NORFOLK SOUTHERN CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: FRA reportable injury ratio improved, safety metrics dramatically improved throughout 2024. The FRA reportable injury ratio increased from 1.1 to 1.15, with Q4 results improving 13% year-over-year, and December's ratio was the lowest since 2020.
• Operating Performance: PSR 2.0 approach delivering efficiency and service improvements. System speed improved 10%, intermodal train speed up 3.1%, merchandise and unit train speeds up 11% and 17% respectively. Cost discipline led to removing nearly $300 million of costs, adjusted operating ratio 65.8.
• Service Metrics: Strong service metrics, intermodal had a perfect peak season, handling 7% more parcel volume per day with zero controllable failures.

Segment Performance

• Intermodal: Volume increased 5% year-over-year. RPU less fuel was up, with gains in domestic and international through sales pipeline wins.
• Merchandise: Volume improved slightly from higher soybean and corn shipments, achieved record revenue, RPU less fuel for full year 2024.
• Coal: Volume decreased 1%, revenue down 9% due to low natural gas prices and seaborne prices.

Guidance

• Expected 3% revenue growth with positive volume and core pricing offsetting fuel and coal headwinds.
• Target to exceed $150 million cost takeout in 2025, with CAPEX in the $2.2 billion range.
• Balance sheet restoration complete in 2025 allowing resumption of share repurchases.

Risks

• Uncertainty from new tariffs affecting various markets.
• Soft demand for utility coal due to low natural gas prices and elevated inventory levels.
• Impact of port stoppages and variability in volume flows.

Q: Chris Wetherbee with Wells Fargo asked about productivity and long-term OR potential.

A: Mark George and John Orr discussed productivity buckets, including asset utilization, labor efficiency, and cost reductions across various expense lines.

Q: Scott Group with Wolfe Research asked about revenue mix and labor productivity.

A: Ed Elkins and Jason Zampi talked about revenue mix being a combination of volume and pricing, and labor productivity opportunities in 2025.

Q: Ken Hoexter with Bank of America asked about volume growth, buyback cadence, and the Need for Speed war room.

A: Ed Elkins, Jason Zampi, and John Orr responded on revenue growth being a mix of volume and pricing, plans to resume share repurchases, and the fast-paced nature of the Need for Speed war room.

Q: Brian Ossenbeck with J.P. Morgan asked about pricing to service value and market share recapture.

A: Ed Elkins and Mark George discussed that good service provides leverage for both pricing and volume share recapture.

Q: Thomas Wadewitz with UBS asked about chemicals market growth and new business wins.

A: Ed Elkins and John Orr talked about focusing on delivering value in the chemicals segment, agility in the network, and intermodal leading growth.

Q: Brandon Oglenski with Barclays asked about the new operating plan.

A: John Orr explained the new operating plan focuses on tightening standards, connection standards, and right-sizing the fleet for better productivity.

Q: Walter Spracklin with RBC Capital Markets asked about OR improvement pace and holding back factors.

A: John Orr and Mark George stated they are not holding back, with no structural constraints, and are focused on continuous improvement.

Q: Jason Seidl with TD Cowen asked about intermodal performance and seasonal progression.

A: John Orr and Ed Elkins discussed intermodal velocity improvements, resilience in responding to challenges, and seasonal progression of volumes.

Q: Joseph Hafling with Jefferies asked about mechanical infrastructure and fuel efficiency gains.

A: John Orr and Jason Zampi talked about efforts in fuel efficiency, locomotive productivity, and mechanical process improvements.

Q: Bascome Majors with Susquehanna asked about Board dynamics.

A: Mark George stated the Board is unified and supportive, focusing on supporting management's journey.

Q: Ravi Shanker with Morgan Stanley asked about tariff headwinds and volume.

A: Mark George and Ed Elkins discussed network nimbleness to adjust to trade policy changes, with most business tied to domestic economy.

Q: Daniel Imbro with Stephens asked about coal outlook and new contract.

A: Mark R. George and John Orr talked about coal price headwinds and new contract volume expected in the second quarter.

Q: David Vernon with Bernstein asked about coal RPU and OR improvement seasonality.

A: Claude E. Elkins and Jason Zampi discussed coal RPU headwinds and the timing of OR improvements considering various factors.

Q: Ariel Rosa with Citigroup asked about port stoppages and volume pull forward.

A: Ed Elkins and John Orr discussed handling port stoppages with minimal additional resources and smooth volume flow.

Q: Jordan Alliger with Goldman Sachs asked about industrial development and timing.

A: Mark George mentioned a robust pipeline of industrial development projects with incremental carloads manifesting throughout 2025