For NS 4Q24, ‘Solid Performance’ (Updated With TD Cowen Analysis)
The Class I railroad on Jan. 29 provided the following financial and operations summary for the three months ending Dec. 31, 2024:
- Railway operating revenues of $3.0 billion were down $49 million or 2% compared with fourth-quarter 2023. “Excluding the impact of lower fuel surcharge revenue,” NS said, railway operating revenues were $2.8 billion, up $60 million or 2%, on volume growth of 3% compared with the same point last year.
- Income from railway operations came in at $1.1 billion, an increase of $323 million or 40%, compared with fourth-quarter 2023. “Adjusting for the impact of railway line sales, restructuring and other charges, and the Eastern Ohio incident,” NS reported that income from railway operations was $1.1 billion, up $104 million or 11%, compared with adjusted fourth-quarter 2023.
- Operating ratio in the quarter was 62.6% vs. 73.7% in fourth-quarter 2023. On an adjusted basis, the operating ratio for the 2024 quarter was 64.9%, according to NS. This represents 390 basis points of improvement from adjusted fourth-quarter 2023, which was 68.8%, it noted.
- Diluted earnings per share were $3.23, up 39% from fourth-quarter 2023. According to NS, “[a]djusting for the impact of railway line sales, restructuring and other charges, the Eastern Ohio incident, and shareholder advisory costs,” diluted earnings per share came in at $3.04, up $0.21 or 7%, from adjusted fourth-quarter 2023.
On the Operations side for fourth-quarter 2024, terminal dwell was 22.1 hours, improving by 10% over fourth-quarter 2023’s 24.6 hours; car miles per day came in at 118, up 13% from the prior year’s 104; and train speed was 22.6 mph, improving 9% from 20.8 mph in fourth-quarter 2023.
For full-year 2024, NS reported:
- Railway operating revenues of $12.1 billion were down $33 million, compared with full-year 2023. According to the railroad, “[e]xcluding the impact of lower fuel surcharge revenue,” railway operating revenues were $11.2 billion, up $228 million or 2%, on volume growth of 5% compared with full-year 2023.
- Income from railway operations was $4.1 billion, up $1.2 billion or 43%, compared with full-year 2023. The railroad said that “[a]justing for the impact of railway line sales, restructuring and other charges, and the Eastern Ohio incident,” income from railway operations came in at $4.1 billion, up $179 million or 5%, vs. adjusted 2023.
- Operating ratio in 2024 came in at 66.4%, an improvement of 1,010 basis points, vs. 76.5% in 2023. On an adjusted basis, NS said, the operating ratio for 2024 was 65.8%, representing 160 basis points of improvement from adjusted 2023, which was 67.4%.
- Diluted earnings per share were $11.57, up 44% from 2023. NS said that “[a]djusting for the impact of railway line sales, restructuring and other charges, the Eastern Ohio incident, shareholder advisory costs, and a deferred tax adjustment,” diluted earnings per share were $11.85, up $0.11 or 1%, compared with adjusted 2023.
2025 Outlook
Looking ahead, NS in 2025 expects 3% revenue growth. Additionally, “building on operational momentum across the network,” it anticipates “$150 million of year-over-year productivity savings in 2025 on the back of nearly $300 million in 2024.” NS also expects 150bps of year-over-year operating ratio improvement, noting that it is “focused on closing the gap” with its peer freight railroads. Capex, it noted, is slated to be approximately $2.2 billion.
“I applaud all the employees of Norfolk Southern for what we are achieving together,” Mark George said. “We are seeing momentum in all areas from consistently prioritizing safety, productivity, and operational excellence. We are well-positioned to build on our success and drive long-term value for all our stakeholders.”
For more financial details, visit the NS Investors site.
TD Cowen: NS “On Track for Continued OR Improvement”
By Jason H. Seidl, Elliot Alper and Uday Khanapurkar
NSC beat our forecast and consensus expectations to end a very challenging year on a high note. 2025 guidance comes in modestly below our previous estimates, though NSC is the only U.S. Class I to quantify margin targets in 2025. Strong service despite a lower headcount is encouraging, and NSC should have more wood to chop this year.
NSC reported 4Q24 adjusted EPS of $3.04, beating our $2.98 estimate as well as the consensus forecast of $3.01. Consolidated revenue of $3 billion was roughly in line with our estimate, and the quarter’s beat was driven primarily by an adjusted OR beat of 100bps, bringing 2H24 adjusted OR to the better end of management’s 64%-65% guide.
■Improvements in service metrics and productivity exceeded expectations in 4Q24 as NSC continues to pick low-hanging fruit by way of its turnaround plan. NSC encouragingly offered granular detail on service improvements. Highlights include a 10% Y/Y increase in train speeds, repair dwell down 23% Y/Y, and crew overtime –19% Y/Y. Service efforts allowed NSC to move 3% more volumes on 5% lower headcount. NSC sees notable runway ahead, with 2025 efficiency plans focused on fuel efficiency and tighter terminals operational standards. Efforts should yield efficiencies across the cost base.
NSC improved its adjusted OR materially as the company moved through 2024, with a full year adjusted OR of 65.8%. Its 2025 guidance of 150bps of margin improvement comes in modestly below (worse than) our previous forecast of ~200bps of Y/Y improvement in 2025 and consensus. That said, NSC is the only Class I in our coverage that quantified its OR targets in 2025, primarily driven by the self-help initiatives the railroad is working on that should see productivity results in almost all line items. NSC expects to continue to work toward 60%, and we model another 170bps of improvement in 2026 to 62.1%.
NSC expects 3% revenue growth including fuel headwind in 2025 led by volumes and some modest price recovery. Autos and coal are expected to remain weak due to inventory overhang and weak export coal prices—though these are subject to the trajectory of winter and natural gas prices. Intermodal is likely to support carload growth despite tariff uncertainty as the consumer remains robust and the East Coast/Gulf Coast stands to gain volume share post-resolution of the port labor dispute.
NSC intends to step back into buybacks in 1Q25 after the company did not repurchased stock in 2024. Capex guidance of $2.2 billion in 2025 should give NSC the ability to generate more free cash in 2025. NSC is also ~3x levered, and interest expense grew 12% in 2024. There was no mention of debt paydown on the earnings call.
We adjust our 2024 EPS estimate to $13.20 from $13.35, which includes a step up in our tax rate assumptions, and introduce our 2026 EPS estimate of $15.10. We lower our multiple one half-turn to 18x to be more in line with its historical average. Using our new 2026 estimate, our price target moves to $272. Reiterate Hold.
NS, Village of East Palestine Resolve Claims
Meanwhile, NS and the Village of East Palestine on Jan. 27 announced that they “have resolved all claims by the Village arising out of the Feb. 3, 2023, train derailment.” In the settlement, NS will provide the Village with $22 million “to be used for priorities identified by the Village in connection with the train derailment.”
The settlement also recognizes the approximately $13.5 million in prior payments that NS has already made directly to the Village since the derailment, including replacement of Village fire and police equipment and vehicles, improvements to the Village’s water treatment plant, and NS’s exterior renovation of the historic East Palestine train depot, according to the railroad and the Village. Additionally, the settlement reaffirms NS’s commitment of $25 million to the ongoing improvements to the East Palestine City Park, they said.
NS and the Village reported that as part of the settlement, they “have mutually agreed that the creation and operation of the proposed regional safety training center in the Village is not feasible and, as a result, work will not proceed with building the center.” NS has agreed to transfer ownership of approximately 15 acres of land it acquired for the center to the Village “for another productive use, to be determined by the Village in its sole discretion.” They noted that NS “remains committed to providing training for East Palestine’s first responders at other facilities in the region.”
