Remarks by:
Charles W. Moorman
Chairman, President and Chief Executive Officer
Norfolk Southern Corporation
Good morning. I am Wick Moorman, chairman, president and chief executive officer of Norfolk Southern Corporation, and it’s my privilege to welcome you to our fourth-quarter 2007 analysts’ meeting.
We remind our listeners and Internet participants that slides of the presenters are available for your convenience on our Web site at nscorp.com in the “Investors” section. Additionally, MP3 downloads of today’s meeting will be available on our Website for your convenience.
As usual, transcripts of the meeting also will be posted on our Web site and will be available upon request from our Corporate Communications department.
At the end of the prepared portion of today’s meeting, we’ll conduct a question-and-answer session and invite those participating via teleconference to participate as well, time permitting.
Please be advised that any forward-looking statements made during the course of this presentation represent our best, good faith judgment as to what may occur in the future. Statements that are forward-looking can be identified by the use of words such as “believe,” “expect,” “anticipate” and “project.” Our actual results may differ materially from those projected and will be subject to a number of risks and uncertainties, some of which may be outside of our control. Please refer to our annual and quarterly reports filed with the SEC for discussions of those risks and uncertainties we view as most important.
You may have noticed that we have a slightly larger contingent of our management team represented today, and an expanded set of presentations. Our goal this morning is to provide you with a comprehensive overview of our strategic, operational and financial initiatives going forward. To help us do that, we have with us Vice Chairman and Chief Operating Officer Steve Tobias; Deb Butler; our executive vice president-Planning and CIO; Jim Hixon, executive vice president Law and Corporate Relations; Mark Manion, executive vice president Operations; John Rathbone, executive vice president Administration; Don Seale, our executive vice president Marketing and Chief Marketing Officer; and Jim Squires, our executive vice president Finance and Chief Financial Officer. We also are joined by Rob Kesler, vice president-Taxation; Bill Romig, vice president-Treasurer; Marta Stewart, our vice president and Controller; Frank Brown, assistant vice president Corporate Communications; Maqui Parkerson, general attorney, who’s standing in for Leanne Marilley today; and Debbie Malbon, Jim Squires’ assistant.
Since we have a full slate for you this morning, let me move ahead by saying that I am pleased to report that Norfolk Southern delivered a strong financial performance in the fourth quarter in the face of economic headwinds and higher fuel costs. The challenges were similar to those that we have seen for a number of preceding quarters as volumes declined on a year-over-year basis. However, even though our volumes were down overall, we did have gains in several of our commodity segments as Don will describe, and our results improved year-over-year, including all-time record quarterly revenues of $2.5 billion, which were up 6 percent compared with the same period of last year.
We also set a number of fourth-quarter records, including income from railway operations, net income, and earnings per share. For the fourth quarter, net income was $399 million, an increase of 4 percent compared with $385 million in the fourth quarter of 2006, and earnings per share were $1.02, an increase of 7% over the 95 cents per share we earned for the same period last year.
Our fourth-quarter results benefited from the resolution of a contract settlement that increased revenues by $26 million, and diluted earnings per share by $0.04. Jim Squires will provide you with the full details of our financial results in just a moment.
The fourth-quarter operating ratio improved 1.5 percentage points to 72 percent compared with 73.5 percent for the same period of 2006. As all of you know, lowering the operating ratio has always been — and continues to be — a primary goal for us, and we remain committed to further improvement in this very important metric.
For the full year, our 2007 results reflected solid levels of performance throughout our organization. During the year, we continued to sharpen our customer focus by investing in new capacity to handle business opportunities and developing and integrating new technologies to increase reliability, safety, and efficiency. Our service continued to improve, as you’ll see in Steve’s presentation, and Steve will also describe how we’re altering our incentive compensation plan to better tie improved service to compensation.
Our 2007 railway operating revenues were the highest of any year in Norfolk Southern’s history. We posted our best-ever income from railway operations, earnings per share, and our lowest annual operating ratio since the integration of Conrail. And stockholders benefited from a sixth consecutive year of dividend increases that together raised the dividend 41 percent.
Despite lower intermodal and coal volumes for the year as well as continued weakness in the housing sector of the economy, we produced improvement in revenue yield. We also were able to control operating costs where appropriate given the business environment, and the result for 2007 was net income of $1.46 billion, or $3.68 per diluted share.
As an indication of our confidence in the strategic direction of our company, the Board increased our quarterly dividend .03 cents per share yesterday, or 12 percent, and we repurchased 8.4 million shares of common stock in the fourth quarter for a total of 23.6 million shares in 2007.
Naturally, I am pleased to report these results, but more significantly, I’m pleased that our performance continues to showcase the strength and dedication of our people and our organization. We continue to handle historically strong business demands safely and efficiently, and we continue to produce good results that benefit customers and investors alike.
I’m going to turn the podium over to Don now, who will provide additional details about our revenues, followed by Jim Squires, who will review our financial results. In addition, I’ve asked Steve Tobias to talk with you about two subjects dearest to our hearts: service delivery and asset utilization. Finally, Deb Butler will outline our 2008 capital plans and I’ll close with some comments before we take your questions.
Don.
Don Seale’s Remarks
Jim Squire’s Remarks
Steve Tobias’ Remarks
Deb Butler’s Remarks
Thank you, Deb. Let me try, just very briefly, to sum up all of this in terms of our results for 2007 and our outlook for 2008 and beyond. I reflect that beginning in about 2004, one of the recurring questions that all of us have had — that all of you have had for us — is how deep and long lasting are the changes in the transportation market place that have been driving our improved financial performance as well as the improved financial performance the industry. My response has usually been that they seem to be here to stay, but we really wouldn’t know until we saw a business downturn. Well, in 2007 we saw that downturn, and in the face of it, Norfolk Southern, which as you know was an industry leader in volume growth and pricing from 2002 through 2006, still posted improved year-over-year financial results and a lower operating ratio. While down year-over-year, our volumes remain at historically high levels, and as you’ve heard this morning, we continue to take a long-term perspective as we plan new traffic corridors, improve technology, and support our operations with the tools necessary to provide both superior service and drive profitable volume growth.
2008 obviously presents hurdles similar to those that we tackled in 2007, and for that matter have tackled for a number of years, including cost pressures in the form of increased wages and health and welfare benefits, and continuing high diesel fuel prices. In the near term, we obviously continue to keep a close eye on the economy. In January, we see continued pressure on overall carloadings, especially in the automotive and housing sectors, and we do expect, as Don mentioned, to see that pressure continue for the next several months.
As all of you know, we never take our eyes off of the cost side of our company and our commitment to improve our operating ratio, and we’ll react to changes in revenues accordingly. However, right now we do plan to continue our locomotive and car overhaul programs to ensure that we can continue to respond to our customers’ service demands, and, as Deb discussed, we’re continuing to invest for future growth in traffic flows. In short, we remain very optimistic about our future prospects.
Thank you very much. We’ll now take questions, first from those of you who are here in the audience, and then we’ll turn it over to our telephone participants, to the extent we have time available. As always I would ask you to identify yourself before you ask a question, and we’ll start on the right and work to the left.
|
Version 1.2.7