• Volume Growth: 3% increase in volume for Q4 2024.
• Revenue ex Fuel: 2% increase in Q4 2024.
• Cost Reduction: Nearly $300 million removed, exceeding the $250 million target.
• Adjusted Operating Ratio: Ended at 65.8% for Q4 2024.
• Second Half Operating Ratio: 64.1%.
• Intermodal Volume Growth: 5% year-over-year increase.
• Merchandise Volume: Slight improvement with record RPU less fuel.
• Coal Volume: Decreased by 1% with a 9% decline in revenue.
• Full Year Volume Growth: 5% increase for 2024.
• Full Year Revenue: Flat due to $261 million fuel headwinds.
• Insurance Recoveries: $650 million in 2024 related to Eastern Ohio incident.
• Operating Ratio Improvement: 390 basis points year-over-year.
• Expense Decline: $153 million year-over-year improvement.
• CapEx Guidance: $2.2 billion for 2025.

• Warning! GuruFocus has detected 4 Warning Signs with PMMAF.

Release Date: January 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Norfolk Southern Corp (NYSE:NSC) achieved a 3% increase in volume and a 2% increase in revenue excluding fuel in Q4 2024, demonstrating strong operational performance.
• The company exceeded its cost reduction target by removing nearly $300 million in costs, surpassing the initial $250 million goal.
• Safety metrics improved significantly, with a 27% reduction in FRA train accident rate and a 13% improvement in FRA reportable injury ratio in Q4 2024.
• NSC's PSR 2.0 approach led to a 10% improvement in system speed and significant gains in merchandise and unit train speeds, enhancing network efficiency.
• The company is entering 2025 with strong momentum, planning for 3% revenue growth and further productivity improvements, aiming for a 150 basis points margin expansion.

Negative Points

• NSC faced revenue headwinds due to lower fuel surcharge revenue and negative mix within the portfolio, impacting total revenue and RPU.
• The coal segment experienced a 1% volume decrease and a 9% decline in revenue, driven by reduced burn demand and lower seaborne prices.
• Despite strong operational improvements, NSC still faces significant headwinds from inflation, fuel prices, and depreciation, impacting operating ratio.
• The company anticipates potential challenges from new tariffs, which could introduce uncertainty in various markets.
• NSC's intermodal segment continues to face market headwinds with low truck prices affecting domestic intermodal rates.

Q & A Highlights

Q: Can you break down the $150 million productivity target for 2025 and discuss the potential for operating ratio (OR) improvements over the next few years? A: Mark George, CFO, explained that Norfolk Southern exceeded its 2024 productivity target and is confident in surpassing the 2025 target. The company aims for a long-term OR improvement of 100 to 150 basis points annually, with a potential path to a 60% OR as economic conditions improve. John Orr, COO, added that improvements will come from increased asset utilization, network infrastructure optimization, and aligning headcount with growth.

Q: How should we think about the mix of volume versus yield in the 3% revenue growth forecast for 2025? A: Claude Elkins, CMO, stated that most markets are expected to grow, with coal being a notable exception. The company anticipates volume growth and pricing strategies to offset headwinds from fuel and coal prices. Jason Zampi, CFO, added that labor productivity improvements will continue across all operating ranks.

Q: What is the outlook for share repurchases in 2025? A: Jason Zampi, CFO, mentioned that Norfolk Southern has rebuilt its balance sheet and plans to resume share repurchases at a measured pace in 2025. The company prioritizes investing in the business, paying dividends, and then conducting share buybacks as part of its value creation framework.

Q: How does Norfolk Southern plan to capture market share and improve pricing with better service? A: Claude Elkins, CMO, emphasized the focus on expanding wallet share with existing and adjacent customers by delivering reliable service. The company has been successful in recognizing the value of its service through pricing, particularly in merchandise markets, and aims to continue this trend.

Q: Can you elaborate on the changes to the operating plan and the expected benefits? A: John Orr, COO, described the new operating plan as a continuous improvement initiative focusing on tightening standards, increasing train weights, and enhancing network competitiveness. The plan aims to improve asset utilization, reduce fleet size, and enhance productivity, ultimately leading to cost savings and efficiency gains.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.