Norfolk Southern(NSC) - 2024 Q1 - Quarterly Report

Part I. Financial Information Financial Statements Q1 2024 consolidated financial statements show a significant performance decline, with net income plummeting to $53 million from $466 million due to decreased revenues and increased operating expenses from incident and restructuring charges | | First Quarter 2024 | First Quarter 2023 | | :--- | :--- | :--- | | Railway operating revenues | $3,004 million | $3,132 million | | Income from railway operations | $213 million | $711 million | | Net income | $53 million | $466 million | | Diluted earnings per share | $0.23 | $2.04 | | | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $2,356 million | $3,271 million | | Total assets | $42,128 million | $41,652 million | | Total current liabilities | $3,447 million | $2,632 million | | Total liabilities | $29,592 million | $28,871 million | | Total stockholders' equity | $12,536 million | $12,781 million | | | First Three Months 2024 | First Three Months 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $839 million | $1,173 million | | Net cash used in investing activities | ($1,844) million | ($391) million | | Net cash provided by (used in) financing activities | $89 million | ($686) million | | Net decrease in cash and cash equivalents | ($916) million | $96 million | Notes to Consolidated Financial Statements The notes provide detailed explanations for the financial statements, covering revenue composition, restructuring charges, the Eastern Ohio incident's financial impact, and a major asset acquisition | Commodity Group | Q1 2024 Revenue | Q1 2023 Revenue | | :--- | :--- | :--- | | Merchandise | $1,863 million | $1,878 million | | Intermodal | $745 million | $814 million | | Coal | $396 million | $440 million | | Total | $3,004 million | $3,132 million | - In Q1 2024, the company recorded $99 million in "Restructuring and other charges," which includes $64 million for voluntary and involuntary employee separation programs and $35 million in costs related to the appointment of a new Chief Operating Officer[34][35] - On March 15, 2024, the company completed the acquisition of a 337-mile railway line from Cincinnati Southern Railway (CSR) for $1.7 billion[45] - The effective tax rate for Q1 2024 was -76.7%, compared to 21.3% in Q1 2023, driven by low pre-tax income combined with a $27 million deferred tax benefit from a subsidiary restructuring[37] Note 13. Commitments and Contingencies This note details significant contingencies, dominated by the Eastern Ohio Incident, including accrued liabilities, total expenses, insurance recoveries, a major class action settlement, and ongoing government investigations | Eastern Ohio Incident Financials | As of March 31, 2024 | | :--- | :--- | | Accrued Liabilities | $939 million | | Total Expenses Recognized (since inception) | $1.7 billion | | Insurance Recoveries Recognized (since inception) | $209 million | - On April 9, 2024, Norfolk Southern reached an agreement in principle to settle the Ohio Class Action lawsuit for $600 million, subject to court approval, aiming to resolve claims within a 20-mile radius of the derailment[60] - The company is under investigation by multiple government agencies, including the NTSB, which is expected to issue a final report in June 2024, and the FRA, which is conducting its own incident investigation[66][67][68] - The company's liability insurance provides coverage for approximately 93% of covered losses between $75 million and $734 million per occurrence, with $108 million of the total $209 million in insurance recoveries for the Eastern Ohio Incident recognized in Q1 2024[87][89] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's analysis attributes the significant Q1 2024 GAAP decline to incident and restructuring costs; adjusted non-GAAP results also fell due to lower revenues and higher expenses, impacting financial condition and increasing leverage Summarized Results of Operations Q1 2024 GAAP results showed significant declines in income and net income; adjusted non-GAAP figures, excluding incident and restructuring costs, revealed a 25% decrease in diluted EPS to $2.49 | Metric | Q1 2024 (GAAP) | Q1 2023 (GAAP) | % Change | | :--- | :--- | :--- | :--- | | Railway operating revenues | $3,004 M | $3,132 M | (4%) | | Income from railway operations | $213 M | $711 M | (70%) | | Net income | $53 M | $466 M | (89%) | | Diluted earnings per share | $0.23 | $2.04 | (89%) | | Railway operating ratio | 92.9% | 77.3% | 20% | | Metric | Q1 2024 (Adjusted) | Q1 2023 (Adjusted) | % Change | | :--- | :--- | :--- | :--- | | Income from railway operations | $904 M | $1,098 M | (18%) | | Net income | $565 M | $759 M | (26%) | | Diluted earnings per share | $2.49 | $3.32 | (25%) | | Railway operating ratio | 69.9% | 64.9% | 8% | Detailed Results of Operations Total railway operating revenues decreased 4% to $3.0 billion due to lower revenue per unit; operating expenses rose 15% GAAP, primarily from Eastern Ohio incident and restructuring charges, with underlying increases in compensation and purchased services | Revenue Change Drivers | Merchandise | Intermodal | Coal | | :--- | :--- | :--- | :--- | | Volume | ($6 M) | $64 M | ($17 M) | | Fuel surcharge revenue | ($61 M) | ($41 M) | ($13 M) | | Rate, mix and other | $52 M | ($92 M) | ($14 M) | | Total Change | ($15 M) | ($69 M) | ($44 M) | - Intermodal revenue fell 8% despite an 8% volume increase, driven by a 15% drop in revenue per unit, with international volume surging 21% while domestic volume remained flat[106][116] - Coal revenue dropped 10% due to a 4% volume decline and 6% lower revenue per unit, primarily driven by a 15% decrease in utility coal tonnage caused by customer outages, high stockpiles, and low natural gas prices[106][118] - Compensation and benefits expense increased 7% to $736 million, driven by a higher average headcount (up 1,100 employees), increased pay rates, and higher employee activity levels[119][120][123] Financial Condition and Liquidity Q1 2024 liquidity saw cash from operations decrease to $839 million, with $1.8 billion used in investing activities primarily for the $1.7 billion Cincinnati Southern Railway acquisition, leading to no stock repurchases and an increased debt-to-total capitalization ratio - Cash provided by operating activities decreased from $1.2 billion in Q1 2023 to $839 million in Q1 2024, reflecting lower operating results[129] - Cash used in investing activities increased significantly to $1.8 billion, primarily due to the acquisition of assets from the Cincinnati Southern Railway (CSR)[130] - The company did not repurchase any Common Stock in Q1 2024, compared to $163 million in repurchases in Q1 2023[131] - The debt-to-total capitalization ratio was 58.4% at March 31, 2024, up from 57.3% at December 31, 2023[136] Quantitative and Qualitative Disclosures About Market Risk This section states that the required information regarding market risk is included within the "Financial Condition and Liquidity" subsection of Management's Discussion and Analysis (Item 2) - Information regarding quantitative and qualitative disclosures about market risk is provided in Part I, Item 2, under the heading "Financial Condition and Liquidity"[145] Controls and Procedures Based on an evaluation conducted by the Chief Executive Officer and Chief Financial Officer, the company concluded that its disclosure controls and procedures were effective as of March 31, 2024 - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[145] - No changes were identified in the first quarter of 2024 that have materially affected or are reasonably likely to materially affect the company's internal control over financial reporting[146] Part II. Other Information Legal Proceedings This section directs readers to Note 13, "Commitments and Contingencies," in the Notes to Consolidated Financial Statements for detailed information on the company's legal proceedings - For information on legal proceedings, refer to Note 13 "Commitments and Contingencies" in the Notes to Consolidated Financial Statements[149] Risk Factors The company states that the risk factors outlined in its 2023 Form 10-K remain unchanged and are incorporated by reference into this quarterly report - The risks disclosed in the company's 2023 Form 10-K have not changed and are incorporated by reference[150] Issuer Purchases of Equity Securities During the first quarter of 2024, Norfolk Southern did not repurchase any shares of its common stock under its publicly announced repurchase program - The company did not repurchase any shares of Common Stock under its stock repurchase program in the first three months of 2024[40] - As of March 31, 2024, $6.9 billion remains authorized for repurchase under the $10.0 billion program authorized in March 2022[152] Other Information The company reported that none of its directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or other non-Rule 10b5-1 trading arrangement during the quarter[155] Exhibits This section lists the exhibits filed with the Form 10-Q, including various agreements, officer certifications (CEO and CFO), and financial data formatted in Inline XBRL - Exhibits filed include an offer letter for the new COO, a retention agreement, an amended management incentive plan, and required CEO/CFO certifications[158]