Norfolk Southern Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied filing text does not provide a separate fourth-quarter results summary. Norfolk Southern operates a freight railroad across 22 states and the District of Columbia, with approximately 19,100 route miles.
Key financial results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Railway operating revenue | $12.745 billion | $11.142 billion | +14% |
| Railway operating expenses | $7.936 billion | $6.695 billion | +19% |
| Income from railway operations | $4.809 billion | $4.447 billion | +8% |
| Net income | $3.270 billion | $3.005 billion | +9% |
| Diluted earnings per share | $13.88 | $12.11 | +15% |
| Railway operating ratio | 62.3% | 60.1% | Up 2.2 percentage points |
| Operating cash flow | $4.222 billion | $4.255 billion | Down $33 million |
| Property additions | $1.948 billion | $1.470 billion | Up $478 million |
Revenue growth reflected higher fuel-surcharge revenue, pricing gains and improved mix, partly offset by lower volumes. Merchandise revenue was $7.331 billion, intermodal $3.681 billion and coal $1.733 billion. Total units declined 3%; intermodal units fell 5%, while coal tons rose 4%.
Fuel expense rose 83% to $1.459 billion, principally reflecting an 87% increase in locomotive fuel prices. Compensation and benefits increased 7%, and purchased services and rents increased 11%. The higher expense growth than revenue growth widened the operating ratio and moderated operating-income growth.
Financial position and liquidity
- Cash and cash equivalents were $456 million at year-end, down from $839 million. Working capital was negative $642 million.
- Total debt was $15.182 billion, including current maturities and short-term debt; the debt-to-total-capitalization ratio increased to 54.4% from 50.4%.
- The company reported $4.222 billion of operating cash flow and used $3.002 billion in financing activities, including $3.110 billion for share repurchases and $1.167 billion for dividends.
- Available liquidity included $300 million of capacity under the accounts-receivable securitization program and an undrawn $800 million revolving credit facility. Management stated that cash, operating cash flow, borrowing capacity and access to financing should be sufficient for ongoing obligations.
Material changes, outlook and notable items
- Management said 2023 revenue growth would be challenging amid economic uncertainty, lower expected fuel prices, softer coal pricing and declining storage charges. It aims to pursue pricing gains and recapture truck-competitive freight; no full-year earnings or revenue guidance was provided in the supplied text.
- For 2023, the company expected an effective tax rate of 23%–24% and property additions of approximately $2.1 billion.
- 2022 net income included a $136 million deferred tax benefit from Pennsylvania’s enacted corporate tax-rate reduction, increasing diluted EPS by $0.58. Finalized labor agreements generated prior-period compensation expenses that reduced diluted EPS by $0.18.
- All twelve craft unions had agreements ratified or enacted by December 2022. Approximately 80% of railroad employees are union-covered; mandatory bargaining on new proposals cannot be compelled before November 1, 2024.
- The company agreed to buy approximately 337 miles of the Cincinnati Southern Railway for about $1.6 billion, subject to required legal changes, voter approval and Surface Transportation Board approval. The transaction had not closed as of the filing.
- Environmental liabilities were $66 million at year-end, versus $49 million a year earlier. Management considered known environmental matters unlikely to have a material adverse effect, while noting that undiscovered sites and changing remediation costs create uncertainty.
- Key risks include hazardous-material accidents and potentially uninsured losses, service and capacity constraints, labor availability and costs, inflation and fuel-price volatility, competition, cybersecurity disruption, severe weather, regulation, and litigation. A terminal-railroad lawsuit had remaining state equitable-relief claims; the company said potential loss could not be reasonably estimated.
- The 2022 statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting. The auditor identified capitalization of property expenditures as a critical audit matter.
Most important facts for investors to verify
- Whether service reliability, network fluidity and volume trends improve, particularly in intermodal and merchandise traffic.
- How fuel prices, fuel surcharges, inflation, labor costs and claims expenses affect operating ratio and margins.
- Whether the stated 2023 tax-rate and capital-spending expectations materialize, and whether revenue headwinds are offset by pricing and freight recapture.
- Debt maturities, refinancing needs, liquidity and the balance between capital investment, dividends and share repurchases.
- Approvals, timing, financing and final economics of the proposed Cincinnati Southern Railway purchase.
- Developments in environmental liabilities, casualty claims, litigation and insurance availability, especially for catastrophic hazardous-material events.