NSC

• Core Strategic Priorities

  • Safety remains the foundational priority for the company, with consistent focus on improving safety outcomes for employees.
  • Maintain reliable, consistent customer service through disciplined operational execution.
  • Pursue strict cost control and productivity improvement to drive long-term shareholder value.
  • Grow the franchise by capturing new volume and pricing opportunities from positive market trends.

• Safety Performance

  • The personal injury index decreased 16% year-over-year in Q2; the overall accident rate decreased approximately 25% year-over-year. The mainline accident rate remained flat at a near best-in-class level.
  • The Mechanical department achieved two consecutive full months of injury-free operations, a significant company-wide milestone.

• Operational Progress

  • Winter network disruptions and unexpected volume surges created network pressure and variability earlier in the quarter, but targeted operational adjustments over the past six weeks have delivered tangible improvements. On-time originations have increased 20%, terminal dwell has decreased, and train velocity has risen as the network gets back to planned operations.
  • New COO Brian Barr (a long-tenured Norfolk Southern/Conrail veteran) is focused on improving execution of core railroading fundamentals: running to plan, aligning resources with demand, improving terminal performance, and eliminating unnecessary network variability, rather than overhauling existing operating strategy.

• Commercial Highlights

  • Overall total company volume increased 4% year-over-year, with growth catalyzed by global energy market volatility from the Iran conflict that spread to intermodal and industrial product markets. Even excluding fuel impacts, the company achieved record revenue in Q2.
  • The industrial development project pipeline (new manufacturing and facility expansion projects entering 2026 design/construction) is projected to be nearly double 2025's levels, with substantial incremental carload potential expected across multiple commodity groups.

• Financial Results

  • Adjusted Q2 operating ratio was 65.5 (210 basis points higher year-over-year), with 110 basis points of the increase driven by higher fuel prices and 190 basis points driven by broad inflationary pressures. Adjusted earnings per share was $3.52.
  • Despite cost headwinds, operating income increased 5% year-over-year, while net income and EPS both increased 7% year-over-year, beating the company's own expectations.
  • The company remains on track to deliver at least $150 million in cost takeout in 2026, reaching at least $650 million in cumulative three-year savings, exceeding the original target.

• Full-year 2026 operating expense guidance was updated from $8.2 billion to $8.4 billion to $8.8 billion to $8.9 billion, to account for $400 to $500 million in incremental fuel expenses compared to initial projections at the start of the year. Excluding fuel impacts, core operating costs are trending toward the higher end of the original range due to a stronger-than-expected volume outlook.
• Capital expenditure guidance for 2026 remains unchanged at approximately $1.9 billion, with continued disciplined investment in network safety, reliability, and capacity.
• For Q3 2026 sequential seasonality: management expects to outperform the typical 0 to 50 basis point operating ratio deterioration, forecasting results up to 100 basis points better than normal seasonal trends. Fuel price headwinds from Q2 will shift to a tailwind in Q3 (both year-over-year and sequentially), but this benefit will be partially offset by a 4% wage increase that took effect in July.

1. Merchandise: Volume increased 2% year-over-year; revenue less fuel hit a new record high.
2. Intermodal: Revenue less fuel increased 7% year-over-year, revenue per unit (RPU) less fuel increased 1% year-over-year. This marked the start of a positive shift in intermodal pricing. Volume growth was bolstered by favorable trucking market dynamics.
3. Coal: Volume increased 3% year-over-year, supported by ramp-up of new metallurgical coal export customers and new incremental thermal coal export opportunities from volatile global energy markets. RPU less fuel increased 1% year-over-year, with favorable seaborne coal pricing partially offset by negative commodity mix.

• Uncertainty remains around broader macroeconomic conditions, including the path of energy prices, consumer demand, and interest rates, which are categorized as key wild cards for future demand.
• Volatile global energy markets and growing renewable energy production create uncertainty for domestic utility coal demand in the second half of 2026.
• Tariff and trade uncertainty continues to weigh on international intermodal volumes.
• Ongoing network pressure from post-disruption recovery and unexpected volume surges created pockets of tight crew and resource availability earlier in the quarter, requiring targeted hiring to resolve.
• The proposed merger combination with Union Pacific remains subject to regulatory review and approval, with residual uncertainty around the timeline and outcome of the STB process.

Q: How will current tight trucking market conditions translate to pricing opportunities for Norfolk Southern's intermodal and merchandise segments? / A: Multiple market indicators have improved since the start of 2026, including six consecutive months of expansion in the ISM manufacturing index (the best post-Covid performance) and a recovering housing outlook. Outbound truck tender rejection rates are at multi-year highs (15% overall, 40% for flatbed, indicating strong construction demand), and elevated fuel prices further improve rail's cost competitiveness against trucking. Management is optimistic about both near-term volume growth and upcoming pricing improvements across key intermodal and merchandise markets.

Q: How much additional headcount and resources will be needed to achieve targeted service improvements, and what do margin trends look like for H2 2026? / A: Only targeted hiring in specific pockets of tight train and engine (T&E) crew resources is needed; system-wide, the network can absorb current volume without large-scale additional hiring, as natural attrition requires ongoing baseline hiring annually. Faster network velocity frees up existing crew and locomotive resources, reducing the need for incremental hires. For Q3 margins, fuel will shift from a Q2 headwind to a tailwind, but a 4% July wage increase will partially offset this benefit, with management expecting to deliver up to 100 basis points better operating ratio performance than typical seasonal trends.

Q: Why has RPU excluding fuel not seen stronger growth yet, and when can we expect pricing improvements to flow through to results? / A: Spot truck pricing has been rising for several months, and this upward pressure typically takes 3-6 months to flow through to longer-term contract pricing for both truck and rail. Over the past four years, Norfolk Southern has restructured its intermodal and customer contracts to be more responsive to spot market price shifts. As upward pricing pressure continues, management expects these contractual improvements to drive higher RPU through the end of 2026 and into 2027.