NSC - Earnings call transcript Q4 2019 | Norfolk Southern Corporation

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Operator

Greetings, and welcome to the Norfolk Southern Corporation Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded.

At this time, it is my pleasure to introduce Pete Sharbel, Director of Investor Relations. Mr. begin. now may you Sharbel,

Peter Sharbel

differ Thank we with you, during statements, Please that discussion risks and and morning, are refer those results. to of our as SEC and call, we for most good annual important. may uncertainties today's and forward-looking reports to everyone. from may actual subject Please view filed note quarterly risks Rob, uncertainties materially the make which full and certain a

in the Our Section are presentation at norfolksouthern.com slides our with reconciliation. Investors non-GAAP available along

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

It Southern's is CEO, now my President Squires. pleasure to introduce Jim Chairman, Norfolk and

James Squires

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

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

remarkable toward launched efficient. to In of tremendous Southern. to transform and our of year both and workforce plan our to share this long-term efforts dramatically Norfolk a at to environment, pleased that we're today as leaders. progress of substantial our on results more those We've and product railroad service thanks operating we a while our We our work transformation become improve made by XXXX our strong fulfilling face commitment plan. making progress on delivered and TOPXX was momentum commitments, in organization's the operations the challenging streamlining hard volume strategic our our strides significant fronts our demonstrate

results. those highlights X Slide

EPS quarter, and For the XX.X%. operating was $X.XX, was the ratio

These XXXX. is shareholder in to the basis This now improvement. backdrop operating operations operating And I and steadfast contributed X%, having and our efficiently fourth X a year's quarter over Earnings volumes against discuss commitment These creating volumes. high despite the will moment underscore full on deteriorating to value. to the of margin particularly focused for X% $X remained fourth and year, as year Mark demonstrates achieved resulting core record billion, income year goals the results improvement dedication carrying our continuous record which ratio culminating our level share as records and demonstrate We've freight Despite and For with our of achieving we running nearly throughout ratio respectively, accomplished $XX.XX. productivity workforce and beyond. less years. momentum T&E impressive a consecutive increased full the possible the efforts during significant XXXX into of X% XX contracting to in of haul. mentioned we're declines a customer full results ago, reached improvement record service, locomotive record improvement per volume quarter, from at shortly, levels the to year, XX.X%, a point railroad

launched plan we in As the to XXXX, build on continue enter strategic initiatives we XXXX. we

operating our rolling while Phase PSR-based will Mike service all of and base, fourth as While productivity resource will results. out will year the product which plan, trends go over maintaining Alan cover results. high-quality regarding cover as team in XXXX. further revenue. TOPXX, details initiatives performance, well drive will will quarter in established our these our additional Mark details operational and provide The additional X on full financial across the

I'll now call to over the Alan. turn

Alan Shaw

everyone. of the morning, challenged good XXXX, half and particularly year. in Jim, you, in second Thank the Macroeconomic headwinds volume

that in focus creates service on margin tough our the product the supported these With conditions, our value market. outstanding improvement, by we continued

and records has intermodal our a affected We mitigated capacity, per excess uncertainty in On revenue Norfolk trade increased for the markets, quarters impact last our of Merchandise units, per in quarterly business unit the unit year-over-year weakness Southern's manufacturing partially prices despite all XX low volume. with in led and excluding fuel in driving groups. Merchandise except commodity the that decline all Slide business X% stronger of drove by lower volumes X in declining our chemicals, the prices including crude reflected market revenue X, and demand. and economic weak truck by volumes time. affected flows over down offset an steel more year-over-year. environment Import in of increase were doubled Merchandise tariffs groups, partially steel steel. manufacturing declines period oil, weak volume a The than volume traffic cycles and which negatively XX% its decline

difficult revenue as drove to down XX% spike decline quarter largest capacity in volume. coal. the in XXXX pull freight forward year-over-year, comparisons International a excess due truck X% a the in volume revenue Intermodal with declined fourth weak environment. volume utility were inventory Coal and were

portfolio and Chinese remained tariffs, prices it for prices and seaborne Our Export while was falling prices coals capacity. cycle influenced at gas Northern to utility thermal making combined difficult levels, globally. met low impacted was export U.S. by compete by low

the and volume. We headwinds the by fuel favored were partially despite we X. in market revenue gas weakness Slide and margin per lose differentials price offset natural in revenue X% to a XXXX, evident Coast Turning revenue East a billion while refineries, total and truck our decline secured manufacturing oil declined reached increased X% a boosted unit. to In in were volume record improvement declines liquids. strategy, in Volume from decreased X%. revenues demand by Merchandise that occurred X%, from $X.X increase declines economy, volume, XXXX, aggregate crude in steel

were on the intermodal in and this domestic a Intermodal X% prices by truck X% reduced Lower environment. volume declines. revenue trucking weak-freight decline excess capacity spot as demand gains decreased offset domestic industry, in in international

north, gas first half prices led benefited utilities where Turning to southern coal seaborne issues. coal coking build suppressed thermal volume export and Revenue that were lower and impacted declines while burn, inventory by in coal. volumes X%. the natural from in of Utility Depressed the year. declined further production to prices prices predominantly were low the

for customers when our providing environment strategy will This margin Norfolk conditions negatively volume focus operating freight product our revenue our is and opportunities approach service While reflected per to XXXX, demand a in improvement, leverage maintained supports enable our grow our of on economic when and improves. creating improves. we revenue uncertain impacted which improving in Southern and that increasing the unit,

to our X. outlook Slide Moving on

are consumer-driven closely the the segments and in from impact we our monitoring and which compete our as X% business range opportunities GDP growth consumption, in well growth XXXX the creating the its customers' We we expectations strategy. that economy in expected as be execute personal macro in and industries with intermodal as markets. developments to Merchandise is our of in majority on

and crude merchandise of see uncertainty and continued manufacturing, in sustain of are seen Overall, volume the product. our half trucking growth second light as price XXXX coal industrial by prices fourth we production quarter comparisons. Overall, support high exists. we impact franchise revenue predicted of to forecast move we levels other improvement the Continued commodity total is an a X% enabled U.S. not potential weakness degree in through due and to We forecasted easier segments reliable low point in our differentials vehicle improve trends from XXXX. markets. consistent, our have to more will our XXXX in into inflection expect sectors strategy XXXX. Improved with in volume than service and improvement Merchandise quality

leveling additional to intermodal In coal seaborne tightening substantially revenue in capacity coal coal, XXXX. rates grow expected generation. of and The Coking off, gas and share truck some levels, with erode indices below and thermal both export year. electricity to renewable are volume prior continues generation and in impacting pricing. volume later spot the on data providers initiatives, and are remains Based lose information new forecast customers yet our market and this our business

and with ability of economic product customers. and reliable this first In similar headwinds a creates value the year with our pursuit quarter for quarter of revenue summary, while as persist fast adjust to the of consistent, we for to XXXX flat shareholders. from the conditions, further fourth market In focused the disciplined efficiency and our environment, approach freight which our progresses. recognizing provides our to customers remain and last improving platform and demonstrated enhance year, the we both in service uncertainty the expect continued We will conditions value to light willingness be on as

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

Michael Wheeler

Thank for year. deliver the the continued operations. which relentless you, our ratio Alan. significant execution savings, operating cost will our principles I we In by of is leverage of service and quarter, core This record to you operational for the plan. and Today, customers on a state the our our drove strong PSR update operating fourth driven TOPXX

Slide Moving XX. to

running and costs strong our is fast car and assets. terminal strategy for on network while Norfolk utilization These and our customers' prudently expectations Southern asset Our support to Record customers. dwell velocity performance meet and near train drove our our eliminating record achievements level and managing record time.

our will and be has year. momentum Our into a initiatives to this continued tailwind XXXX

is consistency, performance measures measures our service operational grounding evidenced availability, plan measures service. First our Mile commitment adherence, customer metrics. customer-facing on As of traffic Mile and as which XX, of plan our seen execution Last merchandise Slide Intermodal the of strong levels the operating which to shipment and for local box, adherence driving critical which trip by

metrics these near were of record All at or levels.

service sharing our a the for discussions of our productivity high our to them to level to achieving remain product. customers data-driven with customers We decade, confirm have service goals. well our a over metrics have been value and our providing use while for we We of committed

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

intermodal aggressively on-time goal delivery a goals goal with We exceeded service shipments achieved slide. is have our This XXXX. actually of meet productivity detailed years in resources availability, earlier. X our on to metric indexed the reducing which our our is were that previous despite index, and XXXX delivery shipment performance the been GTMs. our combines and which scheduled our consistency to Starting drop customer-facing the the XXXX We

this TOPXX goal a exceeded productivity significant to T&E high service of in despite execute maintain will level our our by plan. GTMs. continuing XXXX drop We We

record at are still service. providing T&E while on headcount exceptional lowest our We

to plan, the the trains. capacity growth has plan We TOPXX which in are of realizing of added the train on our for the benefit existing allow benefit

weight for in the the we year second the our the with While half train we missed met plan. XXXX of full year, goal our implementation the goal of TOPXX actually

the the We improved We in account into baseline, higher our the the operating continued change new of reflects mix. another that tons, XXXX X% look which goal our have, TOPXX believe our taken however, projected coal taking than plan, train while of of productivity light in market. weight X,XXX is goal the

productivity our goal locomotive XX% fleet, is We rationalizing for also by the met XXXX. which lower than year aggressively our for locomotive

year our As year. including XXX previous with positions a additional of allowed to maintenance of in this reduction an mentioned call, associated last significantly resources the us rationalize XXX the has and these this locomotives, positions

cars the aggressive a online continues lower and from our will size, our management to Southern. energy conversions. fleet Regarding locomotive technology benefit Norfolk fuel, we for our And be DC story to implementation positive AC of

we have market that original exceeded deployed a fast and forward, throughout product. includes consistent the conditions XXX,XXX to end, our which can as that going of we storage thanks established noted new cars we cars goal As year, our XXXX warrant. in To be goal, service

we we goals meet are momentum will of productivity halfway year locomotive this than our have now rightsizing we confident our us our goals to summary, of fleet. productivity get year. the previous year will XXXX this our and In This benefits will more as for of workforce full

you in reducing fourth the accelerated XX, during progress Slide quarter. As on starts can our see we crew

into dividends success the Sheeting continued and initial X continued phase plan, We This fluidity on for an assignments. to which TOPXX consolidation movements included the the in yearlong yard allowing of with Clean program. local improved the is our some of reduction manifest from network of bulk and build

with year-over-year structural quarter, fourth gains. accelerated the majority quarterly improvement long-term the these This being of improvements in

other anticipated begin out we roll phases the strong plan As completing previously crew as X the have of phase without of we rise in X.X comparisons the a new additional accept We slide, starts. year-over-year in TOPXX, anticipate the X of years. mentioned to commensurate program delivery of on the instead volumes X in capacity promised continued to years

operations and network and further evaluating be optimizations. the Going forward group planning for plan network our will the

year critical principles. PSR core the Norfolk detailing of a Southern. the year We closing, started our implementation for In been this has by

We principles have these successfully market. executed despite a on challenging

was Our levels. record the the ratio injury X last service We years. ratio operating is a lowest achieved record and in at our serious

this carrying are into We momentum XXXX.

now who will Mark, the it over financials. cover I to will turn

Mark George

everyone. and Mike, morning, you, Thank good

items to Before point we the I some detailed talk Slide the that a XXXX. results the I'd you get unusual to on appendix for XX like to and clarity. in chart into to those comparisons versus the of specifies want impacts impact for P&L, upfront sake large that and

bottom the quarter distill those changes the reflected EPS rose and the are of drivers EPS the and in effect year. well we as the for those reported OR as the on items illustrates The white chart OR This row, on to and above. for

may fourth a The you of in the the XXX with $XXX $X.XX. gain basis first particular EPS to item, quarter million points in of XXX area year, headwind sale was relates of points quarter an XXXX. as creates of a and Atlanta property to full about recall, and That OR basis XXXX in the for the fourth headwind

points impact was to that million OR the Next nonoperating from a we out we third the The reduced by This assets EPS involves resource by the booked arising $XX the $X.XX. natural headwind and write-off in that legal quarter same XX receivable additional the impairment XXXX quarter. added basis to the dispute that called $X.XX. the $X.XX related took second final was we quarter. second those we the in impairment full -- loss, quarter the have EPS impact marketing. for X in when assets, $XX related actively million and been quarter, impairment a fourth to EPS to had the the year And the In an

You'll by Congress driven full and XXXX, authorized December XXXX. income was which a $X.XX, certain credits retroactive the in to impact low year, quarter. effective fourth to tax it of were the had note The $X.XX. EPS rate was the This for we quarter was in by tax

to items, $X.XX XXX for improvement was quarter year. for basis and the core the quarter points for the unusual the basis these Beyond for full $X.XX OR XXX and year, core while the improvement points the was in EPS

moving the land down reported, as partially quarter, the Operating points by year of by quarter, a to X% X X% X% the including headwind driven sale. volume XX. of improvement. lower, offset Now Slide the was Revenue from in contraction, fourth RPU prior absence expenses, were

into categories on the XX. expense Drilling Slide

expense compensation decline starts need TOPXX benefits. run a of in PSR-based the amount network, in reduction earlier, multiple plan and the Mike employees. reduction to in and crew on a drove across illustrated manifesting XX% $XXX reduced million our we fewer fourth savings substantial categories. We has trains cost That's in of resulting the Starting As operating in resources expenses XX% with quarter. lower a

by health the and and as million $XX quarter, along million. benefits recrews, of Our less throughout favorability employment offset levels us declined welfare partially overtime, saved well this, $XX with lower This as was lower inflation was incentive that due to in payout In last impacted additional fourth rates. year's the million, to XXXX. expense due quarter quarter, the disproportionately higher expense pay largely compensation by $XX of

reduced by So rate XXXX we and last X,XXX efficiency approximately of into actions. continue X,XXX from by Run top drove employees have from average will quarter additional to year. headcount on this down compared the last benefits

declined in strongest. efficiency in weaker and on decline to consumption our drove from prices mix on fuel. lower X% is Reduced fuel fuel as fuel consumption We coal expense. despite efficiency $XX adverse Moving million our fuel a by where improved decrease XX% the volumes,

upgrades through various intense is getting Here penetration management initiatives, in and mentioned. attention as including energy Mike fuel efficiency deeper XXXX, continued locomotive

and purchase materials. Moving rents services, over to

driving cars million that expenses million by improve also amounted Our due The financial execution fewer rents cost. $XX associated at the call. The expenses partially were improved team derailment only earnings of and in response to increased sorry, the operations utilization of the collectively. signaled last expenses. and million to fast asset the strong washout these half impact to and costs bridge $XX offset material savings we million These network derailment of to detouring by limited a increased reduction $XX the locomotives a savings initiatives on velocity, with $XX savings drove and in in and fluidity, network -- equipment freight are our

at cost year looking to quarter big our year. realized underlying structure of in the So drive picture, savings be of as we when accelerated those continue the in full to fourth end the change resource the through the effect will The XXXX. reductions

Moving Slide to XX.

of income $XX included in Let's at had we our life results. where XXXX. favorability of Other QX look returns losses positive take versus insurance, in investment XXXX fourth quarter on QX from our million returns financial a corporate-owned summarized

the tax higher higher both by retroactive the I well XXXX offset returns life between driven million nontaxable to Income earlier. XX.X%, corporate-owned XX%. on of as insurance. The impairment the nonoperating additional on taxes some credits expect of These rate, mentioned were lower effective will was tax the had headwind than and properties prior asset sale in $XX gains year. as that we the tax rate represent partially also $XX XX% by amounts We million loss as be

the items year and company Slide set We the million. the Slide We revenue headwind We for expenses year declines operating and full XX. accelerating of discussed income XX. results ratio. to the operating in face Shifting by operating delivered on railway impressive reduced in on records we for $XXX net

operating the improved improved share diluted over by levels, for demonstrates grew while to but our performance XXXX. X% income cost full average reductions railway Achieving count. Our X% points XX reduction ratio aided our share customers commitment basis Net by the delivery pushing to X%, in value to record our year a creation. earnings long-term $XX.XX for per

Recapping cash year cash $X.X billion, $X.X at activities the full repurchases for nearly over flows for on from $X billion. and share Dividends XX, was free a Slide billion. our and year the operating record totaled flow year was

momentum, growth clearly to us we on obstacles and going expansion. at created unforeseen plus with year. cost initiatives, leverage new strong provides side, despite the were have drive beginning profit of the that XXXX margin the So continue to to and close, that which challenges momentum the volume It's into

you, back Jim. call over I'll the turn to and Thank

James Squires

Thank you, Mark.

made workforce team reduction XX%, the and fleet and outpaced volume X% productivity while a a with out rapidly average, full the declines, achieved landscape, tremendous today, and As a year figures laid of the macroeconomic maintaining customer These quarter. the adjustments resource the service to respectively, XX% plan cost pivoted in locomotive a in changing strategic you've those of reduction strides initiatives XX% Amid levels. we significantly year we our Southern on executing ago. for Norfolk heard momentum strong fourth the exceptionally accelerating strong demonstrating call

with XX. XXXX Slide I'll wrap to expectations. Turning up our

foremost, our a with execute priority for partner possible strategic running continue being the most railroad efficient our top while we the and plan will chain best-in-class supply First customers. of to

year, have coal the As within in as progresses. will result intermodal efficiency you and our in improving with overall -- that will for the this headwinds improvement year and be in to year we get are significant environment, comparisons revenue productivity we to heard, offset formula persistent Merchandise OR that modeling flat XXXX. ratio confidence our by XX% committed net Despite be that operating and than us halfway more in to

payout capital Lastly, as highly execute We X/X a committed to capital our modernization for strategy borrowing value to program returning continued ratio, effective and we're capital This XX% through to returning used enhanced commitment program, for share and disciplined Southern success. capacity with represents ensuring and shareholder we remaining of positioned shareholders is locomotive fleet continue through cash between revenues. expenditures repurchases. allocation our targeting Norfolk XX% capital dividend to a remain

of to we to thank I want to their it work and transformation our railroad. commitment every Before for and NS the employee over hard questions, strategic turn each

open attention. for Operator? the line Q&A. for We'll now you Thank your

Operator

[Operator Bascome And Majors comes first our Susquehanna. line question with Instructions]. from of

Bascome Majors

that you versus CFO to you have Kind a give should the time in? now any we the what's had the historically? and step investors your assets And land. what as see coming with the things Mark, as organization has and of months handled you? just for how versus in are to there finance of some about surprised expect changes leading get us expectations take Could back seat maybe expected, kind three of you've been lay

Mark George

in different here industry, Yes, are welcomed industry great the itself, question. the the that a the of who for long-tenured experts, come and passionate one from that than my own, outside, life talent different say from is with that the surprised including they're of about that experiences culture that and blend being I've actually different different just I very the a industry not their we new industry coming Thanks from would a coming see I'm and business, clearly frankly, walks come but the ideas, infusion of outside. new from,

and was react a regard So of expecting new brought agility not new in. that's would and a surprise, being environment. to I old also of such I concepts changing with been of speed very kind an company, pleasant I'm to impressed to rapidly welcoming by a say. so economic the kind the ideas to speak,

You volume is another just big we've say, out Mike charts how the come then this resources has nimbleness, me. coming I that would And to declines. respond is And capital-intensive where business taken to showed see to observation how in, quickly on surprised I've from. compared

billion year dollars a CapEx. obviously, $XX We, over fixed spend couple of billion in We've a assets. got

And into for maintaining your we certainly that to financially infrastructure so them that of But spend it why understanding so the an need customers bit justification area understand on we this related I spends the do big to a little is to I drill it's process. half more the and to prioritization rationale for The certainly, serve to and have. do safely. that much, want

dig transparent which OR too. we're We you've about little is bit. XX% on to be maybe call, So to XXXX. path by this a to want it's of expect little that the seen with bit something just get I investment on a community a into to And that the

Operator

Scott next Our question with Wolfe Research. line is of the Group from

Scott Group

us you here. bit help on can the a hoping numbers with I'm Mark, some clarity little more of So

you normal? it in give tailwind quarter? headwind the above help real think of the Any or year Any any gains And guidance? XXXX a in versus 'XX. for assumed way the I is in comp, year was 'XX about incentive to know what's this were expectations And the terms can there. So in what of line -- fourth then us similarly, estate with down the the

Mark George

Sorry.

question, The second Scott.

Scott Group

'XX, incentive 'XX year 'XX? sort a Or normal comp, incentive about as a we it should on versus of comp? headwind on just is in think Was just that

Mark George

incentive comp better to a that short. fell obviously, headwind hope is XXXX would in a year, a we because hoping we're this year have than we We did, where No. bit little

little bit out than were million. you, headwind the roughly that in for fourth year year. So gains that higher for the of one to will be of real less estate, excluding they saw the the we With the a us. year, carved In clearly, regard big little quarter, half benefit fourth $XX bit than this that were of last we in quarter a

middle year, 'XX could of the of to thing lumpy, So we things range. $XX get real over $XX And about to estate. year, backloaded. had be big additional carved sorry, quarter $XX But excluding versus we in the It's range. It given ended In estate, we get fourth when of that 'XX, real million -- we're of last gains on you million quite out. in that close gains. guidance, sure this finish are the excluding the Scott, the this and going one same gain big never the be year the happen you expecting excluding ended we year, any And million that with ended can within line. we year to

Scott Group

peer? on -- Okay. have are a of well maybe And the share some like up. volumes does volume thoughts thought guys market? side, That's do too yields doing if trade-off the on feel but you yield and it feel the approaching clearly weaker better but the maybe like strategy of the Are our you're side. how you've revenue down pushed your helpful. than you then Or losing then it on you up volumes that, flat, far? you guidance that yields, And just so on Or with some and okay yield

James Squires

Scott, it's Jim.

I'll The to second components give this revenue turn the share of on take question, market of color some Alan year. me to part guidance over you more Let and that. it then the for our

of opportunity. We for the is linchpin onto that the market. market big truck share opportunity our growth off targeting railroad. That's the And the the getting us. strategy, is That's the trucks road are

our it growth And also intermodal. there the are are and So engine, to when in there -- opportunities Merchandise there round. opportunities comes

services So value the these our -- value value in we certainly a customers which got strong is of that out service marketplace. think committed great for we're we we achieving can and to And the are We've through also for that that and days. create quite product service. very proud provide,

So more on XXXX color Alan, a the revenue outlook? little bit

Alan Shaw

Yes. view price. out to a drag drag in Scott, our so a year. in We've approach throughout and it's the long-term be coal great value product volume with both of there. as our is got well of product disciplined take taking our long-term a and we're going And And value to in We creates that view service be going the markets. securing understanding a service very our our the we're and customers for customers. a

-- value. see there, our front with it services PSR. told I'll our it. new market. changes do and growth did platform went fierce competition new out the progresses. we're on to we improvement As of customers putting billion year operating were our out where And in our which Jim what we eyes to we truck are products a And going that logistics It's And doing $XXX noted, requires going that's then And in with the opportunities you, remind are. that's as we're that we and it from customers, them where

there And Southern our And operating flawlessly. approach lot better. as of what's we've credibility customers our service our implemented no it surprises created got a our implemented about unique changes. that We is for we plant PSR, with to Norfolk

think if there, unique perfectly and truck with as to we And franchise. forward. opportunities strengths position grow in we're the you the And a move it aligns so about great of our

truck to have and diverse opportunities Merchandise intermodal franchise focused on very We take a have well. broad franchise. and we as we're as merchandise powerful and a And business well, from

Operator

from GR Next Allison Energy line comes the Poliniak Services. question of with

Unidentified Analyst

Allison. It's

that correctly, just just up through online you the a you again, that, said Just storage is to back think of commentary. level go number want a sorry? heard on included expected group. to question, flying that so I to I If Can that I or circle flex cars there you some

James Squires

number. car including that in of we way that Yes. because That's are And on do our velocity the right, focus how entire calculate Allison. want those we to fleet, we it that That's storage.

-- remains that an about too, we into that we books, the So sure to freight we're it, make car want utilization that asset. the that's account think of and on asset as being is taken

Michael Wheeler

Yes. cars we arrives, flex us that about in XXX,XXX, that. when have to pretty This that is to is excited up Mike. business we're XX,XXX available Of and the storage

Unidentified Analyst

just, then strategic your And plan. you're Great. obviously, into well

your greatest environment? the what's your of ability back past perform this Looking been surprise in terms over few months, to in

James Squires

a the the did describing core quarter. that we the have operating that I progress and made in think improvement we core job fourth good earnings Mark made,

for the all accelerating So improvements into think, throughout been fourth out and been the as stands in beyond. and us, I driving a carry of the We've XXXX and did and year, on that's we focused surprise, that we not move it we've that it. and over quarter, momentum will

Operator

next comes the of Our from question Lynch. Hoexter Ken with Merrill line

Kenneth Hoexter

just gains? the incentive on And the or to points include for headwind Mark. see kind $XX side? are the target Is your that going Do the maybe you expanding base maybe employee does just of of productivity Jim, the million or on level? the -- forward. moving for this year-over-year, thoughts real still of this run on -- million employee turning But maybe comp with XXX happen rate you basis is then -- $XX that to estate what's the more

James Squires

Mark?

Mark George

headcount, taken we've out I year. a more think lot to There's terms come. Yes. in Ken, this of actually look,

are that of only in full came enjoy out of come shakes volume the we half see then this to part more of effect assuming but employees we this the year in benefit year, will the the year. back the volume of to in can the much and not beginning So how there to get half of just determine further out we go that frankly, back absorb and the we're have how those returned And year.

half Sorry, your the of first Ken? question,

Kenneth Hoexter

the improvement, ensure great, include to basis of just points the headwind but incentive which it is does Was that XXX comp...

Mark George

It does.

Kenneth Hoexter

mentioned. gains all estate right? that in, the And real That's you baked

Mark George

It's all Ken. in, baked

calculus. the all in real It's $XX gains the being incentive to of to the returning and normal So in $XX million comp million estate range. that part

Kenneth Hoexter

big guess follow I It's number. And for a up my then Mike.

in tighten like there given improvement you targeted Or target making no you're in, note, would guess, the it why service delivery there? Just Are it be I you Index. for moves changing the range? improvement looked all your not a to had

Michael Wheeler

and our we're are well. on better our pretty will windows we levels, as consistency be with service to delivery tightening So the say are our customer customer and overall, I targeting customers part. happy some of for

to dial a level. at in, roll the better better of service changes in that's doesn't yes, into and get it going we're our but to macro the trucks. up with it So pleased we're but it, continue But necessarily part

Alan Shaw

it. to out delivered We something, then our implementation And of ante. see, we PSR going to we've front going targets out sharing with With service our if collaborate targets. we service with and And Mike evolve. them what's to with Ken, our you're our and we add XXXX, I that going performance. how putting the been noted continues improve. there for In went change. customers years, for implementation, PSR could here's customers customers on in to service is our And our as upped here's your -- our said, and

truck. as of and in We delivering, compete us out that helps to improvements quality be the confident to there that a continue that a the the we're pricing move for And effect. it's We're very tightens driver product as market product and to us. throughout year, we're growth we make the with going truck we're putting

Operator

with UBS. question Wadewitz the is next from The of Tom line

Thomas Wadewitz

thoughts could improvement if have some you segments see yet. X not the offer to wanted seen on I where you of

your the how to improvement you and TOPXX result expect improve terminal do thinking in we purchased little a maybe about that And fuel that XXXX as phase or of more -- would would line X on efficiency. XXXX you think I'm program, or services, line? expense also So a

James Squires

Mark?

Mark George

that, I'll Tom. Yes. take

services. in wouldn't But that purchased terminal also Clearly, are other look, there. committed strictly of is So There costs element in purchase that call cost things volume-variable. as got bear there. mind not them we've in category, in there volume-variable. cost an services are in well operating intermodal that is I our or there fixed

lot line. of the a capitalize you example, through that network maintenance flow this For the for cost don't

then are technology there. Tom, And bear that is amount of category. in infrastructure ensure maintain maintenance. similar A the trees rental mind, capitalized. into of It to lines maintenance there's that So and you Building clear. the to you and have cost for costs the the to piece with are cannot other fair that to you have when costs in this there, of and the a leases repairs lot be through rails flows I what described have goes

lot returns those IT can't the is in are making line frankly, category. spend call you that [indiscernible] news, today. capitalized, The through through lot a a saw runs we're however, delivering it's as be category. the a is P&L, of of the in There investments technology good And this in growing

us like So allows we element technology to headcount-related well. we're some And ourselves It this to continue of transactional tasks. in leave to more in to things investing as expect automation. invest

is quick So that's, not in we as moving why like. part, as large services purchased

bit, that there this we've at of got more. got I and is to us right bit it's It little where All a into think for area XXXX. bucket look a for said, to it bit. in little quite I've dig an about a to opportunities We've dig talked in

really question organized efficiency, fuel. with The and well. QX relying in second progress on of team fuel. levels in some on Your has into going step-change made we're improvement a XXXX We

we're of continue That to in management that, of fuel, upgrades top to deeper but energy DC We benefits including many penetration. the on AC. from a us provides ways, lot having

significant on. XXXX in it's area clearly to so progress And that hope we an see

Thomas Wadewitz

can million little on XXXX. in the increase $XX -- December I maybe there if is brief sensitivity get volume discussion Just OR in follow of a I a target Jim, for up. think

a lot for in do should broadly Or improve broadly XXXX? volume. not the growth Your $XX of you there's how guidance sensitivity about to about of But getting seems to we that? concern think think to volume how about XXXX need we indicate million? Do volume

James Squires

XXXX, first, Well, forecast cost-reduction flat this revenue. is a cost-structure, we particularly where let based in say plan, me

to into efficiencies and achieving rolling have tried then all achieved the always that this about next. it's we've So in lay out year we for XXXX and already that you

far XXXX an a But efficiency-oriented remains in of we're factoring we concerned, in plan move little point. even some get bit into a fundamentally financial from As not is at lot. a maybe that It growth as XXXX. tailwind as

Operator

of Our Wetherbee Chris next Citi. question is line with from the

Christian Wetherbee

yield then bit a on here, on how the thinking the wanted we we better, should the down about maybe outlook, contracts should side. Can step the And sequentially impacts think coal there's we the get us specifically headwinds you at on -- on XXXX. X in numbers Maybe about then trying coal in volume be as understand I we're exports. side some to how some help probably based see little think dig can if could, we yield, Just volume? expect prices? X in XQ to put these little I a a reset of should we around on the and -- commodity Alan, bit looking

Alan Shaw

the All move cascading fourth. closer in to we right. and through to a quarter first started ton. metric where $XXX above And and around quarter in prices Chris, down coal were third refresh and $XXX, they $XXX the were as let's XXXX. we XXXX a second $XXX then quarter Net

the is in where sequential it's are And our about as our volume volume. talked coal makes export we've met up we in -- coal, in of export about prices which of which declines about and low so overall coal XX% X/X which is franchise, coal now, saw price both franchise, frequently, our $XXXs. now in Right

point. of And RPU in at our see quarter last coal a the its prices You're first highest and year met going at as point Chris on just lot of highest was recall, were price. the export pressure that to

are you're onto the the being sourced beginning from put coals And locations There's in the water. are other out And so in Comps a most Europe. result, of demand comps. seeing of you -- year. difficult not globally lot as a

increased And going of thermal. export with there's know what's on so going course, volumes. a for That thermal to there. is on Then have us competition impact you market

to you're price pressure you're So in thermal pressure on exports, met and volume going going to both and particular see net see exports.

Christian Wetherbee

toughest yield the first And the the part pressure XXXX? Okay. year in of is

Alan Shaw

Relative to yes. last year,

Christian Wetherbee

it. Got

some question, XXXX OR in That's helpful. Okay. thoughts and Jim, there. a to All the then, And coming right. about picture your one last maybe of No. back bigger

So the lot performance the time given how sort about numbers spend there. think how your types right time? some potential improvement do of significant expect from I made maybe Is business? be us over XXXX. When of returning partway some way of the other the year XXXX. about of of we're peers. initiative. the revenue the Norfolk far, the in seeing this get a ORs of want and PSR some this to should that we so to that from feeling through you've from Are you out thinking potential those growth, it? think we relative So tailwinds about you're focusing a sense of potentially for could progress can Just get we you of expectations some So rails And of that think on it those kind about

James Squires

we we because our would expect be the that see there case the hand. we not of operating resources income growth line a been think believe in operating because in and leverage handle of That's significant will We that and the to line, can as and costs upside we operating top base leverage get point. return on some Should volume bottom but restructured flow will resume we much have our the it to growth. through, through at we've growth lot with

increase with areas handle Now existing we volume how is. and volume there have the But our to by much large, will can returns it be growth handle resources. depending where we the when spending on we it believe to

Operator

Oglenski Our Barclays. next question line with the Brandon is of from

Brandon Oglenski

of following maybe off questions. Jim, line that guess, I

on of As XXXX? look changes drive pretty TOPXX here, and the and confidence the that OR significant phase outlook cost going to operational you X we the plan, in have that's improvement at is guys why the

James Squires

it the the all to drove efficiencies. of reasons last and contribute TOPXX will that for That iteration major

on out of a on In iteration that will things. of for on decreasing goals train focus that's trains those there next to yes, piece the So to TOPXX, continue circuity this. heavier meet consolidations, running the longer, we we put

the in were to pursuing goals previous of types of we it's the the versions it's that So -- really plan. further

going this And we're improvement. continuous some a in at becomes forward, there. think already I point really, way,

into at trains to the network field the basis. with customers week efficiencies looking a are and shorter on and trains in plan ongoing We every achieve consultation working every those on day, an those our fold in continual

Brandon Oglenski

on that quarters, it not too expense Okay. we rate. can million running was And it, around appreciate call. Is talk But this few a level in the Mark, to specific other the $XX think look at think to XXXX? you the I if right that response. get run last Because I item? to line

Mark George

Other expense?

Brandon Oglenski

Yes.

Mark George

about level about it, the That's right thinking to Yes. be on. Brandon. Hang

Operator

the Long with is next Stephens. The from coming line Justin of question

Justin Long

in the with that start onetime out remarks. called to some quarter, there items were the maybe prepared you've So

you could understanding just So you you these us help items of for better the of I I operationally gave the all wondering was XXXX. in what to guidance get a expected? performed things baked quarter if were just understand that versus if into how wanted fourth

James Squires

of which OR the and of Refer nonrecurring, to the Mark's Mark? during opening which for change, change the earnings components quarter. of represent others slide core some the EPS were production

Mark George

Yes.

when that when -- the asset -- that a plan and we we So receivable impairments QX basically, we QX the XXXX, incurred building of XXXX we size. the XXXX the the property appendix unforeseen. having the were similar in be sorry, and were sale, But to we in wouldn't go that two sale you chart, knew write-off back

the clearly are impacts contemplated guidance was those given. not XXXX So when

James Squires

the were other taxes lower. things that some were there And

Mark George

Yes.

James Squires

in the the we And we tax quarter. on gave was lower fourth when rate quarter. how not guidance was That the projected

Mark George

tax think roads, write-off the credit receivable ago. time of to the the at So guidance basically, asset about those the income year a impairment as and retroactive were us it surprises X

Justin Long

as growth stack expecting? the post implemented? expect And do then lower the you incrementals wondering merchandising general about Okay. Intermodal. order your I rank being margins really year? incremental Great. PSR love wanted fully intermodal a secondly, gets you've And from within in I'm ask Intermodal just rest get of how this if then to could to relative about than what change PSR. that And Would I historically, margin Intermodal, thoughts to And helpful. talked you're domestic on That's intermodal perspective business? to coal. up just know

James Squires

Alan?

Alan Shaw

as our year in progresses. intermodal are we expecting franchise Justin, some growth the

the with As in really our solutions I And focused because and aligned we're network. the partners They look that logistics their noted, they're to fortunate business, fit collaborating we're understand channel for on needs. our we're best customers growth. with

where we're rates so in see truck. compete we and collaborating And an with see to We're spot can inflection encouraged truck. to

in seen haven't like uptick a big We it.

certainly So stabilized first and second to for great, year the incremental it's derivative is. that volumes for the first provide intermodal that's order -- as or headroom the isn't progresses. improving, but derivative I all some mean is going and

through business. In We're addition to go to TOPXX that new for look we some going new at also as we're service projects And -- businesses consolidating launching. X, to some and V products introducing lights reopening we're look us. going at

James Squires

the to through, Mark today. as And a of have making that the the putting little volume sector. the -- in looking years, have, terminals hold for and volume. the just which -- the incrementals this growth with costs actually of business. that costs. of very we focused things went intermodal i.e. one cost terms historically, plan. were associated the that CapEx asset we intermodal a we're case keeping incrementals terminals, fixed bit into assets on periods There The the the been we're the in we growth I the within say have intermodal, use excellent back incrementals back of that couple last intermodal in equipment in maximum did this, was of growing that during And equipment would Justin, And minimum,

in, improvement a initiatives the So equipment lid terminal processes keeping environment particularly costs. around on in we're and of lots

Operator

question from Markets. next the Walter is with Our Capital line RBC Spracklin of

Walter Spracklin

fourth in due fourth quarter the tell materials other amount the through forgetting what gain forgetting to the you million, was, So you your that the of I the to quarter? at for averaging and fourth the back $XXX had looking all And going million for were that item, quarter? And XXXX gains quarter. now rate to gain the clear, in stepped million can XXXX, in you just Is anywhere $XXX now to from you down exactly be us want fourth just the $XXX -- just quarterly and run line the impact.

Mark George

absence That property $XXX of was gain property was the year, The gain. the last from million. which

Walter Spracklin

million was $XXX -- the through the just in step down understand materials other the $XXX No, just million $XXX the million? to from last per trying I'm drop quarter and expense sequential XXXX in fourth was and down talking year. quarter to million, line XXXX, Yes. through I'm caused forget quarter. of -- $XX what stepped I'm the to what cadence talking to it

James Squires

where by fourth efficiencies expense. fleet. that in material a through. lower as Mark equipment of car we locomotive we went of fleet And having efficiency quarter, in achieved that spending Some maintenance pickup a was smaller X incur the This the there, virtue out is

Walter Spracklin

So in quarter, what asking. the I'm the I gains was guess, the is question

James Squires

Mark?

Mark George

It million $XX -- was $XX around million.

Walter Spracklin

for $XX right? $XX that that am you year Is million So at million $XX full were fourth quarter. you guiding the getting million in of beginning -- to and the for the the I did year,

Alan Shaw

to million. $XX million $XX

Mark George

said Well, in $XX now what to million beginning call. the don't $XX of the was we're know guiding million. I

James Squires

at be is And end the do real to unpredictable. you I always that more estate tend said going this closings get mean year. lumpy to the now we've of and

excluding gain But -- to about to do million, little like fourth one-off quarter. what the it gains $XX from the $XX of That's to quarter that about vary think is in time. we'd I it by had we've pattern that in produced is we will better But time probably a a going you million bit XXXX. fourth forward. like quarter see

Walter Spracklin

Okay.

in $XX beginning XXXX $XX at the it at were million as $XX to in million $XX quarter? came you I to And understand, was for included million year. guidance the now your of fourth which at million, So embedded in, the $XX million of

James Squires

right. Right,

Mark George

Correct.

Walter Spracklin

Okay. Got it.

Okay.

Mark George

kind at to that So the we million. closer $XX year of ended

Walter Spracklin

of $XX fourth the million, okay, quarter? in was which all $XX million

Mark George

That's correct.

Walter Spracklin

it. Got

retroactive that you to XX% 'XX lower XX%, were or versus Or there the quite a then is to that -- rate up the adjustment bit tax, where anything still I've fairly the tax is And else it got on before, tax of tax effective XX%? tax Okay. your side would --- quarter so back rate? get guidance in just was giving a the trending -- below around

Mark George

gains, Yes. We tax had from assumed coal are more exempt. which benefits than the we

there we deductions have the we compensation. but tax and talked from addition, stock-based also credits XXG disclosed, just was that In higher about

So right direction everything kind the this just of year. for went us in

why ended what that's bit ETR the So guide. typically than a lower would we little

Walter Spracklin

Is lower as taxes of because would But anything there that that kind on exceptional just you out number lower an expenses? would... in something that that I else quarter tax Is don't onetime mind tax retroactive call -- there that was adjustment.

Mark George

out-of-period nothing was the there in No. quarter. No,

Walter Spracklin

Okay.

base. growth the hefty QX you that that what think have bit Okay, a QX, little while on above more a half have for rebounding flat just I coal so on things a will -- giving and year, a That minus What The had coming last the that, revenue's little to okay. the peer. Obviously, the of confidence you it's next offset is a optimistic your the back are side. optimistic? comfort just Is suggests going unexpectedly. Can a markets there you you give lot the It which do happened as guidance? you're flat Are same sense off you being pretty of be more serve was little here bit year. X% said the more of flat year be given that last off, through us in question your advantageous. And year. guidance rate, is you revenue is you a bit

James Squires

Alan?

Alan Shaw

Yes. that with year, within revenue and our we're back some about growth to that it. franchise and Walter, and of going our growth half the be launching it's growth able the strength is confident the targeted merchandise, of execute to towards intermodal We're products generate it's customers. our new reflecting revenue

Operator

line Our next Brian question the from Ossenbeck is Morgan. of with JP

Brian Ossenbeck

the Mike the you than A than tracking just you some old confidence mix met target new volumes then question on come ways. new if anything you were in especially of that this And shift Was level can maybe you half if you intermodal the coal or said plan. second you have even that target, the target expected, at that on for against? have lower when or put if towards you if clarify would more declines the Can meeting comment the that train point? goes in think -- just lighter

Alan Shaw

Yes.

said for so And met drove just was Merchandise half, on increases, we particularly the goal. we full like would the and the rolled -- that year, that So goal weight the against back our TOPXX XXXX for in we market. the in with calls train

strong be focus and that's X to continue growing area the and not, And train to on. trains to Merchandise of our So the we TOPXX that. plan Intermodal length. an have phase does continue in is

Brian Ossenbeck

Okay.

the despite So mix if terms approximately of lower phase of in trains, key X flat volumes is bigger really building down? or longer the even and are coal,

Alan Shaw

and So to talked them network. we as it's aren't that bigger running we're want as and Jim We doing affecting about, phase service. X. that them at size look trains it's this find ways continually the optimization we to continued And without what its make of And speak.

Brian Ossenbeck

could. up I Mark, for quick if A follow

CapEx. Just on the

short wasn't make into but rebuild figure clearly a in just too of to Obviously, program, to you're in a peers the are bit a items, out intensity. want taking look a CapEx less seat that from your quite spending, at mentioned because has clearly, much a I You cases, Norfolk sure reading now, spending some heavy trying locomotive some level. but time the for line the it's

can little you that a expand maybe So just bit? on

Mark George

again, now, It's upgrades. said, this much field, and the very And for newer and replacement AC as Yes. of of learned, and generating than locomotive budget, DC rail it's spend well Jim the XX% is in and And the supporting that's as between Roughly approach core that's, XX% Look, I've very XX% revenue. it's that actually the performing to roughly replacement way buying actually product of reliable put XX% way locomotives. the ties right it's conversions. cheaper the We the maintenance we our CapEx is ballast. network.

And spend. lot is technology IT So of but a bucket other then digital that's spend XX% comprised primarily of logical. and things, other the

obviously, how for letting there on it we of I pressure the we much and how of understand want in of down not the our because us, use the need just to CapEx. we to was in guidance going understand that looking know because I'm different response question, in at coming this to -- funds been that you going I'm in, trying to just to lens change me, fresh, So not to doesn't that a that that's just it we're level it but learned to kind it of understanding and -- anytime a spend was we're the assumptions little. it it's mean a push I'm it break and industry, I'm just big and -- it's that around test -- to and as things that's not not it what are soon. I surprised want say better, to and spend. bring adequacy the I'm a lot disciplines the have getting I'm

Operator

of the and from question Company. next Jason with is Our line Seidl Cowen

Jason Seidl

in actually little pushed the bit. I And there we guys yet. up? those intermodal. forward point Clearly, at some to of Or actually were the back does coronavirus to that a volumes the you I if XQ. uncertainty all? of to too that turning should pull inflection see XQ But recall go impact want headwind international tell into is early When

James Squires

Alan?

Alan Shaw

elevated Jason, in of intermodal the you're XXXX. volumes absolutely correct. of international We see did couple first months

speculation. point. And our to comps that's We've we're anticipating is doubt then the seeing There's this that so and they're easier the With start us. customers coronavirus, no for to it of year impact a about help. doesn't progresses, expecting to as talked get respect all It's at And growth. will unknown level bit that little the about that. where

So steamship serve. it we're that paying are close attention lines to we the as

Jason Seidl

in domestic industry do the is that PSR. from lanes going follow has let's the the X.X bit A on years, freight that with lanes is call the a my of back side are of to up the things. And does some tighten and there on the of to you that the forward market once U.S. get need service think Do little it, back think good Okay. going couple that for enough the up serve lanes highways truckload? railroads? currently railroads, you be Or onto last a pulled the they more

Alan Shaw

both. there's think I Jason, Well,

with to going organic think I to the And that powerful we're franchise then interline see, as see our shareholders. intermodal I noted, our our and offer we we're the and serve. to working growth value as our customers to benefits feverishly look customers the partners market in new going value our offer at to lanes tightens, truck we're of and with that lanes

support review our not channel overall partner's of industry. partners I best and where areas channel the can So can this growth. And a is provide value, with the static. noted, aligned dynamic It's franchise, as our in we finding we're we

find for pretty So collaborating we're together, that confident going avenues to growth. I'm

Operator

is question line from Our David of Bernstein. next with Vernon the

David Vernon

that headcount. to a wanted that about be to from further we we in expecting year of we kind Or considerably. level? where run in, the the ask should And expecting ended little we be should reductions on from come bit XXXX? pretty expecting I be where headcount rate should Ended year down

James Squires

Mark?

Mark George

We're headcount specific a not to number. going provide

to as I it, We are for goes. coming we're where then -- mentioned, see we're to and again where the volume going pushing going to we're down sure. end XXXX, keep But going from

back But about, bit levels. And expecting talked on there, little for push don't bit we're we half. specific continue number a us not start going it's to share to a to volume in you. have to the we're turning we As little a if employment with

David Vernon

give Nothing headcount in in the of budget there be additional the could sort you us a should that how reduction much for year? sense

Mark George

on we go mean be talk we but flex, year, volume because No, this we something is, have budget not depending clearly I that it heavier. going is just may to where about will we a like

James Squires

we to we in half, quarter. So in the saw, second do, David, flex fourth And the up you quarter certainly particularly had fourth throughout the did. pick when pace we and we the

what's do necessary. we So will

David Vernon

and of for $XX Mark, other Okay. million down XQ, line explains the million kind from in that sequentially, that step XXs of XQ. sort other the in came expense there And in expense maybe at fourth sequential X guess, $XX then, Is the line anything in just I quarter XQ? for

Mark George

the it's gains bit of sales is Yes, the about. sale, back-end had talked land we that that we from little that loaded property the a were

to came quarter the So we through in sales that prior had fourth compared more X. land the

Operator

line one question Our from coming with Jordan Alliger Goldman of final the Sachs.

Jordan Alliger

intermodal in -- sense still talk Just how think And franchise front. franchise question. volume quick of actually what And noise about international, what curious the do a can approach of or talk domestic sort the the curious about A it international I'm looking a that relative I'm just on XXXX, whether given Just lot your that just But is be for of performed intermodal proportion how revenue? you you as tariffs? we the also XXXX? forward? around international,

Alan Shaw

about as International our Jordan, overall our Intermodal volume. measured by franchise franchise of XX% is intermodal

But generally the We're quarter I As pretty we're into not that of to bled comps we're half quarter over tough expecting XXXX comps of first up until year -- activity earlier, with pull as some the the growth noted it XXXX. start of against -- progresses. it running with the in will expecting forward of the will year fourth of the all that our markets, the improve as year. the second

Operator

question-and-answer our I Mr. call will session. the over comments. Squires concludes for back now closing to This turn

James Squires

appreciate we quarter and look you to our XXXX again everyone. forward your morning talking when this Thank you, We earnings. with questions first announce

Operator

This you teleconference. and Ladies gentlemen, thank participation. concludes your today's for

You may have a wonderful disconnect at your and time, this lines day.

Norfolk Southern (NSC) 29 Jan 202019 Q4 Earnings call transcript