Norfolk Southern Corporation Q4 FY2025 earnings call

• Recognized Thoroughbred team for resilience in 2025. Q4 volume softer but costs in line with guidance. Full year 2025 had challenges but operating foundation held. Safety improved with FRA reportable injury ratio up 15%, reportable accidents up 31%, zero reportable mainline derailments in Q4. PSR 2.0 transformation delivered productivity gains like train load up 4%, horsepower per ton down nearly 10%, fuel efficiency up 4%, GTMs per crew start up 2.5%. New wheel integrity system identified manufacturing defect leading to industry recall. 2025 cost takeout $216 million, raised 2026 cost takeout commitment to $150 million. Intensifying efforts to lower dwell and apply zero-based terminal methodology. Market outlook for merchandise mixed, intermodal restrained, coal with utility demand elevated but seaborne prices pressured.

Merchandise led the way with volume up 1% from a year ago driven by auto and chemicals markets; merchandise revenue less fuel grew 2% year over year. Intermodal volume was down 7% with revenue down 6% due to shifting market conditions. Coal volume was up 1% but revenue was down 11% as seaborne coal prices dropped. Full year 2025 saw merchandise revenue less fuel grow $287 million or 4% through volume growth and pricing discipline, intermodal revenue flat, seaborne coal market weakness drove $108 million decline, and volatile fuel surcharge revenue was a drag. Adjusted operating ratio for Q4 was 65.3, EPS was $3.22. Full year 2025 had favorable performance across metrics but revenue didn't grow as projected, with good cost discipline and exceeded productivity targets by over $65 million.

• Expect cost base in 2026 to be $8.2 billion to $8.4 billion, able to accommodate various volume growth scenarios. Reduce capital spending by nearly $300 million to $1.9 billion. Absorbing about a point of revenue headwind from enhanced competition. Prioritizing safety, service, and cost control. Working with UP to submit augmented application to STB for merger, committed to regulatory review and benefits of the merger.

• Uncertainty around tariff policies and macroeconomic environment. Impact of competitor responses to the merger on volume and revenue. Volatility in coal prices, especially seaborne. Risks associated with the STB review process for the merger, including potential incomplete application and uncertainty around approval. Inflationary pressures on wages, materials, and depreciation affecting costs.

Q: How is thinking about volume and strategy given weak freight backdrop and competitive environment?

A: Tough demand environment, swallowing a point of revenue headwind from competition. Focus on maintaining cost within guidance range, fighting for revenue in merchandise with momentum, intermodal sluggish, coal near term soft.

Q: Reply to competitors' views on merger not enhancing rail-to-rail competition?

A: Competing railroads' positions based on misinformation, merger enhances competition by giving customers more options, competitors' arguments inconsistent.

Q: Bleeding of freight and steps to stem tide?

A: Lap impact of September events, fighting for revenue with new services like Louisville and Air, Massachusetts services.

Q: OpEx guidance and year-over-year earnings growth?

A: OpEx driven by inflation, land sales, and productivity. Expect inflation higher than CPI, targeting more productivity, but OpEx has leakage. Year-over-year earnings growth depends on volume outcomes and productivity.

Q: Retention expense and STB reciprocal switching impact?

A: Retention expense excluded from non-GAAP guide. Reciprocal switching proposed rulemaking not a concern as company focuses on great service.

Q: Productivity gains and truck to rail conversion?

A: Productivity gains from moving more GTMs with fewer employees, land sales excluded from productivity. Truck competitive lanes help over time but recovery needs demand-led growth.

Q: Coal pricing outlook and decoupling?

A: Seaborne coal prices pressured, benchmark price had uptick but forwards still declining, decoupling due to global market dynamics.