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 third 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 www.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 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 everyone. It’s also my privilege to welcome everyone to our third quarter 2008 analyst conference call.
We have with us several members of our management team, including: our Vice Chairman and Chief Operating Officer, Steve Tobias, along with Don Seale, our Executive Vice President and Chief Marketing Officer, and Jim Squires, our Executive Vice President Finance and Chief Financial Officer. We’re 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 we had generated in the first half of the year would continue into the third quarter. Today I am pleased to report that that momentum did remain strong as Norfolk Southern delivered record-breaking revenues, profitability, and earnings along with a best-ever operating ratio in the face of the most volatile economic period in recent history.
Our railway operating revenues were the highest ever, up 23% over last year. We also posted best-ever operating profit, of 31%, and record net income of $520 million, or $1.37 per diluted share, up 35% over the comparable period last year. The operating ratio was a record low 69.1%, a 2 percentage point improvement and the first time in our history that we have reported a quarterly operating ratio in the 60s. And most importantly, our safety and service metrics remained at industry-leading levels even in a quarter punctuated by several weather challenges.
Our strong performance and improvement in efficiency demonstrate that we are continuing to provide the service our customers need to compete in this turbulent economy. Our results are also a confirmation of the strength of our balanced portfolio of businesses, as we were able to largely offset persistent volume pressures in housing-related and automotive traffic in the quarter and maintain the pricing patterns of the first half of the year.
To give you more detail, I’ll now turn the program over to Don Seale who will walk you through our third quarter results from a revenue and volume perspective. Jim Squires will follow with the financial overview, and then I’ll return with some closing comments about our longer-term goals and economic outlook before we take your questions.
Don Seale’s remarks
Jim Squires’ remarks
Wick Moorman’s Final Remarks
Thank you, Jim. Well, as you’ve heard, this was an exceptional quarter for our company. As we’ve said, our results continue to showcase our balanced portfolio of businesses, our superior service product, and our ability to realize value from strategic investments in our franchise.
In wrapping this up, let me first say a couple more words about service. We had another good quarter for service delivery from a metrics standpoint, and our overall metrics improved year over year, although weather-related disruptions hampered some of our operations. Our goal is always to offer a premium level of service to customers across our network, and we are focused across all facets of the enterprise to support that goal. The purchase of additional locomotives and our decision to accelerate program track work earlier this year are but two examples of this effort to continually drive further operating efficiencies and deliver better financial results for our shareholders. As Don mentioned, we track our customers’ opinions of our service in an annual customer satisfaction survey, and the fact that we achieved across-the-board improvements in all major categories, as well as overall performance, is a great indication that our investments, hard work, and focus are paying dividends.
Service improvement also lies at the heart of Track 2012, our longer range plan to take Norfolk Southern to the next level of performance and shareholder returns. We continually strive to improve our service performance by intensively managing all of our assets: people, infrastructure, equipment, and information. Because of the long lives of many of our assets and the time it takes to deploy capital, it is essential that we think in terms of where our business will be longer term.
Track 2012 is the process that we’ve put in place to provide the road map for our company to continuously improve in these important areas over the next 4 years. As part of the process we, have set aggressive goals in terms of safety and financial performance, and to achieve these goals, we are focusing -- and Track 2012 is all about focus -- on the four keys to improving railroad performance: service delivery along with our three major cost drivers -- fuel consumption, asset utilization, and workforce productivity.
We have significant improvement projects under way in each of these areas. Some are relatively short-term in nature, and some will require more time along with the introduction of new technology. I will tell you that we’re all very excited about these initiatives; we’ve seen some early signs of success in areas like equipment utilization, as Jim mentioned, and I’m optimistic that you’ll be seeing even more improvement as 2009 unfolds.
Looking at the fourth quarter and on into 2009, we’re obviously concerned along with everyone else about the economy. While our portfolio of businesses will buffer us from much of the impact should the economy deteriorate further, we are making plans to ensure that we can react appropriately in that event. As all of you know, we have been working diligently to ensure that our infrastructure, assets, and workforce are being maintained at the appropriate levels, and we’re confident that we have the flexibility to respond to whatever economic conditions arise and still operate safely and efficiently at high service levels.
Looking at the longer term, we believe that the fundamental drivers of our success over the past few years are still in place, and that the rail industry and Norfolk Southern in particular have a bright future.
I am confident that Norfolk Southern will continue to leverage our operational momentum, improve our service quality, and pursue new business and margin improvement as we do, reaffirming our position as a benchmark company characterized by excellent performance and execution across the enterprise.
Thanks everyone, and I’ll now turn the program over to the operator so that we can begin the Q&A session.
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