Norfolk Southern (NSC) FY Conference Summary Company Overview - **Company**: Norfolk Southern Corporation (NSC) - **Date of Conference**: May 20, 2025 Key Points and Arguments Operational Performance - NSC has made significant progress in operational metrics, including network fluidity and service product quality, leading to improved productivity across the P&L [2][4] - The company demonstrated resilience during the first quarter, effectively managing 18 winter storms and recovering operations quickly [3] - Labor productivity, fuel efficiency, and purchase service costs have shown improvement, contributing to operational momentum [4] Financial Goals and Projections - NSC aims for $150 million in productivity savings and cost reductions in 2025, with a target of 3% revenue growth despite macroeconomic uncertainties [5][6] - The company anticipates a 150 basis points improvement in the operating ratio (OR) [6] Volume Trends - Volumes are tracking up approximately 6% quarter-to-date in Q2, with coal and auto segments performing better than expected [7][8] - Intermodal volumes remain steady, with international volumes holding strong despite concerns about a potential import cliff [9][12] Coal Market Insights - The coal segment is experiencing a replenishment of stockpiles due to winter recovery and summer electricity demand, although export coal prices remain depressed [14][16] - The company expects low single-digit declines in coal revenue per unit (RPU) due to pricing pressures [17][19] Intermodal and East Coast Operations - NSC is well-positioned to handle shifts in volume from West Coast to East Coast ports, benefiting from strong partnerships and population density on the East Coast [21][22] - The company is prepared for a return to normal equilibrium in port volumes, which could enhance operational efficiency [21] Revenue Growth and Pricing Strategy - The 3% revenue growth target is primarily driven by volume, with flat yields expected due to commodity mix challenges [24][26] - The company has seen a slight increase in yields excluding fuel, marking the first increase after six quarters of declines [37] Cost Management and Productivity - NSC has achieved strong labor productivity, with headcount down while volumes increase, indicating effective cost management [48][49] - The company is focused on reducing purchase service costs, which have shown a year-over-year decline [58] Inflation and Compensation - A 4% wage increase for union employees is expected to impact compensation costs significantly [63] - The company is managing inflation risks primarily in compensation and benefits, with ongoing efforts to enhance productivity to offset wage increases [63] Capital Expenditure and Cash Flow - NSC has reduced its capital expenditure guidance for 2024 from $2.4 billion to $2.2 billion, focusing on infrastructure and safety [64][65] - The potential for 100% bonus depreciation could provide significant cash flow benefits [66] Industry Outlook and Mergers - Discussions around potential mergers in the rail industry are ongoing, but NSC remains focused on enhancing service quality and operational efficiency rather than pursuing mergers at this time [68][70] Additional Important Insights - The company is committed to maintaining a sub-60% operating ratio in the long term, although the timeline for achieving this may be extended due to market conditions [32][33] - NSC is actively working on technology improvements to rationalize spending and enhance operational efficiency [61] This summary encapsulates the key insights and strategic directions discussed during the Norfolk Southern FY Conference, highlighting the company's operational resilience, financial goals, and market positioning.

Financial Data and Key Metrics Changes - Organic net sales decreased by 1.5% in Q2 2025, with international markets growing by 3% while North America declined by 4% [22][36] - Adjusted gross margin rate increased by 100 basis points, with productivity savings of approximately 380 basis points [37][30] - Adjusted earnings per share were $0.87, slightly down from $0.88 in the prior year quarter [38] Business Line Data and Key Metrics Changes - Wet Shave organic net sales were down about 1%, while international Wet Shave grew by 3% [24] - Grooming organic net sales increased by 9%, led by a 20% growth for the Cremo brand [28] - Fem Care organic net sales decreased by approximately 9%, primarily driven by declines in tampons and pads [29] Market Data and Key Metrics Changes - Consumption in the U.S. Sun Care category decreased by 1% in the quarter, with total market share down by 60 basis points [27] - Double-digit organic growth was observed in Greater China, with mid-single-digit growth in Japan and Europe [22] - The U.S. razors and blades category saw a consumption decline of 30 basis points, with market share decreasing by 90 basis points [25] Company Strategy and Development Direction - The company is focused on restoring momentum in North America, with significant investments in sun care and women's shave categories [12][33] - A new campaign for Hawaiian Tropic is set to be the largest investment in the U.S. in five years, targeting Gen Z consumers [34] - The company aims to leverage recent successes in international markets to replicate growth in North America [13] Management's Comments on Operating Environment and Future Outlook - Management noted increasing pressure on consumers and a decline in consumer confidence, impacting spending behaviors [17][14] - The outlook for the second half of the fiscal year anticipates a modest growth profile, with organic net sales growth expected to be flat to 1% [41] - Management expressed confidence in sequential improvement in North America, driven by new leadership and strategic initiatives [14][75] Other Important Information - The estimated impact of tariffs on cost of goods sold for fiscal 2025 is approximately $3 million to $4 million [43] - The company plans to continue exploring opportunities to mitigate tariff impacts through productivity and potential price increases [92][93] - Free cash flow for the full year is now expected to be in the range of $130 million to $140 million, reflecting lower earnings and higher inventory levels [45] Q&A Session Summary Question: Can you provide more details on the tariff impact? - The estimated in-year impact of tariffs is $3 million to $4 million, primarily affecting the fourth quarter, with a broader annualized exposure of 3% to 4% of COGS [50][52] Question: What is the confidence level for second half organic sales growth? - The company expects a 2% organic growth in the second half, driven by international growth, Sun Care category growth, and a more thoughtful approach to fem care [62][64] Question: How does the company view the North American execution? - Management clarified that while sales did not meet expectations, they are confident in execution and are investing in key programs for improvement [76][78]