Norfolk Southern to Cut 2,000 Jobs as Part of Streamlining Plan
Norfolk Southern Corp. reported Jan. 27 that fourth-quarter profit fell 29% from the same period a year ago and its yearly profit for 2015 was off by nearly as much — down 20% from a year earlier.
As part of the company's plan to turn things around and streamline its operations, first announced early last month, the railroad plans to cut 2,000 jobs by 2020, including 1,200 this year, through a combination of attrition and furloughs, Jim Squires, Norfolk Southern's chairman, president and CEO, told analysts in a conference call.
Those reductions are expected to generate $420 million in annual expense savings, a big chunk of projected overall productivity savings of more than $650 million a year within the next four years.
Savings of $130 million are projected in 2016.
Depending on what unfolds over the next few years, including the possibility of a recession, there could be additional reductions as well, Squires said.
"We're not going to sacrifice our service, but everything else is on the table, we'll cut wherever we need to cut, short of hurting service," he told analysts.
The railroad also plans to cut overtime by half from 2015 levels and to eliminate or downgrade 1,500 miles of secondary lines by 2020, including 1,000 miles this year.
Norfolk Southern's net income totaled $361 million, or $1.20 a share, for the quarter that ended Dec. 31, down from $511 million, or $1.64 a share, in the fourth quarter of 2014.
The consensus earnings estimate of 19 analysts surveyed by Thomson Financial Network was $1.24 a share.
It was the railroad's first earnings report since Canadian Pacific Railway announced two months ago that it wanted to merge with Norfolk Southern.
Last week, Canadian Pacific announced that its fourth-quarter profit was down 29% as well, falling to $319 million, in Canadian dollars, from $451 million a year earlier. Its 2015 profit dropped 8%, to $1.35 billion from $1.47 billion.
Before the opening of a question-and-answer session in the Jan. 27 conference call with analysts, Squires more or less roped off any discussion of Canadian Pacific's merger proposal, asking that the questions and discussion stick to the financial results and the company's strategic plan.
Asked about the status of Canadian Pacific's proposal in an interview following the call, Squires cited the three rejections of Canadian Pacific's offers by Norfolk Southern's board and underscored the importance of the railroad's blueprint for greater efficiency and cost-savings.
"Our focus is on execution of the plan," he said.
Norfolk Southern's profit for the year was $1.6 billion, down from $2 billion in 2014. Earnings per share for the year were $5.10, down from $6.39 per share.
The results included expenses tied to a restructuring of the railroad's Triple Crown Services subsidiary and the closing of its Roanoke office, which together cut fourth-quarter profit by $31 million, or 10 cents per share, and dropped 2015 profit by $58 million, or 19 cents per share.
The railroad's operating revenue for the fourth quarter fell to $2.5 billion, down 12% from the same quarter a year ago.
For the year, operating revenue fell 10% to $10.5 billion, reflecting an $852 million, or 64%, drop in fuel surcharge revenues.
Like those charged by other freight transportation companies, the railroad's fuel surcharge is a fee added to rates based on the price of fuel. As the cost of fuel goes up or down, so does the surcharge.
Coal revenue for the quarter slipped 20% from the same quarter a year ago, to $433 million.
Quarterly revenue in the railroad's other business segments slipped, too:
- Intermodal - the handling of cargo containers that can move interchangeably by rail, truck or ship - fell 13%, to $563 million.
- General merchandise dropped 9%, to $1.5 billion.
On Jan. 26, the company announced the regular quarterly dividend of 59 cents per share on its common stock, payable on March 10 to stockholders of record on Feb. 5.
The company's stock price rose $1.17 a share Jan. 26 on the New York Stock Exchange, closing at $68.90.
