Remarks by:
Donald W. Seale
Executive Vice President and Chief Marketing Officer
Norfolk Southern Corporation
Railway Operating Revenue 2007 vs 2006
Thank you Wick, and good morning.
Despite well documented softness in the economy and excess freight trucking capacity, we were able to generate record fourth quarter revenues of $2.454 billion, an increase of $135 million, or 6%, over the fourth quarter of 2006. The two primary drivers for the increase were higher pricing and fuel.
Merchandise revenue increased by $123 million, or 10%, in the quarter, as record revenues were attained in Agriculture and Chemicals. Automotive revenue was up 20%, or $46 million, for the quarter, due to a contract volume shortfall payment of $26 million and other revenue gains. For the full year, Merchandise revenues increased by $90 million, or 2%.
Coal revenue in the quarter was $9 million higher than last year, an increase of 2% and a new quarterly record. For the year, Coal revenue declined by 1%.
And, revenues were up 1% in the quarter for Intermodal, despite a less than robust marketplace, while revenue declined by 3% for the full year.
Revenue Per Unit 2007 vs 2006
With respect to pricing and yield, the fourth quarter represented our 21st consecutive quarter of revenue per unit growth. Each of our seven primary business segments produced record revenue per unit for both the quarter and the year. RPU reached an all-time high of $1,313 for the quarter and $1,242 for the year, an increase of 9% and 4%, respectively.
Of the 9% RPU growth in the quarter, 1% was due to the Automotive contract settlement that I just mentioned, and the remaining 8% gain was roughly half price and half fuel and mix. Going forward, as discussed in previous quarters, we expect an average of 4% pricing yield, independent of fuel and mix.
Railway Volume 2007 vs 2006
Looking at volume, despite unfavorable economic headwinds, four of our seven business segments realized higher shipment levels in the quarter. As you can see here, shortfalls in Coal, Intermodal, and Paper offset gains in other Merchandise traffic, resulting in a 3% overall decline in volume versus last year’s fourth quarter. Volume for the full year was down 4% compared to 2006.
Merchandise Revenue & Units 4th Quarter 2007 vs 2006
Now turning to our individual markets, for the quarter, record Agriculture revenue was up $36 million, or 14%, as shipments increased by 3%. Pricing gains, along with strong export and domestic corn shipments, which were up 10 %, drove the growth.
The integrated AgriFuels market, comprised of biodiesel, ethanol, and related feed stocks including fertilizers, was up over 4,000 carloads, or 30%, in the quarter.
Merchandise Revenue & Units 4th Quarter 2007 vs 2006
In Chemicals, we recorded our 18th consecutive quarter of year-over-year revenue gains, as strong pricing and higher volumes drove revenues up 12% to a new quarterly record.
Volume was up 1% in the quarter due to increased plastics traffic, as well as higher sulfuric acid and soda ash carloads. Online plant expansions for plastics production and a new asphalt terminal in Georgia added to volumes in the quarter, as well.
Merchandise Revenue & Units 4th Quarter 2007 vs 2006
As mentioned earlier, Automotive revenue in the quarter was up 20%, or $46 million. $26 million of the increase consisted of a volume shortfall payment in one of our automotive contracts, while improved pricing and higher traffic volume with other automotive customers generated the remaining $20 million gain in the quarter.
Volume rose 1% for the quarter, driven by higher shipments for the new domestics and General Motors.
Merchandise Revenue & Units 4th Quarter 2007 vs. 2006
Metals & Construction revenue increased by 7%, or $20 million, in the quarter, while volume rose by 2%. The volume gain in the quarter was partially driven by new coil steel business to Detroit, as well as new business diverted from barge at Hennepin, Illinois.
Construction materials volume fell 3% in the quarter due to continued softness in the housing sector.
Merchandise Revenue & Units 4th Quarter 2007 vs 2006
Paper and Forest Products revenue fell $11 million, or 5%, in the quarter, while volume declined by 9%.
In the fourth quarter and throughout the year, lumber shipments were weak due to the housing market. Kaolin clay volumes were impacted by competition from Brazil and the loss of some short-haul export business.
And, our conventional paper market continued to be impacted by increased truck availability throughout the southeastern market.
Coal Variance Analysis 4th Quarter 2007 vs. 2006
In our Coal business, despite a soft utility and domestic met coal market, we produced the highest revenue quarter ever at $601 million, an increase of 2% over the same period in 2006.
Revenue per car reached $1,441, an increase of 7% over fourth quarter 2006. This revenue per car growth resulted from higher rates, increased fuel surcharge collection, and more favorable traffic mix.
Coal Volume 4th Quarter 2007 vs 2006
With respect to volume for the quarter, a 23% increase in export coal shipments were offset by weakness in the utility and domestic met markets. Export demand to Europe remained strong, driven by the weak dollar and Australian port congestion.
High utility stockpiles, primarily in the Southeast, along with mine outages and weaker domestic coke demand, suppressed volume in the utility and domestic met markets.
In the near term, reports indicate that Consol’s Buchanan Virginia mine will reopen during the first quarter. Annual production at this mine represents approximately 5 million tons of low vol coal, which is currently in great demand.
Intermodal Variance Analysis 4th Quarter 2007 vs 2006
Turning to Intermodal, revenue for the quarter of $496 million was up $3 million, or 1%, over 4th quarter 2006.
Fourth quarter revenue per unit was an all-time high, reaching $640. Contractual rate increases for several major customers and expanded fuel surcharge application contributed to the gains. We re-priced approximately 30% of our international business during the quarter, which bodes well for 2008.
Intermodal volume fell 4% in the quarter, as continued excess trucking capacity and economic softness impacted shipments.
Intermodal Volume 4th Quarter 2007 vs 2006
Our International business continued to see the impact of restructuring of trade flows by ocean carriers from West Coast ports to the East, as well as lower overall import traffic. NS volumes moving through East Coast ports grew 23% for the quarter, while volumes moving through the West Coast fell 13%.
Domestic volumes were impacted by increased over-the-road competition in the face of soft demand.
Premium traffic was up primarily as a result of increased business with UPS.
And, Triple Crown volume was impacted by excess truck capacity and cuts in Automotive production.
Outlook 2008
Looking ahead, 2008 will continue to be a difficult environment, as soft economic conditions are expected to remain. A weak housing market and high oil prices will make the first half of 2008 challenging for both consumer and business activity. But, the weak dollar and strong global demand should bolster exports, partially offsetting the slowdown in domestic demand.
Despite these economic headwinds, we expect both volume and revenues to improve versus 2007. Strong project growth and new business are expected to generate increased traffic in most of our business groups. Also, we anticipate continued pricing gains, averaging 4% over the year, as ongoing improvements in our service increase the value of our product.
Thank you, and now, Jim Squires will walk you through our financial report.
Remarks by James A. Squires >> |
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