Remarks by:
Charles W. Moorman
Chairman, President and Chief Executive Officer
Norfolk Southern Corporation
Thank you, Leanne, and good morning everyone. It is my privilege to welcome all of you to our second-quarter 2009 earnings conference call. I am joined by several members of our senior management team including: Don Seale, Chief Marketing Officer; Mark Manion, Chief Operating Officer; and Jim Squires, Chief Financial Officer, all of whom you’ll hear from today.
Norfolk Southern’s second-quarter results, while obviously adversely impacted by the continuing recession, reflect solid operating performance and aggressive cost control. While revenues declined 33 percent on a 26 percent reduction in volume, we reduced operating expenses by 29 percent, outpacing the very substantial volume drop and partially offsetting the reduction in revenues.
The result was second-quarter railway operating profit of $468 million, which was 41 percent below last year. Earnings per share were down 44 percent year-over-year, and our second-quarter operating ratio was 74.8 percent, an increase of 3.7 percentage points over the comparable period last year.
In the face of these steep volume declines, we demonstrated considerable ability to shed costs from the system while maintaining and improving the safety, service and efficiency of our operations. Our Track 2012 initiatives are driving Norfolk Southern to the next level, and while Mark will discuss the details of our cost control programs with you in a few minutes, I do want to underscore the disciplined and deliberate fashion with which we are approaching these efforts.
Let me give you some examples.
First, we achieved an all-time best system average train speed in the quarter.
Importantly, this milestone was achieved by careful planning and disciplined execution that resulted not only in an overall average speed improvement, but continuing improvements in fuel consumption which declined by more than both train starts and gross ton miles.
Second, the decrease in volume-related labor was driven not only by reduced crew starts as Mark will outline, but also by a focus on reducing overtime hours, which accounted for nearly half of the quarterly decline.
Third, our workforce reductions, which are down year-over-year and sequentially, reflect a location-by-location sophisticated analysis of projected labor requirements, demographics, and business volumes.
We achieved these efficiencies while meeting or exceeding customers’ service requirements. In fact, every measure within our service composite performance index – plan adherence, train performance, and connection performance – improved in the second quarter.
While we expect our revenues and volumes to remain under pressure, we continue to restructure our franchise to remain positioned as the premier rail network. We also fully intend to ensure that many of these efficiencies will remain in place as the economy revives.
A reliable, efficient and environmentally sound way to ship freight is a critical part of the solution to our nation’s transportation crisis.
To that end, we announced plans this month to invest in new intermodal terminals in Alabama and Tennessee. Both will support local economic development as well as our Crescent Corridor rail infrastructure initiative, which will establish a high-speed rail route from the Mid-South and Gulf Coast to the Northeast and New England. While there is still a lot of work to be done, our hope is to open these new terminals in 2012.
I am pleased with our progress this quarter and am confident that when the economy emerges from this recession, we will be in excellent position to attract and accommodate volume growth. As we manage the enterprise for the long-term, we will continue to control costs, improve our service product, and enhance our franchise by investing in projects that position Norfolk Southern for the future.
I’m now going to turn the program over to Don, who will provide full details about our revenues, followed by an operations overview by Mark, and a discussion of our financial results by Jim. I’ll then wrap up with some closing comments before we take your questions.
Don Seale’s remarks
Mark Manion’s remarks
Jim Squires’ remarks
Thank you, Jim. As you’ve heard, while the second quarter was clearly challenging with a volume decline that exceeded what we saw in the first quarter, our balanced approach of cost reductions and service improvements created solid results for our shareholders.
Looking ahead, our economic crystal ball remains as cloudy as it has ever been.
The duration of the recession and the shape of the recovery are still question marks, but we are encouraged that the erosion of our traffic volumes that we have seen for the past 8 or 9 months seems to have at least stabilized. As Don mentioned, we have seen a couple of signs of increased economic activity with a few of our customers over the past few weeks, and while I think that it’s too early to tell if these are genuine green shoots or not, we’re at least encouraged that we’re not seeing large parts of the lawn continue to die off. It does feel like we’ve reached a bottom.
It seems likely that the economic recovery will take some time, but it is my hope and anticipation that as the economy improves, rail traffic, and Norfolk Southern’s traffic, in particular, can revive at a pace that is faster than the overall economy. As we continue to improve our efficiency and our industry-leading service levels, the value proposition that we offer to shippers who are looking for smart transportation alternatives becomes more and more attractive. As we have discussed many times before, the long-term trends still point to freight railroads as the preferred way to move goods and relieve highway congestion. All of the factors that propelled our recent years’ growth are intact, and the advantages of rail in terms of energy independence and carbon footprint are becoming more important in the considerations of many transportation buyers.
I’ll close by saying again that at Norfolk Southern, we never lose sight of the fact that we’re a service company, and we continually strive to improve our service product by intensively managing all of our assets: people, infrastructure, equipment, and information. We know that providing a superior level of service provides higher value for our customers, and for that reason we will continue to invest; we will continue to improve service delivery; and we will continue our long-term focus.
Thank you, and I’ll now turn the program over to the operator, who will instruct our telephone participants how to ask a question.
|
Version 1.2.7