The operator welcomes participants to the Norfolk Southern Second Quarter 2024 Earnings Call and introduces Luke Nichols, Senior Director of Investor Relations. Nichols mentions the safe harbor provision and potential risks and uncertainties. He also directs listeners to the company's website for presentation slides and non-GAAP measures. President and CEO Alan Shaw is joined by other executives to discuss the second quarter financial results, including adjusted operating income, net income, and diluted earnings per share.

In the second quarter, Norfolk Southern saw a significant improvement in their adjusted operating ratio, achieving a first half ratio in line with their commitment to shareholders. This was made possible through their balanced strategy of service, productivity, and growth, as well as a focus on safety. Despite revenue challenges, the company was able to increase productivity and gain market share in service-sensitive areas. This positive momentum is expected to continue as the company continues to prioritize operational excellence and growth opportunities.

John Orr, in his update on the company's progress, highlights their commitment to safety and their efforts to improve mainline accident rates. He also mentions the company's improved network performance metrics and their balanced approach to safety, service, and cost. He further discusses their strategy and initiatives aimed at reducing costs and increasing efficiency, targeting a $250 million cost takeout commitment.

The company has successfully increased car velocity by 6% through various measures such as reducing handlings, extending train schedules, and improving connection performance. They have also reduced the number of cars online and implemented strategies to improve safety, train speed, and service reliability. These efforts have resulted in a reduction in crew starts and expenses, and the company is now focused on further improving car velocity through yard and local redesigns and eliminating waste and rework in operations.

Efficiency is a top priority for the author in this space, with plans to continue improving fuel productivity and targeting a further 8% increase in locomotive productivity. Developing the next generation of skilled railroaders is also a personal objective. The organization is being structured to drive daily and strategic outcomes, with high levels of engagement and collaboration across departments. The team is motivated to build upon the strength of the quarter and deliver savings in all P&L categories. Two examples of balancing service and cost are highlighted, including increased car velocity and intermodal shipments and service performance. The launch of an intermodal reservation system in September is expected to further improve service and reduce expenses.

The company has seen significant growth and improvement in their franchise, with a focus on increasing efficiency and reducing costs. The commercial results for the second quarter show a 2% increase in revenues, driven by a 5% increase in volumes. The company has also achieved all-time records for merchandise revenue and RPU less fuel. Despite challenges such as the closure of the Baltimore port complex, the company's performance in coal has been commendable. The automotive, metals, and chemicals sectors have all achieved record revenues and RPU less fuel. Intermodal revenue has remained flat, but excluding fuel and storage charges, there has been a 2% growth in revenues.

In summary, the strong service product delivered by John and his team has led to impressive results for the company. However, due to market cost currents and adverse mix headwinds, the company is lowering its expectations for full year revenue growth to around 1%. Despite these challenges, the company expects growth in merchandise, intermodal, and coal, with a recent win with a large met coal producer demonstrating their commitment to their strategy and the confidence of their customers. This partnership will significantly enhance their met coal portfolio and contribute to their growth in the future.

The company is investing in strategic capital to support regions of their network with economic growth, such as in the State of Alabama. This is part of their balanced approach to deliver top-tier revenue growth in the long term. The company also thanks their customers for their business. The financial results for the second quarter were in line with their guidance range, with an adjusted operating ratio of 65.1%. This was due to revenue growth and cost reduction efforts. Year-over-year revenue increased by 2%, with volumes up 5%, but RPU was down 3% due to adverse mix.

Despite inflation headwinds, operating expenses decreased by $7 million year-over-year due to strong cost reduction momentum. This was evident in the sequential decline of $119 million, which led to a 480 basis point reduction in the operating ratio. Revenue increased by $40 million due to merchandise volume growth, but this was offset by adverse mix shifts within each business line. Operating expenses were also down $119 million sequentially, with savings in categories such as comp and ben, equipment rents, and purchase services. The network velocity improvements also led to fuel efficiency and property gains.

The company's real estate transactions were lumpy in the quarter, but their operating ratio performance was in line with their commitment. They are encouraged by an inflection point in their cost structure and are reaffirming their guidance for the second half operating ratio despite softer macro conditions. They also mentioned the potential for excess capital assets being liberated with PSR and their plans to generate cash through property sales. The company has lowered their full-year revenue guidance from 3% to 1% growth.

The speaker discusses the company's strategy to overcome a drop in revenue and reaffirm their full year guidance. They thank their team for their efforts and highlight specific actions and opportunities for improved results. They also mention record yields in the merchandise segment but acknowledge weakness in intermodal yield due to mix and pricing factors. The speaker is confident in the team's ability to execute and deliver results in the future.

The speaker discusses the mix of shipments in the premium segment and how it is affecting carriers. They mention seeing a lot of empty shipments in the Intermodal and International segments, possibly due to carriers trying to push empties back offshore. They also note that they are expecting a peak season for the first time in a few years, which could lead to growth in revenue per unit. The speaker also mentions a $25 million wage increase in Q3 and discusses overall cost progress and operating ratio in the third quarter.

In response to a question about negative mix in the company's financials, Mark George and Ed Elkins discuss the challenges in the intermodal sector and how they are working to improve efficiencies and attract more customers. They also mention the success of their service product and the increase in volume.

The speaker discusses the expected tailwinds and headwinds for the third quarter, including incremental volume growth and good momentum in productivity. They also mention a 4.5% agreement wage increase and fuel costs as potential headwinds. Despite these challenges, they are confident in their guidance for an operating ratio in the second half of the year.

The speaker is discussing the company's operating ratio and the steps they are taking to improve it. They are confident in their target of 64-65% and believe that sequential volume improvement and continued momentum in their actions will help achieve this. The speaker also mentions the power of their team and their focus on finding and implementing changes to improve efficiency. They give an example of a recent service design that eliminates 42 starts per week.

The paragraph discusses the results of implementing safety Blitz and other improvements in the field, which have led to increased safety, service, and sustainability. The company is confident in its ability to continue delivering results through hard work and overcoming challenges, such as wage increases and fuel costs. Recent successes in converting customers to rail are attributed to higher velocity and better car supply.

The STB is holding a hearing on growth which is part of the company's balanced strategy. The company is focused on improving service, reducing costs, growing revenue, and enhancing safety. The STB is supportive of the company's business plan and resiliency. The company is not reducing headcount but is instead aligning resources with customer requirements. They have frozen hiring except for essential skills.

The company is working with labor to address outliers and rightsize the organization. They are focused on eliminating waste and improving efficiency to lower costs. They are on track to be down 2% by the end of the year and are confident in their ability to hit their target in the third quarter. The company expects continuous productivity throughout the year.

The speaker talks about the potential impact of recent distractions on volume, but believes that the company's productivity will help them sail through. They also mention that customers have been supportive of their strategy and they have confidence in growing volumes, particularly in merchandise markets where they have lost share.

The company is focused on earning back customers who had to find a different supply chain solution due to the pandemic. Their service product sales in certain markets have grown due to the great product and alignment between marketing and operations. The relationships with customers have also helped during this time. The company also expects coal yields to decline in the back half and has identified potential land sale transactions that could result in $50 million in gains.

During a recent conference call, Mark George and Ed Elkins of a company discussed large land gains and coal prices. George clarified that the gains were not part of the company's operating ratio (OR) and were instead used to restore the balance sheet. Elkins noted that coal prices had briefly risen due to global supply chain disruptions, but were expected to lower in the future. In response to a question about East Coast port actions, Elkins explained that there had been disruptions due to negotiations between the International Longshoremen's Association (ILA) and port operators.

The speaker discusses their conversations with steamship line customers and domestic intermodal partners, noting a rise in West Coast activity due to events in the Red Sea. They anticipate a high demand for domestic intermodal services on the West Coast due to a shortage of seaborne containers. The next question is about the potential for margin improvement through broad-based initiatives in purchased services, and the speaker explains that this category has seen a significant increase in costs from technology and intermodal activity, but they have managed to limit the increase to around 3%.

The company is focused on reducing purchased services costs, particularly in areas like fuel and locomotive maintenance. They are also looking to improve vendor accountability and visibility. The balance of the year is expected to see a decrease in purchased services costs. The company is also focused on productivity and leveraging their service and intermodal franchises to drive more revenue. They have also made efforts to reduce crew costs, such as recrews.

The company is focused on reducing costs by decreasing the use of taxi cabs and hotels and increasing service stability. They are confident in their ability to absorb more volume and win back profitable merchandise business. This will be achieved by leveraging their improved service product and capacity, as well as offering cost advantages over trucking. The decline in merchandise volume has been a long-term issue, and the company plans to use different strategies with different customers to regain market share.

The company's main focus is to provide customers with a reliable conveyor belt that runs at a consistent speed. They are constantly working to improve this service and maintain high levels of productivity while reducing resources. The company's approach to customer service is better and they are committed to making operational changes to close the margin gap. These changes will require hard work, but the company is confident in their leadership, plan, and disciplined execution.

John and his team's operational improvements have boosted confidence and allowed the company to reaffirm their guidance despite market weakness in the second half of the year. Walter Spracklin from RBC Capital Markets asks about the potential for CPKC to tap into the growing trend of near-shoring and onshoring in Mexico, which has been mentioned by Union Pacific. Ed Elkins confirms that they are in talks with Grupo Mexico and CPKC about potential opportunities, including connecting Mexico to the Southeast through the Meridian Speedway.

The speaker believes that there will be exciting opportunities and products in the near future for U.S. manufacturing, particularly in Mexico. They have seen increased productivity this year, which could lead to even better operating ratio improvements in the years ahead. The company is still on track to meet their aggressive long-term operating ratio targets despite a weak freight environment.

Norfolk Southern is committed to reducing their operating ratio (OR) to below 60% and is currently on track to do so despite a weak freight environment. They have set aggressive long-term targets and are executing their plan to improve service, reduce costs, increase revenue, and enhance safety. They are also open to taking advantage of opportunities that may arise to reach their goals faster. The company's leadership thanks everyone for their interest and looks forward to future conversations.

This summary was generated with AI and may contain some inaccuracies.