Remarks by:
Charles W. Moorman
Chairman, President and Chief Executive Officer
Norfolk Southern Corporation
Introduction by: Leanne Marilley - Director Investor Relations
Thank you and good morning. Before we begin today’s call I would like to mention a few items. First, we would like to welcome you to our second quarter earnings conference call. We remind our listeners and internet participants that the 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 Web site 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 call, we will conduct a question and answer session. At that time if you choose to ask a question an operator will instruct you how to do so from your telephone key pad.
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 use of the words such as “believe,” “expect,” “anticipate,” and “project.” Our 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.
Now it is my pleasure to introduce Norfolk Southern Chairman, President, and CEO Wick Moorman.
Wick Moorman
Chairman, President, and Chief Executive Officer
Thank you, Leanne, and good morning to everyone. It is also my privilege to welcome all of you to our second quarter 2008 analyst conference call.
We have several members of our management team with us today, including our Vice Chairman and Chief Operating Officer, Steve Tobias; along with Don Seale, our Chief Marketing Officer; and Jim Squires, our Chief Financial Officer. We are also joined by Rob Kesler, our Vice President of Taxation; Bill Romig, Vice President and Treasurer; and Marta Stewart, our Vice President and Controller.
When we last met I indicated that we were optimistic that the momentum that we had demonstrated in the first three months of the year would continue into the second quarter, and I’m very pleased to report that Norfolk Southern delivered strong top line growth, profitability, and bottom line results and set a number of financial and operational records this quarter.
First, railway operating revenues were the highest in our history, up 16 percent over last year. Second, we posted our best ever income from railway operations, also up 16 percent. Third, net income was a record $453 million, or $1.18 per diluted share, up 15 percent over the comparable period last year. And perhaps most importantly, our performance metrics -- the catalyst driving these record results -- continued to improve and remain among the best in the industry.
By any measure, this was an extremely strong quarter for our company. Despite ongoing weakness in the automotive and housing sectors of the economy and unprecedented high fuel prices, we improved revenue per unit and maintained our strong pricing and service performance -- a real testament to our people who continue to make the extra effort to keep service levels high even in the wake of the weather challenges we saw in the second quarter.
As you may recall, we implemented a new composite performance measurement that is part of our compensation calculations. Since its introduction at the first of the year, this measurement has sharpened our operational focus by measuring how well we adhere to our Thoroughbred Operating Plan, how well we do at making the right connections in our terminals, and the on-time performance of all of our trains, measured within tight standards. And notwithstanding the near-term impact of the Midwest flooding on our performance, I’m happy to say that we’re seeing both year-over-year and sequential improvements in these measurements.
As a result, we clearly continue to benefit from value-based pricing, commensurate with our strong service levels, and demand for our business is increasing as we strategically expand our portfolio of service offerings in response to a changing marketplace.
We continually strive to improve our service performance through intensive focus on all of our assets, our people, infrastructure, information, and equipment. In that regard, our Board yesterday authorized an additional $80 million in capital spending this year for new locomotives and rail replacement work. The rail replacement will give us a tax advantaged head start on next year’s program, and the additional power, also tax advantaged, which we expect to take delivery of in the fourth quarter, should help improve fuel efficiency and service performance, particularly in our dedicated unit-train network.
As a further indication that Norfolk Southern is on the right strategic track, our Board also increased our dividend by $0.03 per share, or 10 percent, yesterday, resulting in an annualized dividend of $1.28 per share. As you will recall, we also increased our dividend 12 percent in January, and we’ve more than tripled the dividend in the past three years. As a part of our balanced financial strategy, our goal is to achieve about a one-third payout ratio.
Overall, we remain optimistic about the future, and we are planning and investing accordingly. We are confident that our franchise will continue to benefit from a broad and balanced portfolio of businesses, as well as from rail’s inherent advantages -- safety and reliability, fuel efficiency, and environmental sustainability.
I will now turn the program over to Don Seale, who will walk you through our second quarter results from a revenue and volume perspective. Jim Squires will follow with the financial overview, and then I will return with some closing comments before we take your questions.
Don Seale’s remarks
Jim Squires’ remarks
(Mr. Moorman) Final remarks before questions and answers session:
Thank you, Jim. As you have heard, this was an exceptional quarter for our company even in the face of some economic headwinds.
Turning to the balance of the year, as we have said before, the economy continues to be clearly softer than we had originally anticipated. However, we do expect that our balanced business portfolio and superior service offerings will continue to help offset declines in our businesses related to the housing and automotive sectors of the economy, and in fact we believe that our volumes will increase on a year-over-year basis for the second half, as evidenced by our gains to date in July.
As you’ve heard, we are seeing continuing strength in coal, (particularly on the export side), ag and metals, with softness in construction, paper and forest products, chemicals, and automotive. While intermodal volumes are down slightly year over year, the import volumes seem to have stabilized, exports are growing and the domestic side has really begun to accelerate as higher and higher diesel prices make truck-to-rail conversion more and more compelling.
Also, as we’ve discussed before, project-driven growth in our intermodal and general merchandise markets is progressing as planned, which should bolster volumes over the remainder of the year.
Summing it all up, as I’ve stated before, we remain optimistic about the future. The macro trends that have benefited us are clearly continuing:
- systemically high fuel prices, which are now to the point that companies are beginning to re-evaluate their supply chains and manufacturing bases, with an increasing emphasis on rail transportation;
- as Don outlined, a continued shift of import and export traffic from the West Coast ports and to the East Coast ports;
- finally, an ever-increasing emphasis on environmental and sustainability issues.
We believe that Norfolk Southern is particularly well-situated to take advantage of these trends. We are working hard to strengthen our franchise through initiatives like the Heartland, Patriot, and Crescent Corridors, as well as our constant focus on safety, service excellence, and sustainability. We’re thinking in terms about where our business will be not just in the near term, but in five years, ten years, or even longer.
Clearly we are working in a lot of different areas to keep our business moving on the fast track, as we strategically navigate a rapidly changing landscape. We are setting high standards, striving for continuous improvement, and we are never content with the status quo. We know that superior service is the key to growing volumes and revenues and delivering on our promise to our shareholders. We plan for a future that we have every reason to believe is bright for our company and our industry.
Thank you and I will now turn the program over to the operator so that we can begin the Q & A session.
Question & Answer Session >>
Meeting Main Page >>
|
