Norfolk Southern's Net Profit Rises Despite Declining Volumes

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Norfolk Southern‘s (NYSE: NSC) second quarter net profit rose slightly as the company prepared to launch the next phase in its new precision scheduled railroading (PSR) operating model.

Net profit increased 2 percent to $722 million in the second quarter compared with the same period in 2018. Diluted earnings per share were $2.70 in the second quarter, an 8 percent increase from the same period last year. 

Despite a 4 percent drop in total volume in the second quarter, operating revenue rose by 1 percent to $2.9 billion amid a 5 percent increase in revenue per unit. Meanwhile, operating expenses were $1.9 billion, which is $12 million less than expenses in the second quarter of 2018, amid lower fuel prices and lower purchased services and rests. 

Income from NSC’s railway operations rose by 4 percent $1.1 billion, which contributed to a second quarter operating ratio of 63.6 percent compared with an operating ratio of 64.6 percent in the second quarter of 2018. A declining operating ratio can imply a company’s increasing profitability.

“Our strong financial and operational performance in the second quarter was achieved while also finalizing preparations for the successful implementation of our new operating plan, TOP21. This execution reflects the strength of our team, commitment to our customers, and power of our balanced strategic plan to deliver enhanced shareholder value,” NSC chief executive officer James A. Squires said.

Average train speeds in the second quarter rose 19 percent to 21. 9 hours, compared with 18.4 miles per hour for the same period of 2018. Average terminal dwell, which is the amount of time that a train stays at a terminal, dropped 37 percent to 18.2 hours compared with 28.7 hours in the second quarter of 2018.

The increase in second quarter net profit comes as NSC deployed its next phase of TOP21. This phase was rolled out in the first week of July with minimal impact to customer service and network operations, the company said on July 22.

Norfolk Southern said TOP21 will reduce circuity, improve velocity and result in more predictable transit times. With a goal of a smooth transition in mind, the company said it hosted 19 town hall meetings with employees and customers prior to the July 1 implementation, and it established two 24/7 command centers to monitor network status and customer concerns as the changeover occurred.

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