Norfolk Southern Corporation Q3 FY2025 earnings call

• Safety: Train accident and employee injury rates improving, continued emphasis on training. - Service: Network running well, terminal dwell and car velocity stable, fuel efficiency gains. - Productivity: Achieved GTMs increase with fewer resources, 19% reduction in recrews, 12% decrease in intermodal train starts, 5.5% merchandise carload growth. - Technology: Rapid deployment of field technology, new wheel integrity system installed, inspection portals deployed, machine vision advanced. - Cost control: On track to exceed expense reduction commitments, efficiency targets raised to $600 million cumulative by 2026.

Merchandise markets saw 6% volume growth, driven by auto, chemical, metals, and construction; intermodal volumes decreased 2% due to trade/tariff uncertainty and competitor responses; export coal markets had meaningful declines. Revenue was up 2% year-over-year, but short of expectations. Adjusted operating ratio was 63.3%, earning $3.30 per share. Land sales helped neutralize adverse impacts. Fuel efficiency was an all-time quarterly record of 1.01, a 5% year-over-year gain.

• Revenue continues to be challenged in the fourth quarter. - Expect fourth quarter cost in absolute dollars to be in the $2.0 billion to $2.1 billion range. - Maintaining cost structure in the $2 billion to $2.1 billion range. - Raising 2025 efficiency target to roughly $200 million, following nearly $300 million in 2024.

• Macro environment uncertainty leading to unpredictable demand and unique competitive dynamics causing abnormal fluctuations in top line. - Competitor reactions to merger announcement causing volume pressure, particularly in intermodal segment. - Claims expense elevated due to resolution of older claims and social inflation. - Uncertainty surrounding export coal prices and demand affecting revenue.

Q: Scott Group at Wolfe Research asked about business losses related to merger, impact on other segments and business at risk until merger closing.

A: Ed Elkins said it started at end of Q3, focused in Southeast, working to bring freight back.

Q: Brandon Oglenski at Barclays asked about managing cost structure with share loss and trade headwinds.

A: Mark George and John Orr discussed labor productivity, fuel efficiency, attacking purchase services, and cost reduction initiatives.

Q: Jonathan Chappell at Evercore ISI asked about coal RPU headwind persistence.

A: Ed Elkins said export met benchmark around 175, sequential stable but year-over-year double-digit down, likely to persist.

Q: Thomas Wadewitz at UBS asked about competitive responses in intermodal and network stickiness.

A: Mark George and Ed Elkins talked about NS's intermodal franchise, route structure, terminal network, and confidence in retaining business.

Q: Brian Ossenbeck at JPMorgan asked about competitive response details and fuel efficiency potential.

A: Ed Elkins and John Orr discussed NS's intermodal route and terminal advantages, and fuel efficiency strategy and potential.

Q: Chris Wetherbee at Wells Fargo asked about OR improvement and revenue dependence.

A: Mark George and Jason Zampi talked about focusing on controllables, labor productivity, fuel efficiency, and claims volatility.

Q: Richa Harnain at Deutsche Bank asked about revenue erosion from competitor reactions.

A: Ed Elkins and Mark George discussed intermodal revenue erosion being confined to domestic non-premium intermodal, competing on price and service.

Q: David Vernon at Bernstein asked about quarterly run rate of intermodal volume loss and risk of further volume loss.

A: Ed Elkins and Mark George said working to offer value, but volume loss is a headwind.

Q: Stephanie Moore at Jefferies asked about integration risks with UNP merger.

A: Mark George and John Orr talked about deliberate integration, learning from past lessons, and maintaining fundamentals.

Q: Bascome Majors at Susquehanna asked about competitive response bleeding into carload side and conversations with large industrial customers.

A: Ed Elkins said carload service is strong, relationships are good, and customers are confident.

Q: Jordan Alliger at Goldman Sachs asked about total yields and revenue per carload in fourth quarter.

A: Ed Elkins talked about pricing plan, mix headwinds, and automotive volume impact.