Norfolk Southern Q1 2025 slides: OR improves to 67.9% as productivity gains offset flat revenue

Introduction & Market Context

Norfolk Southern Corporation (NYSE:NSC) released its first quarter 2025 earnings presentation on April 23, 2025, revealing continued operational improvements despite flat revenue. The railroad operator reported adjusted earnings per share of $2.69, up 8% from $2.49 in the same period last year, beating analyst expectations through significant cost reductions and productivity gains.

The company’s stock closed at $220 on April 22, 2025, up 0.48% ahead of the earnings release, trading well above its 52-week low of $201.63 but still considerably below its 52-week high of $277.60.

Quarterly Performance Highlights

Norfolk Southern reported Q1 2025 revenue of $2,993 million, slightly down from $3,004 million in Q1 2024, while adjusted operating income increased to $961 million from $904 million in the prior-year period. The company’s adjusted operating ratio improved significantly to 67.9% from 69.9% in Q1 2024, demonstrating continued progress in operational efficiency.

Total (EPA:TTEF) volume increased 1% year-over-year, with intermodal volumes showing particular strength with a 2% revenue increase. The merchandise segment maintained its strong performance with record revenue per unit (less fuel) of $3,253, marking a 4% increase year-over-year and continuing the company’s impressive streak of 39 out of 40 consecutive quarters of year-over-year RPU growth in this segment.

As shown in the following comprehensive summary of first quarter results:

The coal segment faced challenges with a 7% revenue decrease, primarily due to lower seaborne prices and reduced utility demand. Despite these headwinds, the company’s overall financial performance improved significantly year-over-year as shown in this comparison of adjusted financial results:

Operational Improvements

Norfolk Southern’s operational metrics showed substantial improvement in Q1 2025, with car miles per day increasing from 107 in Q1 2024 to 116 in Q1 2025, and train speed improving from 21.8 MPH to 22.3 MPH system-wide. The company also achieved significant gains in locomotive productivity, with gross ton miles per available horsepower increasing from 110 to 130 year-over-year.

The following network update illustrates these operational improvements:

Safety metrics also showed marked improvement, with the FRA Personal Injury Index decreasing from 1.04 in 2022 to 0.88 in Q1 2025, and the FRA Accident Rate dropping from 4.53 to 2.27 over the same period. These improvements reflect the company’s continued focus on safety as a core value.

As illustrated in this safety update chart:

The company’s PSR 2.0 transformation strategy continues to deliver results, with adjusted operating expenses decreasing by $68 million (3%) year-over-year, from $2,100 million to $2,032 million. This reduction was achieved despite absorbing approximately $35 million of incremental winter storm-related costs, highlighting the strength of the company’s $55 million in labor productivity savings.

The following waterfall chart breaks down the changes in adjusted operating expenses:

Strategic Initiatives & Growth Outlook

Norfolk Southern’s industrial development pipeline remains at a historic high with 517 projects, representing a 25% increase in activity relative to Q1 2024. The company has 116 announced projects expected to generate 150,000 new annualized carloads, with full ramp-up anticipated over three years.

The company’s PSR 2.0 transformation strategy continues to focus on Safety, Service, and Cost, with financial commitment cost takeout estimates of approximately $150 million for 2025 and $550 million for 2026, exceeding the $292 million target achieved in 2024.

The market outlook for Norfolk Southern’s business segments shows mixed sentiment:

Forward-Looking Statements

Looking ahead, Norfolk Southern provided optimistic guidance for 2025, including:

• 3% revenue growth
• More than $150 million of year-over-year productivity savings
• 150 basis points of year-over-year Operating Ratio improvement
• Capital expenditures of approximately $2.2 billion
• Continued execution of share repurchase plan

The company also emphasized its focus on narrowing the Operating Ratio gap to peers, improving cash flow, and enhancing shareholder returns, while acknowledging increased macroeconomic uncertainty.

As detailed in the company’s 2025 guidance slide:

This guidance aligns with statements made during the Q4 2024 earnings call, where CEO Mark George emphasized the company’s strategic positioning and network adaptability. The Q1 2025 results demonstrate continued execution of the strategy outlined in previous quarters, with significant progress in operational efficiency and cost reduction despite revenue headwinds.

With the resumption of its share repurchase program, which returned nearly $250 million to shareholders in Q1 2025, Norfolk Southern is signaling confidence in its financial position and future prospects while continuing to focus on operational excellence and margin improvement to drive long-term shareholder value.

Full presentation:

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