Norfolk Souther Corporation (NSC)

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Norfolk Southern (NSC)

Q4 2011 Earnings Call

January 24, 2012 4:30 pm ET

Executives

Deborah H. Butler - Chief Information Officer and Executive Vice President of Planning

Donald W. Seale - Chief Marketing Officer and Executive Vice President

Michael Hostutler -

James A. Squires - Chief Financial Officer and Executive Vice President of Finance

Mark D. Manion - Chief Operating Officer and Executive Vice President

Charles W. Moorman - Executive Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Analysts

Scott H. Group - Wolfe Trahan & Co.

William J. Greene - Morgan Stanley, Research Division

Ken Hoexter - BofA Merrill Lynch, Research Division

Edward Neal Deaton - BB&T Capital Markets, Research Division

Walter Spracklin - RBC Capital Markets, LLC, Research Division

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

Keith Schoonmaker - Morningstar Inc., Research Division

Garrett L. Chase - Barclays Capital, Research Division

Matthew Troy - Susquehanna Financial Group, LLLP, Research Division

Peter Nesvold

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

David Vernon - Sanford C. Bernstein & Co., LLC., Research Division

Christian Wetherbee - Citigroup Inc, Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division

Justin B. Yagerman - Deutsche Bank AG, Research Division

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

Robert H. Salmon - Deutsche Bank AG, Research Division

Presentation

Operator

Greetings, and welcome to the Norfolk Southern Corporation Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. Michael Hostutler, Norfolk Southern Director of Investor Relations. Thank you. Mr. Hostutler, you may begin.

Michael Hostutler

Thank you, and good afternoon. Before we begin today's call, I would like to mention a few items. First, the slides of the presenters are available on our website at nscorp.com in the Investors section. Additionally, transcripts and mp3 downloads of today's call will be posted on our website for your convenience.

Please be advised that any forward-looking statements made during the course of the call represent our best good faith judgment as to what may occur in the future. Statements that are forward looking can be identified by the use of words such as believe, expect, anticipate and project. Our actual 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, what we view as most important. Additionally, keep in mind that all references to reported results, excluding certain adjustments, that is non-GAAP numbers, have been reconciled and are on our website at nscorp.com in the Investors section.

Now it is my pleasure to introduce Norfolk Southern Chairman, President and CEO, Wick Moorman.

Charles W. Moorman

Thank you, Michael, and good afternoon, everyone. It is my pleasure to welcome you to our Fourth Quarter 2011 Earnings Conference Call. With me today are several members of our senior team, including Don Seale, our Chief Marketing Officer; Mark Manion, our Chief Operating Officer; Jim Squires, our CFO; and Deb Butler, our Chief Information Officer.

As we typically do in January, Deb will be presenting our 2012 capital budget. And in order to allow enough time for that presentation, I will include a brief operations update in my remarks on Mark's behalf. Mark will be available to answer any questions later.

I am very pleased to announce another record-breaking quarter for Norfolk Southern. We achieved fourth quarter highs in revenues, net income and earnings per share. As you know, these fourth quarter results capped an already-outstanding 2011 performance, and led to across-the-board record results for the full year, which include all-time highs for revenues, income from operations, net income and earnings per share.

Looking at our top line, revenues for the fourth quarter increased 17%. Volumes rose 6%, led by double-digit growth in Intermodal, Automotive and Metals & Construction. Revenue per unit rose 11%, led by our Coal franchise. For the full year, revenues reached $11.2 billion, 17% more than 2010 on 5% higher volume. Don will provide you with all of the revenue details in a couple of minutes.

Net income for the quarter of $480 million was up 19%, and diluted earnings per share rose 30% to $1.42. For the full year, net income and earnings per share rose 28% and 36%, respectively. And Jim will provide you with all of the financial details.

These record results resulted in strong operating cash flow, which for the first time in Norfolk Southern's history exceeded $3 billion. In recognition of this performance, as well as their confidence in Norfolk Southern's strategic direction, our board this morning increased the quarterly dividend by $0.04, or 9%, and this return to shareholders follows the $2.6 billion in share repurchases and dividends paid out during 2011.

These outstanding results were driven by a solid operating performance, which improved as the quarter progressed. While handling an additional 6% in volumes, we improved terminal dwell [ph] and maintained our average network velocity. Moreover, the increased volumes were handled with only a 5% rise in crew starts.

Our operating performance improvement is continuing into the first quarter, and we're seeing significant improvements year-over-year in network velocity in terminal dwell [ph]. The fourth quarter also saw improvements in our fuel efficiency, driven by milder weather conditions and the turnback of less fuel-efficient leased locomotive.

I will be remiss if I also didn't say something about our safety performance for the year. We finished 2011 with a projected safety ratio of 0.73, which is an absolutely remarkable number and a full 18% below our previous best. We have a great team at Norfolk Southern, and they're doing a terrific job on safety and service.

In 2012, we'll continue to focus on improving service delivery and operating efficiency while positioning our franchise for continued volume growth. Part of that plan is continued strong capital investment, and Deb will give you some details of our planned $2.4 billion capital program for this year.

I'll have more to say about our 2012 outlook in a few minutes. But now, I'll turn the program over to Don.

Donald W. Seale

Thank you, Wick, and good afternoon, everyone. For today's call, I'll recap our fourth quarter and year-end performance, including the key drivers of our results, and then I'll conclude with our outlook going forward.

The environment during the fourth quarter was marked by overall economic improvement and tightening truck capacity. These factors, combined with our ongoing business development activity, produced the strongest fourth quarter revenue on record.

In total, revenue for the quarter reached $2.8 billion, up $405 million or 17% over fourth quarter 2010. Yield improvement across the board, up 11% and volumes grew by 6%, led by gains of 21% in Automotive, 12% in Metals & Construction, 11% in Intermodal and 3% up in Coal.

Of the $405 million in revenue growth during the quarter, approximately 2/3 came as a result of higher revenue per unit, including pricing gains and fuel surcharge revenue. Higher volume accounted for the remainder of the revenue increase.

Read the rest of this transcript for free on seekingalpha.com