Announcing its 2020 first-quarter financial results, NS says this includes a $US 385m non-cash locomotive rationalisation charge for the continuing disposition and marketing of surplus locomotives.
NS has cut its locomotive fleet by 22% since the beginning of 2019 from 3515 active and 606 inactive units to 2801 active and 402 inactive/surge locomotives at the end of the first quarter of 2020. It has also reduced the number of locomotive types from 19 to 10. This has cut operating and maintenance costs and reduced the average age of the fleet.
As a result, net income was $US 381m and NS’ operating ratio was 78.4%. Excluding the effects of the asset rationalisation charge, adjusted first-quarter net income was $US 669m and adjusted operating ratio improved by 230 basis points to 63.7% compared with the first quarter of 2019 record of 66.0%.
NS says it achieved record quarterly operating performance in the first quarter of 2020, with average train speed increasing by 10% from 34.9km/h a year ago to 38.3km/h and a 16% reduction in terminal dwell time from 22.2 hours to 18.6 hours.
NS has already witnessed the impact of the coronavirus pandemic. First quarter operating revenue fell by 8% to $US 2.6bn compared with the first quarter of 2019, driven by an 11% drop in total volume.
Operating expenses were $US 2.1bn, including the locomotive rationalisation charge. Excluding this charge, adjusted operating expenses fell by 11% to $US 202m driven by a 14% reduction in staff costs, a 24% cut in fuel costs, and 13% lower materials costs.
“During the first quarter, Norfolk Southern’s determination to transform our operations once again produced all-time best service delivery levels accompanied by productivity improvements, despite volumes being impacted by weak energy prices and the onset of the Covid-19 pandemic,” says Mr James Squires, NS chairman, president and CEO. “While it is unclear how long economic activity will remain suppressed, we are dedicated to serving our customers and keeping our employees healthy and safe while navigating the downturn so that we can emerge strong and resilient for our shareholders. I am extremely proud of the commitment and strength the Norfolk Southern team has displayed by keeping our nation’s freight moving during this challenging start to 2020 while also enhancing our financial position.”
NS points out that second-quarter volumes have continued to decline across all commodity segments, “down 30% quarter-to-date, setting up for a very soft revenue outlook.” NS says with uncertainty on both the speed of reopening the US economy and the slope of the recovery, it is withdrawing its previous outlook for flat full-year revenue and core operating ratio guidance for 2020.
“While the Covid-19 pandemic will affect business volumes for the year, the PSR implementation that our team is executing upon will generate significant operating expense savings in 2020,” says NS CFO Mr Mark George. “In this challenging environment our team is doubling down on examination of our structural cost opportunities to ensure that we remain positioned to drive enhanced profitability for the long term.”