May 14, 2015
NS Annual Meeting
Charles W. Moorman
Chairman and CEO
Norfolk Southern Corporation
Before I begin, I invite you to watch a brief video presentation highlighting your company’s record-setting performance during 2014.
Thank you. In case you are wondering, the dizzying high-speed train trip depicted in that video occurs on our Crescent Corridor between our new intermodal terminals in Memphis and Greencastle, PA.
Let me say first that none of the achievements highlighted in the program would have been possible without the talented and dedicated people of Norfolk Southern who, as the title of our annual report to shareholders says, are “behind every train.” Their commitment to excellence for our customers, shareholders, and communities continues to drive our company forward.
As you saw in the video, in 2014, we achieved record financial results.
It was the first year in our Company’s history in which we earned $2 billion in net income.
Revenues increased 3 percent over 2013 to a record $11.6 billion - our fourth consecutive year of $11 billion-plus revenues.
Our operating income rose by 10 percent to an all-time high of $3.6 billion.
And we achieved our second consecutive year of record-setting earnings per share.
Finally, while we made considerable investments to improve service and operations, our commitment to disciplined cost control continued, and as a result, in 2014, we achieved our best-ever operating ratio of 69.2 percent, a 1 percentage point improvement year over year.
These strong results allowed us to raise the dividend on the company’s common stock by 10 percent.
Since our inception in 1982, Norfolk Southern has paid 130 consecutive quarterly dividends.
And even as we continue to invest in our business to drive further growth and value creation, we remain committed to returning capital to shareholders
We are especially proud that we achieved strong results despite the significant operating and service challenges that we, along with much of the industry, faced during the year.
2014 was a tough year operationally. Extreme winter weather during the early part of the year caused major slowdowns across the entire North American rail network. As temperatures warmed and snow melted, we saw our traffic increase beyond anyone’s expectations, up 8 percent year over year in both the second and third quarters, which, in turn, created a new set of challenges. The growth in volumes and the slowdown in velocity translated into congestion, especially along the corridor between Chicago and New Jersey/Philadelphia. Our team has worked diligently to address our volume and capacity issues by hiring over thirteen hundred train and engine service employees and by adding 169 locomotives to our fleet.
On the infrastructure side, we made significant progress on several projects in the high-volume area around Chicago and the upper Midwest.
Most notably, the $160 million expansion of our Bellevue classification yard came
All told, in 2014 we invested $2.1 billion in capital improvements to enhance productivity and efficiency.
By the end of the year, thanks to these investments, our network velocity had improved considerably. As all of you know, we saw another bout of
From the standpoint of our markets, I mentioned the strong growth that we saw in the second and third quarters last year. Overall, traffic on our rails surged 5 percent over 2013 levels. We had not seen such large volumes since our all-time highs in 2006.
Intermodal volumes rose 8
On the other hand, coal, as in the past few years, remained very challenged on both the thermal and metallurgical sides, and that weakness is continuing into 2015 as well. We will face some other headwinds this year – particularly in the energy markets with the decline of energy prices -- but we see continuing strength in the overall economy as well as opportunities in many of the markets we serve.
We had another excellent year in industrial development, locating 72 new industries and expanding 22 existing ones along the Norfolk Southern network. That represents a $5.7 billion customer investment with the potential for 4,420 new jobs and more than 205,000 carloads of new rail traffic annually. Just this week, Volvo announced that it is locating its first US auto assembly plant on our line outside Charleston, SC. When we say that Norfolk Southern is an engine of economic growth, we can back that up.
We’re also contributing to the quality of life in our communities. Through our corporate sustainability program, we continue to lessen our carbon footprint both through our ongoing initiatives to reduce the amount of diesel fuel that we use and through other innovative programs such as our sponsorship of the planting of 6 million trees in the Mississippi River Valley and our $45 million dollar investment to redo the entire energy infrastructure at our locomotive shops in Altoona, PA.
Finally, and perhaps most importantly for 2015 and beyond, we continue to refine our company culture to boost safety and productivity. Our new message, which we unveiled at this year’s safety and service awards meeting, is simply, “I Am Coming Home.” It’s a reminder that everyone has family and friends waiting for them to get home safely. It builds on the progress we’ve made with the behavior-based safety and leadership program we implemented in 2011.
Summing it all up, we are confident in our company’s long-term strengths and prospects for continued success. In 2015, we will continue to put the right resources behind every train, and I am confident of our ability to continue to build on our record of growth, success and value creation for the benefit of our customers, our communities, and our shareholders.
Let me close on a personal note. As you know, on June 1, Jim Squires will become CEO of Norfolk Southern. Jim already has provided tremendous leadership and insight as president of the company and as a member of the board of directors. The board and I have complete confidence in his ability to lead our extremely talented senior management team as they continue to advance Norfolk Southern as a vital and increasingly important component of economic prosperity.
I will be continuing as executive chairman of the board of directors. I joined Southern Railway 45 years ago as a co-op student. I didn’t realize it at the time, but I was joining a family. As I look back now, I see just how fortunate and blessed I am to be a part of this wonderful family.
Fortunate to serve you, our shareholders, who have placed their trust in us. Fortunate to serve our customers who make the world’s economy go around. Fortunate to enjoy the support of our loyal suppliers. And above all, fortunate to work side by side with the best railroaders in the world and to have had the great privilege and honor to represent them wherever I have gone.
There isn’t a better family anywhere, and I thank all of you for letting me be a part of it.
However, such statements are dependent on and, therefore, can be influenced by, a number of external variables over which we have little or no control, including: significant governmental legislation and regulation over commercial, operating and environmental matters; transportation of hazardous materials as a common carrier by rail; acts of terrorism or war; general economic conditions including, but not limited to, fluctuation and competition within the industries of our customers; climate change legislative and regulatory developments; competition and consolidation within the transportation industry; the operations of carriers with which we interchange; disruptions to our technology infrastructure, including computer systems; labor difficulties, including strikes and work stoppages; results of litigation; natural events such as severe weather, hurricanes, and floods; unpredictable demand for rail services; fluctuation in supplies and prices of key materials, in particular diesel fuel; and changes in securities and capital markets. For a discussion of significant risk factors applicable to our business, see Part II, Item 1A “Risk Factors” in our annual report on Form 10-K and any updates contained in subsequent Forms 10-Q. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. We undertake no obligation to update or revise forward-looking statements.