Norfolk Southern(NSC)2023-01-25 18:00Financial Data and Key Metrics Changes - For the full year 2022, the company reported record revenues of $12.7 billion, a 14% increase compared to 2021, driven by higher fuel surcharge revenue and price gains, despite a 3% decline in total volume [28][42] - Earnings per share (EPS) for 2022 was $13.88, an increase of $1.77 or 15% relative to 2021 [28] - Operating expenses in the fourth quarter increased by $333 million or 19% year-on-year, primarily due to elevated fuel prices and significant adverse accrual adjustments [45] Business Line Data and Key Metrics Changes - Intermodal revenue per unit and revenue per unit, excluding fuel, increased year-over-year due to higher fuel revenue and price gains [10] - Merchandise revenue increased 12% year-over-year to $1.9 billion, with revenue per unit, excluding fuel, reaching record levels [153] - Coal revenue for the quarter increased by 28%, driven by price gains, volume growth, and higher revenue from fuel surcharge [22] Market Data and Key Metrics Changes - The company anticipates that macroeconomic conditions will pressure various markets, particularly manufacturing, which is expected to contract in 2023 [23] - The international business is expected to benefit from lower ocean rates and improved supply chain fluidity, prompting a return of customers to Inland Point Intermodal [24] - Coal volumes increased by 8% in the quarter, supported by higher demand driven by geopolitical factors, although there were declines in coke shipments due to facility closures [154] Company Strategy and Development Direction - The company aims to deliver long-term shareholder value through top-tier revenue and earnings growth, competitive margins, and balanced capital deployment [5] - A focus on improving service levels and operational efficiency is central to the company's strategy, with a commitment to continuous improvement and customer-centric operations [8][134] - The company is investing in modernizing locomotives and enhancing infrastructure to support growth and improve service reliability [140][152] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to absorb volume pressure and recapture market share due to improving service levels [29] - The outlook for 2023 reflects uncertainty in the macro landscape, with expectations for revenue to be flat compared to 2022 performance [29] - Management highlighted the importance of focusing on controllable factors to execute the strategic plan effectively amid economic challenges [44] Other Important Information - The company finalized national contracts with unions, recognizing the hard work of frontline employees with historic wage increases [4] - Capital expenditures for 2023 are expected to be approximately $2.1 billion, consistent with a balanced and disciplined spending plan [161] - The company returned over $4 billion to shareholders in 2022, with a 14% increase in dividend distributions [160] Q&A Session All Questions and Answers Question: Can you offer more detail on yields and revenue per car in intermodal and coal? - Management indicated that they are seeing some positive developments in the intermodal space, but there are challenges due to market pricing dynamics [30][66] Question: What is the outlook for operating income and operating ratio (OR) improvement in 2023? - Management expects flattish revenue and operating income, with potential for OR improvement in the back half of the year as service-related costs unwind [34][52] Question: How do you see the impact of inflation and service-related costs on operating expenses? - Management acknowledged significant inflationary pressures but indicated that improved service levels should help mitigate some of these costs over time [56][66] Question: What is the current state of labor relations and how might it affect future operations? - Management noted that discussions with labor unions are ongoing, focusing on quality of life and operational flexibility, which are expected to enhance employee engagement [106][75] Question: How does the company plan to address potential excess headcount if volumes come in weaker than expected? - Management stated that they are prepared to handle fluctuations in volume and will focus on training and flexibility to manage workforce needs [107][126]