NSC - Earnings call transcript Q3 2019 | Norfolk Southern Corporation

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Operator

Greetings, and welcome to the Norfolk Southern Corporation Third Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Pete Sharbel, Director of Investor Relations. Thank you, Mr. Sharbel, you may begin.

Pete Sharbel

good and Melissa, you, morning. Thank

differ please along Before annual risks we risks and during results. may call, quarterly the our reports The that make we our with the and refer slides certain our and to begin, may subject forward-looking today's with those discussion presenters the are Investors website actual note statements, to from view we materially filed uncertainties are Please full a uncertainties SEC on at of in norfolksouthern.com as section, for available reconciliation. of and most non-GAAP which important.

Additionally, will downloads be the call. a transcript posted and after

pleasure CEO, introduce it's Southern's Chairman, to Jim my Squires. President and Now, Norfolk

Jim Squires

everyone, morning welcome Southern's and Third Call. Good Norfolk to Quarter Earnings XXXX

Marketing Chief Officer; Chief Shaw, Alan Mike Cindy Chief Officer; are today Officer. me Financial Operating Earhart, and Wheeler, Joining

Turning was from for to for Income $XXX include $XX dispute, of of a was approximately EPS resulting third income XXX a and million billion and to which write-off unfavorable legal from impact These XXX million, basis improved the operations OR quarter. $X.XX. was our by , ratio the XX.X%. net points receivable results $X affected a EPS the the financial results operating

creating transportation in record since, X, volumes sector, in record months these year, of sharply As half this highlighted on all the Slide and the results third including market second volumes, In particularly year-to-date we a value including lower. were plan, turned of dynamic capable operating across TOPXX, a outlined quarter conditions. year, Earlier OR. the this our flexible new

achieved productivity major team our TOPXX, In response, leveraging on down and resource reductions. doubled

the starts rate third by quarter, increased was year-over-year. decline, levels. decrease a For example, X% of driving nearly XX% employment and in double the reduced That we crew the volume in

local and trains and of on trains TOPXX, into of to intermodal wherever feasible. additional deployment of includes which refinement phase Phase unit our blending Following power long moved swiftly trains II, trains, we guarding of first the distributed existing

And Clean the producing the These our we've the level terminals begun a efforts to intermodal formula reductions circuity are sustaining network using starts, and in of while of service. for performance used network we crew miles. overhaul Sheeting successfully TOPXX preparing train carload further high third phase road and and

year, Cindy about Earlier spoke later by in momentum This commitment organization and in far the outcomes. to across our will I enhancing more building in commitment significant our the describe detail so year, the expense financial which evidenced this is reduction and operational call.

continue costs the earlier seems revenue now in basis forecast be second With the expected in but year, unusual fourth of than less XXX improvement to likely some half the quarter, operating below our points. ratio improvement trending and that least expectations for we to full at our expect

XXXX of our we changes additional we can cost confident goal achieve Nevertheless, XX% remain future and structural through OR by a revenue growth.

are about in opportunities we of and savings will fuel, mechanical example, pursuing For shortly. which aspects Mike speak other operations

year-to-date the further will in service revenue-per-revenue to drive trends. trends of results evident and the third with in improvement minute. bottom about pricing in the And revenue-per-unit value with Alan we commensurate increases, continue those our a speak quarter with line and ton-mile

to at to Company committed our of value are creation. drive All shareholder Southern us transforming Norfolk

ideas As and who throughout Change. I've we embracing are before, new are organization for said Champions positioning the leaders

as and operating year. line possible customers, we this far ratio The our results to promised hard a and working customers shareholders. deliver as service levels what and $X.X to all safely and are the billion bottom to of lower growth, We for operate return efficiently and nearly Improved our so shareholders.

Alan. to over call the turn now I'll that, With

Alan Shaw

everyone. Jim, Thank morning you, and good

uncertainly the ratio pricing and volume negatively of continue despite productivity to gains, third during delivering to conditions. the our record generating pricing we quarter, our service continued focus operating environment, truck third Trade impacted spot which a and lower coupled quarter. the with on influence product commodity quarter value the difficult economic In economic

improvement through productivity, our platform collaborating to cycle price, the margin maintain we service growth. by have for with headwinds As customers driven while associated and with the our market, and provide on focus we a will

As our shown to consecutive for the X% in on has in a per highlights RPU delivery quarter. effectiveness revenue a volume Slide growth partially X, of decline decline consistent improved volume X% offset A pricing year-over-year the which strategy. revenue the decrease. Increased of XX led unit, quarters,

steel while our the in differentials offset shipments, gains East was segment flat in Volume refineries. price continued resulting drove as volume merchandise pricing in and reduced year-over-year, revenue quarter Coast favorable strength gas fuel Third natural oil, X% from declines. declined crude

international increased quarter, with steamship improved lines volume the and of we aggregates as declined Strong result respectively. and X% auto to [indiscernible] in franchise. production reduced a and plants experienced volume year-over-year. ports shifts our During Coast relationships produced growth service due the Intermodal growth at domestic East automotive at revenue in share

pricing by negative revenue. lower lower arc flat truck environment. a due and of increases declined international the increased was quarter offset intermodal spot Intermodal were impact fuel the manufacturing yield pricing Domestic to surcharge as mix of in weakened and volume

revenue in Turning to down was the XX% third coal, quarter.

thermal drove coals Our utility at pricing low difficult of globally. X%. was it increase to burn. revenue-per-unit making by capacity our U.S. impacted compete and for Improved gas prices metallurgical and prices that natural suppressed levels, portfolio additional Export coal remain

X. to Moving Slide

We impact to keeping capacity for tariff commodity will of excess to rates exports. manufacturing and rest markets, Lower negatively our pricing investment, expect factors with XXXX weakness the affecting truck low. are expected flat to spot including coal business loadings fourth the of global many persist steel. be third continue in uncertainty quarter. and and influence conditions, same Macroeconomic volumes the quarter Truck

for on While we plan the economic remainder remain improvement. challenging environment the to year, a expect focused strategic of drive margin we our

service with customers growth our identify collaborating and to are our daily We opportunities. long-term fine-tune product

growth. meeting the customers' and plan pricing we profitable platform are efficiency our while establishing Our execution expectations to fully plan producing is the a strategic and and gains, for future committed of

to an operations. will for on over update turn Mike I it now

Mike Wheeler

you, Thank Alan.

update third strong the TOPXX, a on customers, TOPXX and quarter, will the on on creating state for progress and delivered our of II initiatives I our are with next implementing began of Today, plan. made Phase TOPXX the basis. rolling in the iteration we we In operations you efficiencies further our service

operational is momentum with driving significant Our accordance plan cost we and our savings dynamic flexing conditions. in are market

a We continue superior product providing while realizing efficiencies our to customers. service

X. to Moving Slide

to of laser the prudently precision focus eliminating achievements compared our speed while of and our customers' expectations quarterly performance. have We on continued year record managing railroading. strategy last costs delivered substantially dwell our scheduled improved These and and We support plan our and principles terminal train execution assets. to meet our

fourth continues quarter, resiliency to operation a by work bridge The recent operating through our the in with to This evidenced model. our be derailment, large shows resilient minimal incidents and chains. to strong outage major a disruption our of ability supply as two customer the

These by our to relentless their employees overall efficiency. unwavering results focus them. on are for and our due want service and to safety, team operations thank execution supporting other field We employees

measure and levels. Turning on plan to metrics as our they service productivity align our service metrics and Slide customer with These productivity strategic key XX.

the X% meet We dropping goals, our have in quarters, goals blue to GTMs XXXX. productivity with bars been resources prior our reducing the represent for by aggressively quarter. Consistent our account

drive availability consistency, to a of Starting scheduled our measures with third shipment customer-facing automotive XXXX. as and delivery Index, combines we continued is well trip is intermodal that shipments Service quarter Delivery the This for indexed expect adherence metric service Strong and plan the which on-time further performance performance general which to as merchandise the traffic. improvement. in

goal We XXXX. are we this for ahead productivity would trend And thought T&E of we anticipate trending will for where remainder continue the with year. of our the we be

having our at XX% providing third while exceptional service. are headcount reduced versus XXXX, still on quarter We lowest by T&E record,

of We plan. driving are benefits results the improvements, will comp speak. The which our benefit already are realizing the to Cindy and TOPXX

last TOPXX successfully the train are improving the was call, of plan we of on operating was back-end the The As implemented as on July weight. mentioned first our continuing phase goal work to our majority loaded, Xst. during

coal improvements with weights, Locomotive intermodal and seeing an headwinds productivity merchandise are NS. our We associated offset in metric continues were be for which train important general to volumes. by

our this are goal tracking to meet We for year.

same XX% the fleet, rationalizing is last We than which have our year. been locomotive lower period

initiative an wealth rationalize to a of XXX have of of positions reduction resources associated aggressive these others, already with the maintenance including also We year. this

required We resources will remaining size. focus lower to on this maintain continue the fleet to

storage, And which as consistent down can very fast the in is deployed trend continues This XX% Cars-On-Line, which versus XXXX to our be our positively. warrant. to cars includes product. conditions market service baseline, Thanks and

Turning XX. Slide on on progress operating our plan to our TOPXX

customers network, As as our execute terminals. you reduce may operate dependence has our frequently, objectives; operating between a four terminals, major on major plan one balanced train and plan recall, serve

Xst. focused and primarily general successfully automotive TOPXX was of on The implemented first phase bulk and our July merchandise business on

have drive further an aggressively phase, to which added train on the power implementing consolidations. been We next has distributed emphasis

increased have since number We day the two-and-a-half this by TOPXX per more DP the initiative trains times our with of expansion than rollout. of

will trains of continue improving efficiency. network, the the which and will have add We length to fuel DP benefit train across

we for improvement. several have efficiency, fuel Regarding other initiatives

compliance ensuring compliance of technology. a two, and energy with Specifically, one, management energy healthy with usage locomotive; horsepower-per-ton procedures; management three, lead

train are We and our local up plan. also the new syncing schedule

We improvements. and significant changes rolling basis structural these are implementing on a driving

miles Specifically, versus and down is train road auto total traffic XX%. for XX% merchandise general and circuity pre-TOPXX down are

to continuing calibrate good to velocity down our we to starts provide Together, local changes keeping while our plan Additionally, customer to crew these service to working service high. have efficiency while have customers. maximize continue drive helped been and

also of terminals remodels resource for which begun will drive phase Sheeting Clean the all our efficiency. additional fuel improve have TOPXX, preparing and the and intermodal cost our further We This for opportunities. reductions process third of and traffic

our to Cindy, financials. will now I who it turn will cover over

Cindy Earhart

Thank you, morning, everyone. Good Mike.

begin more plan and the plan, our Slide line. PSR-based from rents. as equipment to The results compensation lower savings through XX. making, delivering of in I'll strategic tangible the decline benefits savings is including The we are operating revenues. the offset implementation well continued execution that our structural prices generated in as are These and with fuel expense bottom operating than of changes flowing our results

earnings $XX in points, XXX we wrote off of a for a by from operations which and nearly $X.XX. basis added third quarter achieving basis lowered our receivable result operating to the reduced million quarter as a legal third share per However, a quarter we ratio XX dispute, the operating the XX.X%. third billion railway of record ratio was and by points Income quarter, $X

Slide XX. to Moving

decline We are the evident in in savings as million operating expenses. cost $XX delivering

resulted lower due recruit. and Our employee result million operating levels and savings on in $XX of network expense have declined a plans new in Compensation starts. and overtime to benefits reduced the reduced crew trains as and fewer a

down headcount headcount year. reduced from approximately X,XXX average by have employees drove XXXX and We by to compared quarter last last

the increasing the freight and By of utilization. asset $XX million. we need have locomotives savings improving for our fluidity, on equipment significantly network rental focused in velocity resulting reduced intensely remain also We improving of and cars,

million and write-off that previously We material gains was also to in due million that freight the and achieved the efficiency service cars offsetting expense fewer in of $XX the locomotives online. $XX delivered Partially quarter we I mentioned. savings

also experienced to pay We expense rates. increased due additional of million $XX

fuel to efficiency continues million lower area through Finally, decrease price consumption and fuel focus, the decline in $XX drove savings Fuel efficiency. opportunities know to of a be there in generate are an we and improved expense.

third record, items additional expense. from railway XX under results. an operations Slide last Income year's of summarizes added slightly was million our $XX non-operating and quarter

$X.XX. was million earnings share was Third quarter income net and $XXX diluted per

from year-to-date billion. free months cash for our activities and first nine flows $X.X the was XX. was Cash Recapping flow Slide $X on cash operating billion,

almost continue July. return for in announced and the billion dividend We first $X.X quarterly months. capital share Dividends as evidenced shareholders, in by X% increase the to totaled we to repurchases nine the

few As impact we year, will conclusion to of a fourth that highlight quarter. the the the specific towards items head want I

with quarter. reductions XXXX of starting time compared which to expect By year-end, headcount over expect last fourth is of we position we a First, to a year. reduction positions headcount, approximate the XX,XXX, continuation same in the

be the depend compensation magnitude our favorable year, incentive full-year prior but results. will to upon expect we over Also,

that incidents specific in mentioned expenses. will as fourth have incremental quarter earlier, Mike the there some result However, in been

additional associated due trains bridge in in derailment resulting additional future lighting and will expenses. large with a costs million outage approximate damage from expect a We to $XX

we year. associated the expect of gains last operating that be than will sales with Additionally, lower property

The included whereas, in one-third the quarter XX% execution properties operating You be recall, gains that. the $XXX plan fourth XXXX sale current on our million to strategic of we is quarter about expect of XXXX of by of and the even and full-year will our in of achieve this outset delivering in unforeseen year, of the goal XXXX. at face results are we confident of obstacles ratio improve operating the our we

benefits operating We are with new associated seeing the our plan.

further financial and produce actively and value. will are improved shareholder measures identifying drive results that We implementing

turn your the And for I'll back over attention. to you Thank call Jim.

Jim Squires

you, Thank Cindy.

continue initiatives and our quarter build goals of we've many As to and we by as the outlined, earlier well demonstrate, out pushing we set momentum third results beyond this executing planned year.

the are work cost mechanical phase and local yard consolidating and for preparing going third at fuel We road of and hard rightsizing in savings operations, TOPXX, after trains, further our operations.

pursuing team continues our that at edge of Norfolk it While the while to when our to customers, leading to in growth Southern superior efforts, of marketplace enabling the value these to all us positioned ensuring the provide price we are service returns.

operating XXXX. us reach a These ratio confidence, we will XX% give actions by

technologies in plans, Management thank here delivering Southern date in entire and and developing want at for Before the On team, Company to Company, role support and recognize she XX I her strategic our highly our I on value of shareholder Cindy for her Xst. Norfolk new service November the behalf to years we the open has her retirement. Q&A, Board final well to her played many returns. I at contributions the her wish of Cindy call pioneering do and for

line We'll Q&A. now for Operator? the open

Operator

Long Instructions] question. from with your first Our the Please with Justin proceed question [Operator comes of line Stephens.

Justin Long

OR And million on with just that write-off Thanks, the cost wanted the XXXX, $XX you guidance you million of good mentioned fourth retirement. something. Cindy, XQ to I unusual the to Cindy, the start the quarter. in congrats, of in $XX Are impact morning and guidance? the Maybe in then excluding clarify for

at that I'm exclude just unusual million XXX basis points of write-off would of $XX So achievable. least fourth $XX million in the you that if and if quarter, you curious OR have put been the that out items that previously there guidance

Jim Squires

Jim. it's Justin,

you this me can for what clarify said morning. see Let have I we if

even a operating write-off guidance hit trend ratio. at not do goal receivables discussed operating points revenue even earlier. improvement that we that basis including in the ratio the is be with Our improvement to achieve to in those we year-over-year, we our to with XXX and expect additional least the full-year and expect able expenses also of But, the things,

that way that want not that get does can And our operating XX% said, that back I with just Now by any achievements of have XX% foundation to date. minute the Because to recap achieved we get we up, ratio to we to diminish XXXX. confidence make will a take operating ratio. to in to to the what a those are that further improvements

many it the touch in our Because is on just will of right, I'll again, have And operating All plan. to I. make. we Phase bedrock that, and continue improvements the ways, made

it, see shown an result active as is of and We trains showed to cut There it as decline reduction you the a X, As on service you previously. however. in immediate today. as seamless. no we of We starts see train crew starts we have July a disruption network in sharp over we

and more We consolidations. doubled train have pursue day the additional We pursue per than distributed operating equipment. accelerate operating blend we on would further DP network. the we number rationalization carload II, power. We results trains up By and local work of you more Phase now, in additional traffic. start In give that plan, We to the intermodal crew plan reductions. bulk network of sync

the fuel we Clean grounds the some if work efficiency hard to we then, you intermodal of crew we you out if initial know make initiatives, XX, network up. II. we coming analog, merchandise accelerate Clean start will, see Sheeting, at we actually did to Slide the As can move reductions Sheeting where on through and are the Phase in And pursue as cut-over we on have

the of are Phase traffic things III today. TOPXX, will these are to unlock we we additional operative efficiencies. all In remodel So,

what results of Now, various has these been of phases the in of resources terms TOPXX.

So, let's start productivity. T&E with

down T&E XXXX, of for on mentioned, company. the T&E third Mike As giving headcount lowest quarter versus record XX% our us

with positions in by of the reduction reduction the out And together network, XX% along locomotives reduction terms yielded locomotives on In the number reduced which productivity, more equipment XXX third reductions, operating this Cars-On-Line reductions of additional quarter with we have overall there savings gave again down last mechanical year. together Cars-On-Line, the X% made, the with XX% benchmark, in XXXX already decline versus the in with versus have us rent G&A other of the in year, employment an along locomotive yielding quarter. fourth with we lower which in the reductions. locomotive significant that

the there III, the material the categories; same. savings were expense In different the the that through Phase more savings, TOPXX savings, rent benefit the of resource will of went Cindy and result these be equipment reductions. compensation

and consolidations maintenance expect lower T&E train and starts reductions We follow. locomotive of rationalization through so additional and see will reductions forth. additional will see crew on so With would we to continued see in we spending fleet,

pricing will and focused third results full stay strategy excellent we our which lastly, quarter on And yield-up plan, very our year-to-date. for showed in the the

to value are to We of the determined marketplace. price our service in the

Justin Long

comprehensive great That's answer. and

question. ask secondly, bigger more demand I Obviously, dealing we're wanted now. with challenging I think, to right picture just a a backdrop

think XX% XXXX, demand we and positive current current around inflection levels, see XX% get coal do do think you OR? that demand to environment achievable OR about to to a a in the need in and stays guidance we stays order or that's around if levels As the environment still that hit to

Jim Squires

we including strategic will in plan. a to said see pursuing XX% of productivity in of we We resumption harder believe measures, on OR. we But on ours we've of remaining determined that form a are plan if years the OR are push even current XX% along; are the during growth measures, goal our don't, one any to and the we we growth, yeah, achieve of foreseeable in the to will is by all environment, get efficiency But that revenue the efforts our XXXX fruits now. balanced the we

Operator

Credit comes Our your with question. line from next the Please question Allison Landry with proceed of Suisse.

Allison Landry

about you're I of now and we've guess, many move the wouldn't increasing more just into Phase Phase a in III, we a improvement. to be should as II as peers. with all weights able OR your the meaningful acceleration why expect trains in and you OR quickly, that move you DPU, at as of eliminating start below seen adding the you're So to TOPXX, XX% and train talking year-over-year you're

Jim Squires

to XX% to get can we will If sooner, continue we push. OR Allison,

We to ratio. value we is lower growth through XX% a better determined can generate by and we to goal all can are if that, through our shareholder do than do certainly will. operating And we XXXX,

Allison Landry

And you could him to addition maybe expect Thank you. far? recent and the then to on Mongeau. the I was is Claude role some materializing Board that by play, What offer you so hoping thoughts would how

Jim Squires

you brings of of as CFO CN great most-welcome as brings know, our to having as addition CEO a knowledge deal of finances. He of of in-depth a served Canadian for years our is Claude, he He so, a in and experience Natural. served Board. industry, operations railway number

having the of and we as forward initiatives that beyond. us the pursue looking all are next to We him counsel for years advice and to we pursue few intend

Operator

comes Ossenbeck the question with proceed your question. JPMorgan. from Please Brian next Our with of line

Brian Ossenbeck

taking Appreciate question. the

export RPU up 'XX little goes for where sequentially things get surprised one I they markets color telling ex-fuel, you before you are us, get obviously XXXX. going maybe that behind in the do Alan, think XQ, can and again. So, better was this some and if are worse give coal, you was see so maybe to And to on that

you this have stronger perspective, other or to was than there's So see pricing bit expected. might it just we wanted quarter a yield any from considering I that offsets if a

Alan Shaw

Brian. absolutely, Yes,

will all Coal my deliver across Coal seaborne our in pressured with prepared to no we coking continue noted the fourth business and of strong units. is coal pricing quarter I've reduction remarks, the be As in exception. the price.

export that's same this the improvement decline you against coal to we pricing some quarter as were the in be pricing. up a in seeing we running move a So, sequential coal because going year and should see export sequential time fourth difficult at comps, last into

of that our will on to focus headwind for delivering be value pricing our and continuing very are customers. all this, a are to product we us. we So good of to product the Throughout a

Brian Ossenbeck

and you, Norfolk. are the particular gallons-per-thousand then seen class for sequentially on good like Mike. looks actually worse weights It pretty train and GTMs fuel from on ones some And bit year-over-year. in of efficiency, progress the at one getting fuel fuel we're rest We've a looking

think clearly have it seeing you of stride. big So, offer to up aren't course moving initiatives gains the be able been train got factor realized, you but on, to plan, seems pretty you we're weighs there, throughout I some a sort as haven't you’ve the that others know but as can but what of for efficiency that fast take

Mike Wheeler

train seeing we increase side, Yes, the in so on are general fuel efficiency weights. an merchandise

the that actions offset TOPXX So weights bulk on they part benefits, - we're we're the those getting and trains the of train taking but making by We're plan. are lower and of to was address headwinds intermodal that. the

and then of see out. You'll go a well. as have that on II in the energy that been we've in Phase utilizing III rolling aggressive we as technology very forward also of that initiative management more we some But Phase

and got the top of new using the operation that down really then sure technology. that we energy our on And that's staying aggressive got making with so, working all-hands-on-deck folks is being that, sure head-end our consolidated energy then sure the center this this, an locomotive for the got management we're and right on management network compliant we've thing trains, horsepower-per-tonnage in making with and that, very we're making right

initiative big we that paying to we as So, forward. go off and be expect

Jim Squires

extensively, so have efficiency. to we all of we like in in time that peers' and the on Brian, benchmark this I'd ground to make well. as performance aware our up are and the We do weigh fuel

made we to in because [indiscernible]. last going progress That's efforts - of despite couple have quarters not our the We best change. have

bear it. initiatives so shortly goal. host Running monitoring, trains outlined. in real-time We to part Mike believe place, and horsepower-per-trailing-ton will A are focused On-board of compliance forth. operations heavier fuel that certainly which of on accountable I all longer, we holding a management, has our fruit team am things energy as is the that

Operator

line of Group with Our question with Scott proceed comes from your question. Research. Wolfe next Please the

Scott Group

So if sure the Justin's to question first go answer. I I want not back because understood to I'm

you said $XX about So, there's bridge legal of in the you $XX million talked and in fourth. costs costs third million of guys the

So, that's XX understand, is guess basis hitting we to would to to a all small is points were that's If been OR have the miss? or I OR. this margin you missed those, we're targets this not? trying a margin exclude or arguably understandable bigger

Jim Squires

Cindy, give you that. why don't

Cindy Earhart

So, Scott.

point said Jim continue as on we the were the to only those derailment. we Well, one hard going been As million push costs, don't and not today. But to costs those to to improve have OR exclude either of in as but cost not XXX OR. our that improvement, we're $XX can additional miss guidance excluded also the previously, associated guidance of $XX with million basis and the bridge a lading

Scott Group

understand our I just if you excluded; I'm were hitting OR we or them, target be that to they're with no. we No, as not. models, play would not saying exclude

we're to trying that's understand. think I what all

Cindy Earhart

I a big will target. miss, material. extent it miss. of that not It's think is that I will would we our miss be a probably it but The not say

Jim Squires

a way XX% will that our Again, confidence ratio does get we XXXX. diminish any that to operating by in not

Scott Group

And Jim. then,

so look the I at every the in had margin rails improvement third so you quarter, So I far mean, than rail think I far with I are think lower issues. - all better even volume point. starting a the has you're though - dealing same

Is feel volumes weaker, on us change With you then feel got another you're fast sort there are Do right you've like front. enough? sort here? you the And of difference do So, spend? to is the like - capital get of to going capital there opportunities people the

Jim Squires

can are that and aggressively. We so we controlling things doing control the

XX% got in value of everybody XXXX. the expense bore So around all we initiatives, far We've and year-to-date, get third the and for quarter in that shareholder all operating continue must line a of fruit push by the those savings to ratio team to will our on great we as bottom which and is as goals. place aligned to things we've been through

Let's see.

The second the part Yeah. of capital. your was Scott, question,

range spend talked is are really previously return because is capital it What capital about have we to, obviously, we that believe optimal shareholder a here, returns XX% revenue and matters level the we're we of that managing So That's spending. to we range what on XX% of generate it spending that's to targeting return for down that of to capital. returns of to shareholder goal and mean and and It's a of to take somewhat revenue, generating times relative gets again, on capital But value. within on the range. superior we're capital the the range it generate. may shareholder seeking in back return really capital our why

Operator

the from Our Alger comes of Sachs. question your next line Goldman Jordan with with Please proceed question.

Jordan Alger

stay next half least year. of with some you kind in part things XXXX. of mean for OR can sort volumes even at you first for in let's the and XXXX give sense think Thanks. push curious continuing much PSR environment? of benefits of So I sort operating softness I can soft I'm know you've reiterated if ratio just XX the first how say,

Jim Squires

the come Phase of in from those savings good the II of We've on initiatives, be we're then of morning the And TOPXX. XXXX already further which will Phase initiatives, again get year III hard in all result savings we into expense drivers of in XX of XXXX. those on well underway additional efficiency pushing about to will in cost full this spent are time so operating so see expense those structural the which deal royalty savings of TOPXX, benefit will talking we a fruition Those that will in And XXXX. ratio.

Jordan Alger

sort follow-up quick bit. next little year. truck pretty just way turns If on tightening get anticipate maybe is capacity on then you other a Would get the expect easy pricing comps of by And a and intermodal, we middle spot okay? the some obviously especially next move of you volumes. again something conceivable network as that is inflection, some we can given year, your potentially where reasonably through or intermodal rail that's assuming mean economy is I

Jim Squires

Alan?

Alan Shaw

the are lines the the Yes, a with Coast. best so the steamship aligned adding to West with as And we East from channel in Jordan we Coast the shift the are partners capacity you East see aligned to that are business. Coast

So we've got the some the strategic advantages East. franchise, to in our it which intermodal best make

absolutely and to intermodal strong deliver anticipate engine our the to service product Norfolk We turns And growth going is - as remain Southern. we that very for so a customers. a economy

great you continue year. XX% last in an revenues, follow by We've for growth with and Intermodal as pay going a grew to franchise, that then to dividends XXXX got XX% our it’s shareholders. great know customers

Operator

next the with line proceed with comes Shanker Please question your of from Stanley. question. Our Ravi Morgan

Ravi Shanker

Can strategy just targets price losing the you made you clarify XXXX make on when volume. think can at network? or more current go-to-market you where more command without to a in price that's yield-up guys the of the point Or you a XXXX do need there you changes are thing, your are

Jim Squires

Alan?

Alan Shaw

we at improved mile very growth. trends year-over-year quarters. rate we're in price which a our a in customers in also And you trend. of see vastly service ability consecutive Take Ravi, for providing reflected for increase product revenue has per confident merchandise improved and ton in look network RPU platform are - price to with through a our and our the nine it

got So focused weak on because price this even we've we economic service great franchise great and backdrop in are intently a a product.

Ravi Shanker

for point of he do And Mr. Mongeau play? Claude from your kind to likely as at and looking PSR Board your of you appointed recently him in you is what to this strategy follow-up role what guys kind

Jim Squires

the extensive Claude knowledge addition mentioned in to is I and finance with his an the earlier our got outstanding industry. same experience He experience, on As operations side. Board

of bring beyond. be the to through our more we'll of welcome that for next addition, we a and And will years he couple welcome as Board. he journey is PSR a proceed our all So addition and

Operator

Our next BMO Chamoun the question of Capital comes proceed line from question. Fadi your with Markets. with Please

Fadi Chamoun

outline improve Alan Maybe, achieve pricing maybe and improve the intermodal that over the competition if doesn't really truck OR steps intermodal meaningful you margin intense. couple side. if next if be the XX% Are a in the network years to improve pricing those? in steps operating the business - of the can on to like needed OR can looking to level there the Can intermodal taken remains you're

Jim Squires

Alan?

Alan Shaw

industry the truck in in at and through You And XXXX rate of quarter. to XXXX. the in weakness and saw nature every XXXX deliver all continue look that, spot intermodal the single year-over-year take of a trucking cyclical we increases we market

franchise. So in strength, unique we confident intermodal our very the of strength the are

Our and product alignment be market noted and before we're we by got a of with business XXXX. growth the the strong very in spot positioned best channel going very we're recover, XXXX to grow partners for and franchise. We've to XX% we and because XX% strong this The cycle we're revenue that in - through service the as delivering. will going

Fadi Chamoun

the exactly maybe is tailwind. And follow-up on going what the business? mentioned on just would that if side, And improve intermodal us you clean sheeting you that of the going is in operating to that describe what side margin in operational can to performance -

Jim Squires

don’t you one? why take that Mike,

Mike Wheeler

that terminal terminals. And and We've on looking sheeting at We're sink the the going just at did the and then to we deliver do our got that all product each we’ll time. then have like we terminals for train the that So, practices intermodal service right more once intermodal all with the best good sure up continue across efficiencies making in of our the the and network. same plan terminals processes merchandise forward clean we procedures.

importantly it's across of to more that using one good dive one each - all each as terminals kind possible into consistent as deep the industrial efficient intermodal terminals. and engineering best intermodal them practices the of practices make the of So

Jim Squires

our because we encouraged network clean Mike, very sheeted saw network. customer process I'm the in merchandise merchandise the and we the as benefits by this

you You speed in in saw and increase improvement it an saw service and it an dwell, it reflected in reflected our metrics. train a and you customer reduction saw in our reflected SDI facing

And we the principles so these as same that to franchise. going intermodal to I'm to deliver apply continue confident we're same our

Operator

next Cowen of question. Company. question comes your from line Our Seidl the proceed with with and Jason Please

Jason Seidl

productivity. T&E to about a wanted I talk your bit little

to plan in slight check sort XXXX if much step-up. through look goal you how put a walk on track us saying a and larger that's a on Could we guys there? of shown getting your you're you You've improvement out you XXXX there but

Jim Squires

Mike?

Mike Wheeler

that we and strategy, to of things be look going done increasing drives the at where it's we've continuation the starts the of that trains down. Yes the continue distributed size the power to crew Continuing more we're then we're our that local and making of that going at yard and as train more will drive look network sure And there. and continue do to possible consolidations. to and as efficient

So as opportunities. we more this we uncover go through all

of and the we And more then we next it we into step. the when go that we get opportunities those uncover benefits take

gas with a continue continue we talking that phases us path. that will got been the has process do to these And more about. for this good very down tank that, we've we're all in to So

get to going we're yeah, So there

Jason Seidl

forward. of XX%. And to to Jim, I you jump going range back bit I little think mentioned CapEx XX% want question on a Scotts a

Given lower overall range? as should the environment seen end and demand look in of we that competitive probably towards at what the truck we've market, XXXX the being

Jim Squires

majority on when in Jason, some you meant CapEx, AC again expected to say program, and January. budget, is as fleet. meet me the our well is to we you of we'll majority great But guidance will DC conversion CapEx, give capital this, let replenishment our more locomotive which spending, know, rejuvenate our including capital

everything us, significant capital and of itself pretty the for into budget under course item sustaining capital of rail category on so And the balance sustaining in cost line forth. that a then of that's spending. there's so and franchise else goes in So and

generate relatively down road. part prospects to returns shareholder small that be do to will will we But The compared aspire the the needs growth it we to believe we because protect, CapEx. excellent piece project. have It's of we of sustaining will growth and grow the we it, plan,

Operator

the Citi. from comes of Wetherbee proceed question next question. line with with Please Chris your Our

Chris Wetherbee

head some as X Phase How headcount XX? run X Obviously, is about through XXXX? a environment? ask is of in get beginning target here of the the Phase progress I go to to and volume you've like half fourth to Wanted of there workforce we calibrated first through feel stabilization, to of some Top the Assuming wanted maybe as how move more made quarter. further should we progress degree much you you the to count. and sense kind of be how of thinking about sort

Jim Squires

expecting fourth last Cindy, fourth our you of quarter why year quarter, we don't versus to versus talk fourth average about in the quarter year bit what then reflecting headcount going? little and a end over the are back of in go we're where

Cindy Earhart

XX Yes. said, year the than at Well, the Chris, expect of we which to end is XXXX. year-end last I - X,XXX less XX,XXX; headcount around of as be

progress. obviously significant made we've So

this for year our XXX. I estimates think reductions original were headcount

been really accelerating. has that So

we part reductions there been been volume And obviously, with but as moderate that that that you've big well has could year, heard of or terms structural, mechanical that volume in next and has initiatives into - down, there's the certainly expect associated about, up you then talked as down. to expect come of continue to headcount Mike going as goes both T&E all we

Jim Squires

to in we but comes We can when also that's are volume be handle sure we we be declining be in also operate to want like a a when and want - balancing we're act, back. prepared that sure the we can as it optimally for now, to we want we so that business as confident environment,

that, ability our it handle we're appropriately that current the for are that. great to protecting road. returns environment, business believe we the we down that responding formula And just but also in when volume We is have the a

Chris Wetherbee

I volumes When a item wanted a I side as specific here? to plan, on quarter phases, continues it's there kind big of how guys. of an cost And get we for down. Purchase you turn think Services, over sort anything the next to out just and Was can how go you it opportunity roll third could it few is the about in big, that? was then to were if although obviously, the up line sequentially, sense, from

Jim Squires

Cindy?

Cindy Earhart

we Services. million I improved and rents, at look with I you really big And Purchase a if on these say, that's of lot the improvements, cars as will been the side, Purchase talked mentioned a well year-over-year. just Well, as $XX before Services offline. before getting seen as about And of velocity as associated rent equipment have we Chris, improvement network,

So been that has favorable.

be to forward. We going to that expect favorable continue

of and that Purchase On are rents, category. that Services different lot there's a things in

you would not much dependent, as although volume think. as is Some

the We We're side. have that out seen additional spending, going had on in in capital in this on to prior invest and well item. we've particular as pointed the IT as IT quarters to that we've continue spending

our equipment going investment to be that because making, that's to are productivity the the of and forth. really that things so improve of it's think workforce, We prudent the focused on reliability

and leases, Services little turn freight Purchase freight we've associated as we've rents additional We we've some in we've repair cars, did have with offline back - associated had had had to expenditure cars a that. them and additional bit costs with taken

and continue we puts you'll some I there's think Services takes overall, move see So forward Purchase But similarly sequentially. as there.

Operator

Mehrotra Our next question proceed Bank. comes line your Amit Deutsche from the of Please with question. with

Amit Mehrotra

one. quick Just a

respect to quarter? I first impact auto yield least and in stranded there kind actually were the the flat. strike even in to fourth was in the from Motors? if I didn't there The up General quick. any was be know volumes related know Was one at will that quarter the there at quarter with call out or or anything of unabsorbed to costs

Jim Squires

why you that. Alan, don't take

Alan Shaw

that our in of work impact the fourth quarter. stoppage timing volumes the Yes, more will

Amit Mehrotra

fourth should call not or with we the think stranded to that, quarter associated out? that for Any costs about enough

Alan Shaw

No.

Amit Mehrotra

of to And with your if I I the targets important And just back OR I And to just, it's it's then, questions. if respect follow-up, very Jim, on one walking year's you think could the guys for first XXXX improvement. think the I least. most in at one the this OR wanted obviously context, - really

or compounded when explicit or revenue could be the were look little business, XXth, the so as specific a Investor revenue you or growth I later that about you less So in growth annual back did your hoping for guys bit Atlanta, targets; that. XX% very in XX-months X% Day in when entire rate was we February than you February now, intermodal.

how rolls in business your revenue framework, OR revenue Given the the side up of the to target. what's happened

appreciate think revenue to you relative the to XXXX like understand you're what target? now, were sense there's as productivity, and roll in going of looks not revenue use that XX, I of and XX And get up X% given February to I that by XX% you in specific it a did us if to can you but excuse give some growth how February, lot we'd

Jim Squires

Fair enough.

of first plan. say, the me strategic Let all, about

plan. assumptions in, plan, they the such write good inkjet it are as for the the on about to As strategic with are long as any takes

rather again volume to And So significant around. hallmarks what do our hit conditions we conditions productivity in picture change. time did changed the volume February. dramatically what revenue will the responded flexibility initiatives is a one we we Business goals. of the our and order in We've XXXX, change, saw That's has additional we decline. when that this three-year always in That's issued plan picture, said since with adjustability. we

as and review forward we it's January our with assumptions going you Now, quarter and give Tier-X for revised our of on We'll goals, we we'll will when high-level years. you part out results, with couple next macro to you of in assumptions plan our productivity that methods some revenue, the report the fourth regard give well.

Operator

the question Tom comes line with Wadewitz of next from UBS. with Our Please your question. proceed

Tom Wadewitz

I coal So, get framework for on thoughts XXXX. export wanted the Alan, to your

current to seaborne did be expect at your, tonnage Or hit do if you prices, at more you a a you if down could sense give you look think of prices, maybe us it's meaningfully? broader tonnage pretty some Just the where to to it I levels tie revenue really you sensitivity a want have thoughts don't the you that and maybe Just you're per know to achieving? met to decline? ton that if coal about and about,

Alan Shaw

makes XXXX. but Tom, coals and before contracts producers of are both really to respect receivers those market, prices and through as about U.S. to difficult the hedged, - thermal current with the some We've effectively it I've are on the contracts effectively talked about, at talked in metallurgical. hedged it between compete the thermal for

global seaborne on coking the coal the about in the start quarter pressure as pricing. see we demand talking XXXX. And and you'll color we going more thermal provide to into market is on earnings overseas roll market I'll in economy, as so call, that lot And fourth And a XXXX. met our follow

Tom Wadewitz

were of million back you Norfolk, at area, of you levels tons. if coal XXXX-XXXX I look of just export look in XX XX on kind kind guess the to tons, million

tons. running think like at you're XXXX, a rate of XX something I like million

this hey, of XXXX, better think that would say; or it we level, haven't than that. you feels like feels do to XXXX So fallen you

there's consider that export obviously market. So to right a sense to the get the on pressure trying given just framework of

Alan Shaw

is pressure been There we've clear pretty that. and about

of coal Let's volumes. is coal now coal of our is XX% coal about Right just about talk volume. our about broadly. export XX% And

there than talking about little a you're So overall bit less our volume. of X%

diverse very to us, important It's We've as a network. our franchise, it's important to intermodal got we've out franchise. built our

it's context for color in So historical export - coal on outlook and call. provide more more the the I'll fourth quarter

great got thing to that intermodal reflecting price, important we consider merchandise we've is a and a franchise network, The the of are great product. securing value our

Operator

Susquehanna Please Our proceed your next with of question comes with from Bascome question. Group. Majors Financial the line

Bascome Majors

liquidated ruling [indiscernible] for accruing with go ruling? damages this revenue you write-off impact any there that Is year, any forward took jury contract. in and September receivables the the there the associated is for On on

Jim Squires

Cindy?

Cindy Earhart

what think is probable of dispute. recognized we've we Bascome, impact that financial the legal

Bascome Majors

backward looking is ongoing all some there that that Was impact or in included charge?

Cindy Earhart

backwards. was that No,

Operator

from of Hoexter comes next your Our Lynch. line proceed with question. question of Please Merrill the with America Bank Ken

Ken Hoexter

hit in doing your significantly point is but costs seeing Jim, points and be or from why where environment been about a we XXX maybe trains cars sales, basis excluding got are at estate is not why has talk not OR supposed X%, and to an this getting know stair-step I you've you're real down the a better improvement peer the improvement, employees are this XXX-basis point? Michael, And down. away and lot, cutting walking and better

you've it margins get Given much ability the gains just impacting so that's is something overwhelming that or improvement? is constraining the else to coal the the are made, changes stair-step there

Jim Squires

different the in Ken, volume and certainly, we're sort dealing of reward with context and half. revenue a first

change. major a been that's So

responded freight materials, aggressively reductions in we've expenses. with have been morning, We locomotives, through all to the favorable this positions cars, resource that change

reductions more So initiatives in from you're acceleration the with of various expense the come. seeing to momentum our

we've operating We that a the that goal. fourth our not by to expect because XX-operating least morning - in can to full But of improvement XXX-basis expenses still year. the we does But meet points quarter, the for don't additional see we ratio a don't get the confidence. to expect ratio at Now, this been diminish through XXXX.

Ken Hoexter

at guess was of you're and sequentially then And worse from pace, related in given to year weeks only that a now quarter, accelerating derailment X% that Cindy is Xth the I but know X% ugly. if gotten don't accelerating know the and mid-teens, than And at down the I the quarter-to-date. down now But but volumes your X%. of I and Alan, you just pace, of economic an just Coal on staying it's kind mentioned be about, things down commodities maybe, we're - have to getting are seemingly an couple talked still Alan, to ag the things downside, accelerating maybe from on but, autos are worse view looking some intermodal seems side. like other outside seems It strike? of

Alan Shaw

Again, the we're not really seeing of a this much within franchise. peak intermodal

is having comps. that certainly and volumes an so year-over-year on And impact

Operator

Ladies I'll session. Thank Mr. turn you. floor to conclude question-and-answer now gentlemen, back Squires, closing the any does and this comments. our for

Jim Squires

thank look speaking all and to in for your today's with we and you call, again January. you Thank forward I in want to questions you. participating for

Operator

today's Thank you. concludes teleconference. This

lines time. this your for your disconnect at participation. may Thank You you

Norfolk Southern (NSC) 23 Oct 192019 Q3 Earnings call transcript