Remarks by:
Charles W. Moorman
Chairman, President and Chief Executive Officer
Norfolk Southern Corporation
Thank you, Leanne, and good morning. It’s my privilege to welcome you to our fourth-quarter 2008 analysts’ meeting.
Those of you here today will have noticed that we have a number of our management team present. Our goal this morning is to provide you with a comprehensive overview of our strategic, operational and financial initiatives. To help do that, we have with us Steve Tobias, vice chairman and chief operating officer; Deb Butler, executive vice president Planning and chief information officer; Jim Hixon, executive vice president Law and Corporate Relations; Mark Manion, executive vice president Operations; John Rathbone, executive vice president Administration; Don Seale, executive vice president and chief marketing officer; and Jim Squires, 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, vice president and Controller; Frank Brown, assistant vice president-Corporate Communications; and Debbie Malbon, Jim Squires’ assistant.
Since we have a full slate for you this morning, let’s get started. I am very pleased with our 2008 results that reflect a continuing high level of performance throughout our organization, capped by a fourth-quarter that reflects the strength of our diverse portfolio of transportation products in the global marketplace.
Our railway operating revenues were the highest of any year in Norfolk Southern’s history, and we posted our best-ever income from railway operations, net income, earnings per share, and our lowest operating ratio ever, which improved 1.5 percentage points year over year to 71.1. Stockholders benefited from a seventh consecutive year of dividend growth, as we increased our 2008 dividends by 27 percent, and we repurchased over 19 million shares of common stock.
Throughout the year, we continued to sharpen our customer focus by investing in our network and developing and integrating new technologies to increase reliability, efficiency, and safety. Our financial results for 2008 demonstrate continued demand for efficient rail transportation, and while economic headwinds continued to exert pressure on traffic volumes, we were able to offset reduced loadings through pricing gains and cost control.
Despite lower overall volumes, we produced improvement in revenues, which Don will discuss in greater detail in a moment. We also were able to control operating costs where appropriate given the business environment, while providing increased levels of service. The result was record net income of $1.7 billion, or $4.52 diluted earnings per share, for the year.
In the fourth quarter, we faced even more significant challenges as volume declines accelerated on a year-over-year basis. However, we still were able to generate improved financial results and set a number of fourth-quarter records, including railway operating revenues, income from railway operations, net income, earnings per share, and our best-ever operating ratio of 67.5. Jim will provide you with the full details of our financial results, including some of the catalysts driving our record performance.
As an indication of our confidence in the strategic direction of our company, the Board increased our quarterly dividend two cents per share yesterday, or six percent. Our focus is to continue to produce solid results that benefit customers and investors alike.
While it is unclear how long the current economic downturn will persist, all of the long-term trends point to freight railroads as the preferred way to move goods and relieve highway congestion. We will continue to make investments in our company and, as you’ll hear more about today from Deb Butler, in 2009 we plan to invest $1.4 billion in capital improvements to maintain the safety and quality of our franchise, improve operating efficiency and service and support the business growth we expect in future years.
I’m now going to turn the podium over to Don, who will provide additional details about our revenues, followed by Jim, who will delve into our financial results. In addition, I’ve asked Steve to talk with you about our service delivery, and you’ll also hear from Deb about our capital plans. I’ll close with some comments before we take your questions.
Don Seale’s remarks
Jim Squires’ remarks
Steve Tobias’ remarks
Deb Butler’s remarks
Thank you, Deb. Well, obviously 2008 was a terrific year for Norfolk Southern. The strong fourth quarter was the result of the lag in fuel. We’re pleased with our recent performance, especially in light of reduced volumes and economic uncertainty, and we remain confident in the strength of our franchise going forward.
Looking ahead, it goes without saying that we’re looking at a set of business conditions and an economic outlook that are as troubled and uncertain as any we have experienced in many, many years. As you will have seen, our January carloadings continue to be down substantially, and there is little doubt that our first-quarter and full-year 2009 earnings will be under pressure, barring some unforeseen improvements in the economy. To manage through this environment, we will remain focused on a few key principles. First, we’ll obviously continue to control costs to the fullest extent possible without negatively impacting customer service. As you all know, Norfolk Southern has a long history of effective cost control, and Steve showed you how we have the tools to respond quickly to changing traffic conditions.
Second, as you’ve heard this morning, guided by our Track 2012 process, we will continue to take a long-term perspective as we enhance new traffic corridors, improve technology, and support our operations with the tools necessary to provide superior service. We’ll keep our property and assets maintained at a level that will allow us to provide that service. This recession will end someday, and just as in 2003, we’ll be positioned to take full advantage of all of our opportunities when it does.
Third, we’ll continue to aggressively pursue new business development plans and products, such as our recently announced Chicago-Titusville, FL service. Economic disruption will create business opportunities for us, and we will take full advantage of them. We’ll also continue to make sure that we realize the full value of our superior service products.
2009 will present significant challenges for Norfolk Southern, but let me conclude by saying that I am as optimistic as I have ever been about the longer-term prospects for our company. All of the structural reasons for our success in recent years are still in place, if somewhat masked by current economic conditions, and when the economy recovers, our combination of superior service at a cost that makes sense, along with a superior environmental footprint, will make us the preferred transportation solution.
Thank you, and we’ll now take questions first from those of you here in the audience. Then, I’ll turn the program over to the operator, who will instruct our telephone participants how to ask a question.
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