, other claims, investigations, and possible fines or penalties remain unresolved. Some potential healthcare-fund costs and certain penalties were not accrued because they were not considered probable or reasonably estimable. Insurance coverage is disputed in some respects; further recoveries are uncertain.
- The NTSB investigation remained ongoing; its preliminary report cited a wheel bearing apparently in final-stage overheating before the derailment. The FRA investigation also remained ongoing. The final NTSB report was expected in 2024.
- Other key risks include rail safety and hazardous-material incidents, regulation, environmental liabilities, litigation, cybersecurity and technology disruption, labor and staffing, competition, fuel and supply constraints, severe weather, and economic conditions.
- Approximately 80% of railroad employees are covered by collective bargaining agreements. The latest national bargaining round concluded in December 2022; neither party could compel mandatory bargaining on new proposals until November 1, 2024.
Investor facts to verify
- Track Incident accruals, cash spending, insurance recoveries, cleanup progress, and developments in lawsuits and regulatory proceedings; outcomes and potential additional losses remain uncertain.
- Monitor operating-ratio recovery, volumes, intermodal performance, and the extent to which pricing offsets fuel-surcharge and demand changes.
- Assess debt growth, maturities, interest costs, and the funding and completion of the approximately $1.7 billion CSR transaction.
- Compare actual 2024 revenue, capital spending, and tax rate with management’s stated expectations.
- KPMG issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of December 31, 2023; management also reported effective controls.