For Norfolk Southern (NS), fourth-quarter 2022 railway operating revenue was $3.2 billion, up 13%, or $385 million, compared with fourth-quarter 2021, a “fourth-quarter record” driven by a 15% increase in revenue per unit, the Class I reported Jan. 25.
Among other fourth-quarter highlights:
- Railway operating expenses were $2.1 billion, an increase of 19% compared with the same period last year, due to “higher fuel prices, increased claim costs, and higher compensation and benefits.”
- Income from railway operations was a “fourth-quarter record” of $1.2 billion, up 5%, or $52 million, year-over year.
- Diluted earnings per share were $3.42, up 10%, or $0.30 compared with fourth-quarter 2021.
NS’s railway operating revenues were a record $12.7 billion in 2022, up 14%, or $1.6 billion, compared with 2021, “driven by an 18% increase revenue per unit,” the Class I reported.
Among other 2022 highlights:
- Railway operating expenses were $7.9 billion, an increase of 19% compared with the same period last year, “driven by higher fuel prices, inflation, network congestion, and higher compensation and benefits.”
- Income from railway operations was $4.8 billion, up 8%, or $362 million, year-over-year, an “annual record,” NS said.
- Diluted earnings per share were $13.88, up 15%, or $1.77 compared with 2021.
“In the fourth-quarter and throughout 2022, NS made significant progress in our financial performance, service improvement, and engagement with our craft team members,” said NS President and CEO Alan H. Shaw. “Our team delivered double-digit percentage growth in revenue, as well as earnings per share and achieved record revenue and operating income for the year. We also outlined a bold new strategic plan to create long-term shareholder value and a pathway for future growth for NS.”
The Cowen Insight: 2023 Growth Slips Through NSC’s Fingers
“Like the rest of the rail group that has reported, NSC expressed a high degree of caution on 2023 growth expectations, driven primarily from softer demand and elevated costs proving sticky in the network,” reported Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “We see low single digit earnings growth aided primarily by share repurchases. Our price target goes to $259 as we roll our model forward. Reiterate Outperform.”
Key Cowen Takeaways:
- “NSC reported 4Q EPS of $3.42 slightly below our estimate of $3.45 and consensus of $3.44 on higher than expected inflationary pressures. Results include a wage accrual tailwind of a nickel to EPS and a $0.19 claims accrual headwind. Excluding these items OR deteriorated 180bps on a y/y basis.
- “Volumes declined 1.3% y/y in 4Q driven by weak intermodal carloads. This slowdown was on the domestic side and offset international volume growth, which benefited from customers shifting to inland points and lower ocean rates. As we have heard in Class I earnings so far, energy and grain were pockets of strength. Coal volumes remained strong growing 8% y/y in 4Q and continued strength in ’23 is expected; improving service should produce overall volume gains in ’23, which should intensify in the back half. Management expressed optimism on potential share capture from the highway premised on the notion that TL rates are close to a bottom and a recovery will incentivize shippers to move freight by rail. We remain cautious on volumes due to a soft macro backdrop as well as results of our recent carriers’ survey indicating lack of a consensus on a TL rate bottom.
- “Ex-fuel pricing on a consolidated basis grew 8% y/y, in line with results from other Class Is that have reported so far. For ’23 however, management guided RPUs down to flat in ’23, a negative given the inflationary environment, as coal pricing normalizes and assessorials decline.
- “Acknowledging a weak and uncertain macro environment as well as persistent inflationary pressures, management guided flat revenues and EBIT in ’23 and modest EPS growth for the year facilitated by buybacks and other income. We expect NT margin pressure due to higher network costs and a step up in depreciation (expected to grow by $40MM-$50MM in ’23). Like the other rails, we model some costs leaving the system in 2H as service improves. We note however that labor inflation is likely to remain sticky for the foreseeable future, particularly given NSC’s plan, expressed at their investor day late last year, to maintain a headcount buffer aimed at preserving service heading into an eventual up cycle.”