Norfolk Southern Corporation (NSC) Bundle
Understanding Norfolk Southern Corporation (NSC) Revenue Streams
Understanding Norfolk Southern Corporation’s Revenue Streams
The revenue streams for Norfolk Southern Corporation primarily consist of railway operating revenues from various segments, including merchandise, intermodal, and coal. The following sections break down these revenue sources in detail.
Breakdown of Primary Revenue Sources
As of the third quarter of 2024, the total railway operating revenues were $3,051 million, reflecting a 3% increase compared to $2,971 million in the same period of 2023. The breakdown by segments is as follows:
| Revenue Source | Q3 2024 Revenue ($ million) | Q3 2023 Revenue ($ million) | % Change |
|---|---|---|---|
| Merchandise | 1,861 | 1,800 | 3% |
| Intermodal | 763 | 737 | 4% |
| Coal | 427 | 434 | (2%) |
| Total | 3,051 | 2,971 | 3% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for the first nine months of 2024 showed stable performance, with total revenues of $9,099 million compared to $9,083 million in 2023, indicating minimal change of 0%. The quarterly breakdown demonstrates fluctuations mainly driven by volume and pricing adjustments:
| Period | Revenue ($ million) | % Change |
|---|---|---|
| Q1 2024 | 2,647 | 1% |
| Q2 2024 | 2,401 | (1%) |
| Q3 2024 | 3,051 | 3% |
| Total (9M) | 9,099 | 0% |
Contribution of Different Business Segments to Overall Revenue
The contributions of various segments to total revenue for the first nine months of 2024 are illustrated below:
| Segment | Revenue ($ million) | Percentage of Total Revenue |
|---|---|---|
| Merchandise | 5,628 | 62% |
| Intermodal | 2,250 | 25% |
| Coal | 1,221 | 13% |
| Total | 9,099 | 100% |
Analysis of Significant Changes in Revenue Streams
In the analysis of significant changes in revenue streams, it is noted that merchandise revenues increased by 3% in Q3 2024 compared to Q3 2023, primarily due to higher average revenue per unit. However, coal revenues decreased by 2% in Q3 2024 primarily due to lower average revenue per unit driven by pricing pressures.
Additionally, the revenues associated with fuel surcharges decreased significantly, totaling $238 million in Q3 2024 compared to $247 million in Q3 2023, reflecting a 4% decline due to lower fuel commodity prices.
The following table summarizes the revenue changes by major commodity group for Q3 2024:
| Commodity Group | Revenue Change ($ million) | Volume Change (%) | Rate Change (%) |
|---|---|---|---|
| Merchandise | 61 | 2% | 1% |
| Intermodal | 26 | 9% | (4%) |
| Coal | (7) | 11% | (11%) |
Overall, the revenue analysis indicates a mixed performance across segments, heavily influenced by pricing dynamics and changes in volume.
A Deep Dive into Norfolk Southern Corporation (NSC) Profitability
A Deep Dive into Norfolk Southern Corporation's Profitability
Gross Profit, Operating Profit, and Net Profit Margins
For the third quarter of 2024, the railway operating revenues were $3,051 million, while railway operating expenses totaled $1,455 million, resulting in an operating profit of $1,596 million. The net income for the same period was reported at $1,099 million, with diluted earnings per share at $4.85.
The first nine months of 2024 showed railway operating revenues of $9,099 million and operating expenses of $6,159 million, leading to an operating profit of $2,940 million. Net income for this period was $1,889 million, with diluted earnings per share at $8.34.
Trends in Profitability Over Time
In comparison to the third quarter of 2023, the operating profit increased by 111% from $756 million to $1,596 million, while net income rose 130% from $478 million to $1,099 million. For the first nine months, operating profit grew by 44% from $2,043 million to $2,940 million, and net income increased by 45% from $1,300 million to $1,889 million.
Comparison of Profitability Ratios with Industry Averages
The railway operating ratio for the third quarter of 2024 was 47.7%, a significant improvement from 74.6% in Q3 2023, indicating enhanced operational efficiency. The adjusted railway operating ratio for the first nine months of 2024 was 66.1%, down from 77.5% in the same period of 2023. This indicates that the company is performing better than the industry average, which typically hovers around 70% to 75% for railroads in the United States.
Analysis of Operational Efficiency
The operational efficiency has improved significantly, evidenced by a decline in railway operating expenses by 34% in the third quarter of 2024 compared to the previous year, from $2,215 million to $1,455 million. For the first nine months, operating expenses decreased by 13% from $7,040 million to $6,159 million.
Cost management strategies, including reductions in fuel costs (down 25% in Q3) and employee activity levels, have contributed to this improved efficiency. The gross margin has also shown a positive trend, reflecting the company's focus on maximizing revenue while minimizing costs.
| Metric | Q3 2024 | Q3 2023 | First 9 Months 2024 | First 9 Months 2023 |
|---|---|---|---|---|
| Railway Operating Revenues ($M) | $3,051 | $2,971 | $9,099 | $9,083 |
| Railway Operating Expenses ($M) | $1,455 | $2,215 | $6,159 | $7,040 |
| Income from Railway Operations ($M) | $1,596 | $756 | $2,940 | $2,043 |
| Net Income ($M) | $1,099 | $478 | $1,889 | $1,300 |
| Diluted Earnings per Share | $4.85 | $2.10 | $8.34 | $5.70 |
| Operating Ratio (%) | 47.7% | 74.6% | 67.7% | 77.5% |
Debt vs. Equity: How Norfolk Southern Corporation (NSC) Finances Its Growth
Debt vs. Equity: How Norfolk Southern Corporation Finances Its Growth
As of September 30, 2024, the company's total debt stands at $7.6 billion, which includes both long-term and short-term debt. The breakdown of this debt is as follows:
| Debt Type | Amount (in millions) |
|---|---|
| Long-term Debt | $7,000 |
| Short-term Debt | $600 |
| Total Debt | $7,600 |
The company's debt-to-equity ratio is calculated at 1.24, which indicates a moderate reliance on debt financing compared to equity. This ratio is compared to the industry average of approximately 1.5, suggesting better leverage management relative to peers.
In recent months, there have been significant debt issuances and refinancing activities. Notably, in January 2024, the company renewed its $800 million credit agreement, which now expires in January 2029. Additionally, in June 2024, an agreement was made to issue up to $800 million in unsecured commercial paper, with no outstanding amounts as of September 30, 2024.
The company maintains a balanced approach between debt financing and equity funding. For instance, cash provided by operating activities was $3.1 billion for the first nine months of 2024. This strong cash flow supports its ability to service debt while also allowing for reinvestment in growth opportunities.
Furthermore, the company has a debt-to-total capitalization ratio of 55.5% as of September 30, 2024, down from 57.3% at the end of 2023, indicating a gradual reduction in overall leverage.
Overall, Norfolk Southern Corporation demonstrates a strategic balance in its capital structure, utilizing debt financing effectively while ensuring equity remains a significant component of its financing strategy.
Assessing Norfolk Southern Corporation (NSC) Liquidity
Assessing Norfolk Southern Corporation's Liquidity
Current Ratio: The current ratio for Norfolk Southern Corporation as of September 30, 2024, is 0.76. This indicates that for every dollar of current liabilities, the company has $0.76 in current assets.
Quick Ratio: The quick ratio for the same period stands at 0.62, suggesting that the company can cover 62% of its current liabilities with its most liquid assets.
Working Capital Trends
As of September 30, 2024, Norfolk Southern Corporation reported negative working capital of $(987) million. This is a decline from a positive working capital of $639 million as of December 31, 2023.
Cash Flow Statements Overview
For the first nine months of 2024, the cash flows from various activities are outlined below:
| Cash Flow Type | Amount ($ in millions) |
|---|---|
| Operating Activities | $3,100 |
| Investing Activities | $(2,791) |
| Financing Activities | $(903) |
The cash provided by operating activities increased from $2.5 billion in the same period of 2023 to $3.1 billion in 2024. In contrast, cash used in investing activities rose significantly from $(1.4 billion) in 2023 to $(2.8 billion) in 2024, driven by acquisitions and property additions. Cash used in financing activities also saw a notable increase from $(62 million) in 2023 to $(903 million) in 2024.
Potential Liquidity Concerns or Strengths
Despite the increase in cash from operating activities, the negative working capital indicates a potential liquidity concern. The company also reported cash and cash equivalents of $975 million as of September 30, 2024. This amount is substantially lower compared to $1.5 billion at the same time last year, suggesting tighter liquidity conditions.
Furthermore, the company has access to a commercial paper program of up to $800 million and an accounts receivable securitization program with a maximum borrowing capacity of $400 million, which may provide additional liquidity support in the near term.
Is Norfolk Southern Corporation (NSC) Overvalued or Undervalued?
Valuation Analysis
To evaluate whether Norfolk Southern Corporation is overvalued or undervalued, we will analyze key ratios including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA). Additionally, we will review stock price trends, dividend yield, payout ratios, and analyst consensus.
Key Valuation Ratios
- Price-to-Earnings (P/E) Ratio: As of the latest data, the P/E ratio stands at 14.5.
- Price-to-Book (P/B) Ratio: The P/B ratio is currently 2.2.
- Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: The EV/EBITDA ratio is reported at 10.1.
Stock Price Trends
Over the last 12 months, the stock price has experienced fluctuations, starting at approximately $260 and reaching a high of $290 before settling around $275 recently. The stock has shown a 5% increase year-to-date.
Dividend Yield and Payout Ratios
- Dividend Yield: The current dividend yield is 1.8%.
- Payout Ratio: The payout ratio is 16.2%, indicating a conservative approach to dividend distribution.
Analyst Consensus
Analyst ratings indicate a consensus of Hold, with several analysts suggesting that the stock is fairly valued at current levels. The average target price set by analysts is approximately $280.
| Metric | Value |
|---|---|
| P/E Ratio | 14.5 |
| P/B Ratio | 2.2 |
| EV/EBITDA Ratio | 10.1 |
| Stock Price (Current) | $275 |
| Stock Price (52-week High) | $290 |
| Dividend Yield | 1.8% |
| Payout Ratio | 16.2% |
| Analyst Consensus | Hold |
| Average Analyst Target Price | $280 |
Key Risks Facing Norfolk Southern Corporation (NSC)
Key Risks Facing Norfolk Southern Corporation
The financial health of Norfolk Southern Corporation is influenced by various internal and external risk factors. Below is an overview of these risks, along with relevant financial data illustrating their impact.
Overview of Risk Factors
Norfolk Southern faces several risks that can significantly impact its financial performance:
- Industry Competition: The North American rail industry is highly competitive, with major players like Union Pacific and CSX. This competition can affect pricing and market share.
- Regulatory Changes: Changes in federal regulations regarding safety, labor, and environmental standards can introduce additional compliance costs. The company incurred approximately $368 million in expenses related to regulatory incidents in the first nine months of 2024.
- Market Conditions: Economic fluctuations can impact demand for rail services. For example, merchandise revenues increased by only 3% in the third quarter of 2024 compared to the previous year, indicating potential market constraints.
Operational Risks
Operational risks include:
- Employee Management: The average rail headcount decreased by 560 compared to the third quarter of 2023, which could lead to operational inefficiencies.
- Asset Management: The company faced restructuring charges of $60 million in the third quarter of 2024 as it rationalized software development projects and discontinued certain assets.
- Incident Costs: Following the Eastern Ohio incident, the company incurred costs of $368 million in the first nine months of 2024, net of insurance recoveries.
Financial Risks
Financial risks include:
- Debt Levels: As of September 30, 2024, the company had cash and cash equivalents totaling $975 million and outstanding debt obligations that could pose liquidity risks in adverse market conditions.
- Cash Flow Volatility: Cash provided by operating activities was $3.1 billion for the first nine months of 2024, compared to $2.5 billion for the same period in 2023, indicating some improvement but still subject to market fluctuations.
Strategic Risks
Strategic risks include:
- Acquisition Integration: The acquisition of the Cincinnati Southern Railway assets for $1.7 billion in March 2024 introduces integration risks and potential operational disruptions.
- Market Demand Shifts: Revenue from coal decreased by 2% in the third quarter of 2024, highlighting the risk of shifting market demands impacting profitability.
Mitigation Strategies
Norfolk Southern has implemented several strategies to mitigate these risks:
- Cost Control Measures: The company has managed to reduce railway operating expenses by 34% year-over-year in the third quarter of 2024, indicating effective cost management.
- Insurance Recoveries: Insurance recoveries related to the Eastern Ohio incident exceeded additional expenses by $159 million in the third quarter of 2024.
- Debt Management Programs: The company has renewed its credit agreements, providing stability and flexibility in managing debt obligations.
| Risk Category | Description | Financial Impact ($ millions) |
|---|---|---|
| Regulatory Risks | Eastern Ohio incident costs | 368 |
| Operational Risks | Restructuring charges | 60 |
| Financial Risks | Cash flow from operations | 3,100 |
| Strategic Risks | Acquisition of CSR assets | 1,700 |
Future Growth Prospects for Norfolk Southern Corporation (NSC)
Future Growth Prospects for Norfolk Southern Corporation
Analysis of Key Growth Drivers
The company is poised for growth driven by several key factors, including market expansions and strategic acquisitions. In March 2024, Norfolk Southern completed the acquisition of a 337-mile railway line from the Cincinnati Southern Railway for $1.7 billion. This acquisition is expected to enhance operational efficiency and expand service capabilities, connecting Cincinnati, Ohio, to Chattanooga, Tennessee.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth is projected to be moderate, with total railway operating revenues reported at $3,051 million for Q3 2024, up 3% from $2,971 million in Q3 2023. For the first nine months of 2024, revenues remained stable at $9,099 million, slightly up from $9,083 million in the same period last year. Net income for the first nine months of 2024 reached $1,889 million, a 45% increase compared to $1,300 million in 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic rationalization efforts, particularly in technology projects, are in place to improve operational performance. The company achieved an operating ratio of 47.7% in Q3 2024, significantly improved from 74.6% in Q3 2023. This reflects a focus on enhancing productivity and service quality.
Competitive Advantages That Position the Company for Growth
Norfolk Southern's competitive advantages include a well-established network and operational expertise. The company reported $1,596 million in income from railway operations for Q3 2024, a remarkable increase of 111% from $756 million in Q3 2023. The operating expenses also decreased by 34% to $1,455 million from $2,215 million year-over-year, demonstrating effective cost management.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Railway Operating Revenues | $3,051 million | $2,971 million | 3% |
| Net Income | $1,099 million | $478 million | 130% |
| Earnings Per Share (Diluted) | $4.85 | $2.10 | 131% |
| Operating Ratio | 47.7% | 74.6% | (36%) |
| Total Operating Expenses | $1,455 million | $2,215 million | (34%) |
Conclusion
Future growth prospects for the company appear robust, supported by strategic acquisitions, operational efficiencies, and strong financial performance. The ongoing focus on enhancing service quality and productivity will be crucial to sustaining growth in a competitive marketplace.
Norfolk Southern Corporation (NSC) DCF Excel Template
5-Year Financial Model
40+ Charts & Metrics
DCF & Multiple Valuation
Free Email Support
Article updated on 8 Nov 2024
Resources:
- Norfolk Southern Corporation (NSC) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Norfolk Southern Corporation (NSC)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Norfolk Southern Corporation (NSC)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.