Norfolk Southern announces further details of its strategic plan to reduce costs, drive profitability, and accelerate growth
Projected annual productivity savings of more than $650 million by 2020
NORFOLK,
Va. – Jan. 27, 2016 – Norfolk Southern Corporation (NYSE: NSC) (“the
Company”) (“Norfolk Southern”) today announced further details of its
strategic plan designed to streamline operations and drive profitability
and growth. The Company’s projected expense reduction and disciplined
cost control initiatives are in the categories of compensation and
benefits, purchased services and rents, materials, and fuel.
The
Company expects to achieve annual productivity savings of more than
$650 million per year by 2020, growing from an initial $130 million in
2016. With this plan, Norfolk Southern expects to improve consistency,
reliability, and availability, resulting in a faster, lower cost, and
more profitable railroad. The Company has already begun implementing the
plan and expects associated net benefits to begin appearing in Norfolk
Southern’s financial results beginning in the first half of 2016.
The
strategic plan, which was announced on Dec. 4, 2015, is the result of a
six-month, comprehensive evaluation of the Company’s business model,
including customer service, network performance efficiency measures, and
revenue growth. The evaluation was led by Norfolk Southern’s Chairman,
President and CEO James A. Squires with the assistance of the Board of
Directors and management team. As a result of these measures, the
Company expects to achieve an operating ratio below 70 in 2016 with
additional improvements driving OR to less than 65 by 2020, with double
digit annual EPS growth, increased ROE and higher return of capital.
Squires
said, “Our new leadership team has already taken significant steps to
improve financial and operational performance. Specifically, we are
focused on delivering high levels of superior service to build a more
profitable franchise based on price and volume growth, implementing
efficiency measures, and increasing returns, while simultaneously
maintaining our commitment to returning substantial capital to
shareholders through share repurchases and dividends.
“While
Norfolk Southern’s fourth-quarter results do not yet reflect the
initiatives under way, we believe we have the right strategic plan to
streamline operations, accelerate growth, and enhance value for
shareholders. The plan leverages our core competencies in customer
service and reliability, while also improving network efficiency and
consolidating operations. Importantly, through disciplined cost control,
we believe we can achieve the productivity savings outlined in this
plan, and even more.”
The
plan is a balance of revenue growth through pricing and volume, and
resource optimization through a variety of expense reduction and cost
control initiatives, including:
· Compensation and Benefits.
Service and efficiency improvements, consolidation, and network
rationalization will enable Norfolk Southern to reduce headcount in 2016
and beyond, building on initiatives begun in 2015 to right-size the
workforce. This improved productivity is expected to result in $420
million in annual expense savings by 2020. Norfolk Southern expects to:
o Reduce headcount by 2,000 employees by 2020.
o Decrease overtime by 50 percent from 2015 levels.
o Reduce employee levels in areas affected by lower coal traffic and by the rightsizing of the Company’s coal infrastructure.
o Consolidate operating regions from three to two.
o Halt
or reduce operations in several hump or secondary yards in 2016,
reducing manpower needs and locomotive fleet requirements and
consolidating traffic on fewer, larger trains.
o Dispose
of or downgrade 1,500 miles of secondary lines by 2020, including 1,000
miles in 2016, as traffic is rerouted onto higher-density lines and
some parts of the system are more economically operated in collaboration
with short-line rail carriers.
· Purchased Services and Rents. Projected
efficiency improvements and network rationalization should enable
Norfolk Southern to realize annual savings of $70 million by 2020 by
reducing the size of the car fleet and associated costs and reducing
payments to third parties. Norfolk Southern expects to:
o Reduce equipment rental and lease costs, along with maintenance expenses for that equipment.
o Reduce
the use of third-party switching terminals by leveraging the recently
completed expansion of Moorman Yard in Bellevue, Ohio.
o Reduce trackage and haulage payments.
· Materials.
Projected efficiency improvements should enable Norfolk Southern to
reduce expenses by $80 million per year by 2020. Norfolk Southern
expects to:
o Decrease
locomotive maintenance expenses by reducing active fleet size by 300
units in 2016 and another 100 units by 2020 through improved velocity,
line, yard, and local-switching-network rationalizations.
o Reduce overhaul and maintenance expenses and improve locomotive reliability by replacing older, less-reliable units.
o Conserve
capital while enhancing the efficiency and reliability of the
locomotive fleet by continuing the company’s innovative 6-axle rebuild
strategy, which includes DC to AC conversions.
· Fuel. Projected
fuel efficiency initiatives should allow Norfolk Southern to reduce
fuel consumption by $80 million per year by 2020 through. Norfolk
Southern expects to:
o Maximize fuel efficiency through implementation of energy management technology.
o Reduce
fuel consumption as a result of fewer units in the fleet, removal of
the oldest, least efficient units, and higher system velocity.
Fourth Quarter 2015 Earnings
Separately
today, Norfolk Southern released its earnings results for the fourth
quarter ended Dec. 31, 2015.The Company’s earnings release can be found
under the Investor Relations section of the Company’s website at www.nscorp.com.
Norfolk
Southern will host a telephone conference call and a webcast today at
8:45 AM ET to discuss this announcement and its fourth quarter 2015
earnings results. You may participate in this call by dialing (877)
869-3847. The live webcast and accompanying presentation slides can be
accessed through the Norfolk Southern website, www.nscorp.com.
About Norfolk Southern
Norfolk Southern Corporation
(NYSE: NSC) is one of the nation’s premier transportation companies.
Its Norfolk Southern Railway Company subsidiary operates approximately
20,000 route miles
in 22 states and the District of Columbia, serves every major container
port in the eastern United States, and provides efficient connections
to other rail carriers. Norfolk Southern operates the most extensive
intermodal network in the East and is a major transporter of coal,
automotive, and industrial products.
Forward-Looking Statements
Certain
statements in this press release are “forward-looking statements”
within the meaning of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, as amended. These statements
relate to future events or the Company’s future financial performance
and involve known and unknown risks, uncertainties and other factors
that may cause the actual results, levels of activity, performance or
achievements of the Company or its industry to be materially different
from those expressed or implied by any forward-looking statements. In
some cases, forward-looking statements can be identified by terminology
such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,”
“anticipate,” “intend,” “believe,” “estimate,” “project,” “consider,”
“predict,” “potential” or other comparable terminology. The Company has
based these forward-looking statements on management’s current
expectations, assumptions, estimates, beliefs and projections. While the
Company believes these expectations, assumptions, estimates, and
projections are reasonable, such forward-looking statements are only
predictions and involve known and unknown risks and uncertainties, many
of which involve factors or circumstances that are beyond the Company’s
control. These and other important factors, including those discussed
under “Risk Factors” in the Company’s Form 10-K for the year ended Dec.
31, 2014, as well as the Company’s subsequent filings with the
Securities and Exchange Commission, may cause actual results,
performance or achievements to differ materially from those expressed or
implied by these forward-looking statements. The forward-looking
statements in this press release are made only as of the date they were
first issued, and unless otherwise required by applicable securities
laws, the Company disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Copies of Norfolk Southern
Corporation’s press releases and additional information about the
Company are available at www.norfolksouthern.com or you can contact the Norfolk Southern Corporation Investor Relations Department by calling 757-629-2861.
Important Additional Information and Where to Find It
Norfolk
Southern Corporation (the “Company”), its directors and certain of its
executive officers and employees may be deemed to be participants in the
solicitation of proxies from stockholders in connection with the
Company’s 2016 Annual Meeting of Stockholders (the “2016 Annual
Meeting”). The Company plans to file a proxy statement with the
Securities and Exchange Commission (the “SEC”) in connection with the
solicitation of proxies for the 2016 Annual Meeting (the “2016 Proxy
Statement”). Additional information regarding the identity of these
potential participants, none of whom owns in excess of 1 percent of the
Company’s shares of Common Stock, and their direct or indirect
interests, by security holdings or otherwise, will be set forth in the
2016 Proxy Statement and other materials to be filed with the SEC in
connection with the 2016 Annual Meeting. This information can also be
found in the Company’s definitive proxy statement for its 2015 Annual
Meeting of Stockholders (the “2015 Proxy Statement”), filed with the SEC
on March 25, 2015, or the Annual Report on Form 10-K for the year ended
December 31, 2014, filed with the SEC on February 11, 2015 (the “Form
10-K”). To the extent holdings of the Company’s securities by such
potential participants have changed since the amounts printed in the
2015 Proxy Statement, such changes have been or will be reflected on
Statements of Ownership and Change in Ownership on Forms 3 and 4 filed
with the SEC.
STOCKHOLDERS
ARE URGED TO READ THE 2016 PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR
SUPPLEMENTS THERETO), 2015 PROXY STATEMENT, FORM 10-K AND ANY OTHER
RELEVANT DOCUMENTS THAT THE COMPANY HAS FILED OR WILL FILE WITH THE SEC
CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION.
Stockholders
will be able to obtain, free of charge, copies of the 2016 Proxy
Statement (when filed), 2015 Proxy Statement, Form 10-K and any other
documents (including the WHITE proxy card) filed or to be filed by the
Company with the SEC in connection with the 2016 Annual Meeting at the
SEC’s website (http://www.sec.gov) or at the Company’s website (http://www.nscorp.com)
or by writing to Denise Hutson, Corporate Secretary, Norfolk Southern
Corporation, Three Commercial Place, Norfolk, Virginia 23510.
