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Annual Meeting of Stockholders

May 11, 2017

norfolk, VA.

Remarks by

James A. Squires
Chairman, President and CEO
Norfolk Southern Corporation


It is an honor to address the shareholders of Norfolk Southern Corporation and to serve alongside our tremendously experienced independent board of directors. Together with the expertise of our management team and all our dedicated employees, we are working hard every day to make your company stronger.

I’ll begin my remarks about our company with an observation that the best strategy is tested and proven by its results. Results do matter.

I am pleased to tell you that in 2016, the first full year of our strategy to improve corporate performance, Norfolk Southern produced strong results – results that drove service, profitability, and shareholder value – results that position us for growth.

2016 was a pivotal year in which we renewed our resolve to be the best in the business. We launched our new strategic plan with a pledge to streamline operations, improve service, and create superior shareholder value – now and in the future. We are committed to doing that by pursuing every opportunity to operate more efficiently and lower costs while at the same time supporting growth.  

In 2016, amid challenging economic conditions, Norfolk Southern delivered on those commitments. Through successful execution of our plan, we achieved our key first year financial and operational targets – and we are well on pace to achieve our 2020 performance goals.

Last year, we delivered service at near-record network performance levels while also generating a quarter-billion dollars in productivity savings – far exceeding our first-year target.

We uncovered and created efficiencies across all areas of operations:

  • We drove fuel efficiency to our best levels ever;
  • We idled low-volume rail yards;
  • We consolidated operating regions and divisions;
  • We improved utilization of locomotives and rail cars;
  • And we rationalized 1,000 miles of secondary rail lines.

Our cost-control initiatives propelled achievement of the company’s all-time best operating ratio, putting us on pace to meet our 2020 goal below 65.

Those productivity improvements helped us deliver strong bottom-line results. We significantly improved profitability, growing earnings per share by a double-digit percentage year-over-year. That was remarkable given that weak commodity prices and a sluggish industrial economy reduced volumes and revenue for the year.

Against these economic headwinds, Norfolk Southern moved with dispatch to streamline operations and retarget investments, to optimize our network in light of changing market conditions. We demonstrated the flexibility of our plan and our ability to adapt to change quickly – a true competitive advantage.

Our success at achieving profitability in this tough economy is testament to the hard work and resolve of our people to deliver on our commitments.

Our strategic plan takes a balanced approach to productivity and growth. We balanced expense reductions in 2016 with prudent investments to ensure safe and efficient operations -- and to promote growth.

We made targeted investments in infrastructure across our system, notably in the consumer-rich Midwest and Northeast markets. These improvements strengthened the company’s competitive position and improved traffic flow across our network. At the same time, we continued to invest in Positive Train Control and other technologies that will bolster safety and productivity in the future.

While investing in our company, we demonstrated a strong commitment to shareholder returns. We repurchased $803 million dollars of our stock to retire 9.2 million shares, and we paid $695 million dollars in dividends.

In our business, success in the marketplace depends on safe operations. Nothing is more important than operating safely in the communities we serve and ensuring that our employees return home safely at the end of each day. We underscored that resolve last year by rolling out a new safety train that brings local emergency responders hands-on training and other tools for safely responding to rail incidents.

Our partnerships with communities and customers also support economic development and growth. Last year, Norfolk Southern helped 71 industries locate or expand their business along our rail lines. That represented a $4 billion dollar investment by our customers and is expected to create 4600 new jobs in communities across our operating territories.

Under our corporate umbrella, we are stewards of many resources. Efficiently moving trains across our network goes to the core of that stewardship. In 2016, we achieved record locomotive fuel efficiency, reducing costs while simultaneously lowering emissions. That’s a good example of driving growth and value through sustainable business practices. Another is our innovative program to upgrade older locomotives into like-new units – at less than half the cost of buying new models.

Our 2016 results highlight the pillars of our strategic plan – safety, service, stewardship of resources, and growth. Likewise, our steadfast focus on those pillars is yielding strong results in 2017 as we move into the second year of our strategic plan.

Our first-quarter record results reflect the continued successful execution of our strategy to drive both service and productivity. We achieved first-quarter records for operating ratio, income from operations, and earnings per share.

Network service performance metrics remained steady as we grew traffic volume within our intermodal, merchandise, and coal markets.

Our people improved workplace safety, pushing down the reportable injury ratio by 13 percent and the serious injury ratio by 26 percent.  We improved locomotive fuel economy by 6 percent year-over-year, putting us on track for another record year in fuel efficiency.

We are driving growth by providing superior service that optimizes pricing and increases volume and top-line revenue. Working hand-in-hand with our customers, we are increasing the value we bring to their supply chains. We are relentlessly focused on meeting the unique business needs of our customers – and we are measuring service excellence as they define it.

In the long term, our service will be a competitive differentiator for Norfolk Southern – and a strong driver of shareholder value.

While service and operational excellence are essential to our corporate strength, you, as investors, know that our long-term success also depends on the judicious use of capital. I have often mentioned our four-tiered hierarchy for capital deployment:

  • To invest in the safety and strength of ongoing operations;
  • To pursue targeted growth opportunities;
  • To pay a predictable and growing dividend;
  • And to return capital to shareholders in the form of share buybacks.

Looking ahead, we remain committed to a capital allocation strategy that provides significant returns for shareholders. Our board of directors in January approved a 3 percent increase in the quarterly dividend payout on the company’s common stock. For the year, we anticipate returning another $1.5 billion dollars to shareholders via dividends and share repurchases.

Norfolk Southern’s strategy to achieve productivity and growth is clear. Our company has a strong, engaged team that is successfully executing our plan -- regardless of market shifts or changes in the competitive landscape.

Wherever we identify opportunities to improve productivity or to support growth, we will pursue them.

Your company today is faster, stronger, and leaner than it was a year ago. We have a sound strategy, and we are producing results that drive sustainable profitability, high-quality growth, and enhanced shareholder value. We are delivering on our commitments.

Thank you for your confidence and for your continued investment in Norfolk Southern.