Norfolk Southern’s Q2 2017 Earnings Review: Volume Growth And Productivity Improvement Initiatives Drive Earnings Growth

July 27th, 2017 by Trefis Team
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Norfolk Southern

Norfolk Southern reported a sharp increase in its second quarter earnings driven by top line growth and the success of the company’s ongoing productivity improvement initiatives.

Coal and intermodal shipments drove the growth in Norfolk Southern’s shipment volumes. The demand for coal from utilities has risen considerably amid rising natural gas prices. In addition, market share gains for Norfolk Southern further boosted the company’s coal shipments, which reported a 27% year-over-year increase in Q2 2017. [1] Improving economic conditions and highway to rail conversions (shifting freight transportation from trucks to rail) drove a 6% growth in the company’s intermodal shipments. [1]

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Besides an increase in shipment volumes, the company continued to make progress towards its target of $100 million productivity savings for the year. [2] Fleet rationalization (the company has lowered its locomotive fleet by 150 units this year) and the closure of ancillary infrastructure such as hump yards consistent with a smaller fleet, workforce rationalization, the increasingly fuel efficiency of operations, and network optimization have helped the company manage operating expenses, translating into a 230 basis point year-over-year improvement in its operating ratio. [2]

Going forward, the company plans to maintain its thrust on improving productivity in order to complement top line growth. The management plans to achieve an operating ratio of 65% by 2020. [2] Given the favorable prevailing business environment and the continued emphasis on productivity improvement, Norfolk Southern is set to report strong results in the coming quarters.

Have more questions about Norfolk Southern? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Norfolk Southern

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Notes:
  1. Norfolk Southern’s Q2 2017 10-Q, SEC [↩] [↩]
  2. Norfolk Southern’s Q2 2017 Earnings Call Transcript, Seeking Alpha [↩] [↩] [↩]