Title

Presentation

Norfolk Southern Corporation beats earnings expectations. Reported EPS is $2.69, expectations were $2.66.

Operator: Good morning, ladies and gentlemen, and welcome to Norfolk Southern Corporation First Quarter 2025 Earnings Conference Call. At this time, note that all participant lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session [Operator Instructions]. Also note that this call is being recorded on Wednesday, April 23, 2025. At this time, I would like to turn the conference over to Luke Nichols. Please go ahead, sir.

Luke Nichols: Good morning, everyone. Please note that during today’s call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full disclosure of those risks and uncertainties we view as the most important. Our presentation slides are available at norfolksouthern.com in the Investors section, along with our reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio.

Please note that all references to our prospective operating ratio during today’s call are being provided on an adjusted basis. Now turning to Slide 3. It’s my pleasure to introduce Norfolk Southern’s President and Chief Executive Officer, Mark George.

Mark George: Good morning, and thank you, everyone, for joining. Representing Norfolk Southern with me today are John Orr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampi, our Chief Financial Officer. We’re looking forward to updating you on our Q1 2025 results. There’s a lot to be pleased with this quarter as we delivered results in line with what we signaled to you, while dealing with a vicious winter, including 18 storms that were far more consequential to our network than Helene was last fall. John will share details on that impact and how we quickly restore fluidity to our network in order to serve our customers with minimal disruption. Our network resiliency was evident again, thanks to great planning and execution by our team, and we did it safely, with lower injury and accident rates, as our team continues to embrace safety as a core value.

Despite all this disruption and absorbing $35 million of storm restoration costs that Jason will detail, we delivered 8% EPS growth on an adjusted basis, driven in part by $55 million of labor productivty savings. I’d like to thank every member of the thoroughbred team for their hard work and dedication during quarter. Teamwork and a focus on safety and service excellence are what’s propelling our progress. We’re also proud of our commercial agility staying close to our customers as we, and they, dealt with weather-related impacts to operations, East Coast port rebalancing and volume fluctuations in anticipation of tariffs. Our behaviors and performance are increasing our customers’ confidence in our service product, and that’s driving meaningful share gains.

We’re doing a better job anticipating market and customer needs, taking on the right long-term growth opportunities in the most strategic lanes. We are dressed and ready to handle volume growth. Overall, Norfolk Southern is doing what we set out to do. We remain focused on what we can control, that safety, network performance, customer service and costs. I’ll hand it off to the team now to provide more color on the results, starting with John.

John Orr: Thanks, Mark, and good morning. Starting on Slide 5. As you said, the weather tested the resolve of the operating team in what was both a challenging and rewarding quarter. We faced significant weather across most of our network. Mark mentioned 18 storms. Let me tell you about one of them. Depicted in Slide five is our Heartland Corridor. A flash flood caused the Tug River to rise almost instantaneously to its highest flood levels since 1977. This impacted a 100-mile stretch of our mainline that moves over 50 trains a day. Depicted on the top left is a fill failure. The restoration of this one location required 8,700 tons of rock, the equivalent of about 700 truckloads of material. The repair to this remote yet critical location was accomplished in just 52 hours.

Meanwhile, 87 miles down the same river system, the floodwaters and debris surged against this overpass. That’s the image you see depicted in the lower left. Debris and high water jeopardize the bridge’s structural integrity. We fought for two days against the surging water before being able to remove the debris and restore the bridge deck. There were 35 additional outages caused by the Tug River flood that were simultaneously repaired over a 4-day period. During the quarter, we incurred $35 million in extraordinary expense to respond to storms, which adversely affected our operating ratio. While we can’t control the weather, we can control our preparation and our response, and I am extremely proud of the entire team. Turning to Slide 6. Our FRA injury ratio was down 13% year-over-year and 15% sequentially.

This is the lowest quarterly ratio in over a decade. Train accident frequency reduced by 43% year-over-year. Our pursuit of safety excellence and speak of culture is showing tangible results. Turning to Slide 7. We delivered year-over-year network and productivity improvements across the board. Terminal Dwell, AAR Train Speed, Car Velocity and Locomotive Productivity improved meaningfully year-over-year. Turning to our Service metrics. While we improved merchandise trip plan compliance, our time-sensitive intermodal composite was the most impacted by the storms. Exiting February, intermodal service stabilized and in recent weeks, we are at target. These numbers alone don’t tell the whole story of our performance. The first half of the quarter was the story of the operations center and the engineering department planning and executing responses to the many disruptions.

The second half was the story of commercial, mechanical and transportation teamwork. For example, commercial and operations created an inspirational March Madness initiative to catch up Lamberts Point’s quarterly export coal volume. They collaborated with our supply chain and terminal partners to optimize coal sequencing and dumping at the peer. Together, we’ve delivered both our forecasted and backlog volume efficiently. Safety and service excellence are evident in these results. Turning to Slide 8. The team is proving the art of the possible. Our PSR 2.0 transformation is unlocking network value and delivering on our financial commitments. Our Zero-Based operating plan rolled out in the quarter. Phase 1 simplified train plans, tightened connection standards and strengthened our competitive resource and cost structures.

For example, we netted a reduction of over 100 weekly crew starts. This generated yields in Train and T&E productivity, reduced final mile dwell for over 600 customers and reduced overall transit. Meanwhile, Enterprise Resources streamlined our materials management and distribution network. They are reducing material handlings, controlling expenses and all the while increasing productivity. They are relentlessly pursuing every opportunity to eliminate waste and drive efficiencies across all spend categories. This includes further improving energy management solutions and implementing advanced fuel initiatives. For example, our HPT improved by 13% year-over-year. This resulted in a fuel efficiency record for the fourth consecutive quarter. We are aligning more closely to our suppliers while optimizing internal and transactional processes, positioning NS to fully leverage our scale and drive greater value for the long term.

Our PSR 2.0 transformation simultaneously delivered safety, service and resilience. We powered through the adversity in the quarter, and we are carrying that great momentum into Q2. Over to you, Ed.

Ed Elkins: Well, thanks, John, and good morning, everyone. Now let’s move to Slide 10, and you’ll see that the overall volume for the first quarter rose 1% year-over-year despite the winter weather conditions that we and our customers experienced during that period. And while total revenue was flat, continued fuel surcharge headwinds masked an otherwise solid revenue performance as total revenue, less fuel was up 2% and RPU less fuel was up 1% year-over-year despite sharply lower export coal pricing. Specifically, within merchandise, volume fell from a year ago as gains in our Chemicals and Ag businesses were offset by weakness in our Metals and our Construction segment. The period saw a 4% increase in Merchandise RPU less fuel delivering another consecutive quarterly record in that metric.

In Intermodal, we achieved a 3% year-over-year volume increase with gains in both domestic and international, while premium continues to face market pressure. Overall, Intermodal RPU less fuel was up slightly for the second consecutive quarter due to stabilization in truck pricing. Now let’s turn to coal, where lower export coal prices drove RPU less fuel lower by 3%. Partially offsetting these shortfalls were volume gains in our utility business, thanks to strong electricity demand and support from higher natural gas prices. Okay. Let’s move to Slide 11 for our market outlook. It’s clear that we’re in a dynamic economic environment. For our merchandise markets, we expect strength in autos to continue in the near term, although announced tariffs could be a headwind to volumes for the remainder of the year.

Manufacturing activity has been building in many markets, and we will stay close to our customers as trade policies unfold. Strength in our chemicals markets such as waste and plastics along with our intense focus on recapturing market share, give us confidence that we are well positioned to mitigate some of the uncertain market conditions that we see. Staying very close to our customers is the key here. When we look at our intermodal markets, we expect continued normalization of our East Coast share and are watching shipping patterns very carefully as trade policy evolves. If tariffs drive prices for international goods higher, import demand may soften and we’re staying close to that. Truck capacity remained steady throughout the quarter, which maintained a flat trend for our price outlook.

Coal prices continue to be pressured as the industry is expected to see tempered production amid significant uncertainty around export trade. In the near term, we expect the current trends in the utility markets to continue. On Slide 12. Industrial development activity continues to increase with strong interest from firms seeking to expand domestic production as well as international companies seeking to locate new manufacturing facilities in the United States. Sectors such as steel manufacturing, metals, fabrication, food production, and construction materials saw an increase in project activity through the latter half of the first quarter with momentum continuing to build through April. However, we’re also noting cases where decision time lines appear to be extending as customers evaluate the macroeconomic environment.

Considering all the uncertainty, I’m encouraged by our ability to maintain our quality service as volumes increased as we closed out the quarter, and I’m encouraged by our trajectory moving forward. As our customers navigate this uncertainty, we are by their side offering a service product that can help reduce their costs in their supply chains. We sincerely appreciate the partnership that we’ve built with our customers and are striving to grow trust and to earn more of their business every single day. And with that, I’m going to turn it over to Jason to review our financial results.

Jason Zampi: Thanks, Ed. Slide 14 reconciles our GAAP results to the adjusted numbers that I will speak to you today. Insurance recoveries continued to exceed the incremental cost of the Eastern Ohio incident which resulted in a net benefit of $185 million in the quarter. Total insurance recoveries to date are nearing $1 billion with less than $100 million of coverage remaining. Adjusting for the net recovery related to the incident, operating ratio for the quarter was 67.9%, which includes 120 basis points from storm restoration costs. From a bottom-line perspective, EPS was $2.69. Moving to Slide 15, you’ll find the comparison of our adjusted results versus last year and last quarter. As we previewed during the quarter, the impacts of typical seasonality, coupled with the higher-than-expected winter storm restoration costs drove a sequential increase in the operating ratio of 300 basis points.

From a year-over-year perspective, despite the elevated storm costs and flat revenues, our productivity initiatives have continued to take hold, and we generated 200 basis points of operating ratio improvement, with operating expenses down 3% on higher volumes. Let’s take a closer look at the $68 million year-over-year expense decline on Slide 16. The $35 million of incremental storm restoration costs are embedded in multiple line items, including purchased services and materials. We are focused on what we can control, and our operational momentum and execution on productivity initiatives delivered cost savings across the board. Labor productivity was strong in the quarter. That, coupled with timing of land sales helped offset an incentive comp adjustment related to 2024, increased pay rates and higher claims costs.

We continue to gain traction on our fuel efficiency, and importantly, our purchase services and rents were down $30 million in the face of 3% higher intermodal volumes. All of these actions support our cost takeout goals. Summarizing our adjusted financial results on Slide 17. The strong operational momentum that has been the foundation for continued productivity savings led to 8% improvements in both net income and EPS over last year. These results, together with ongoing balance sheet repair, led to the resumption of share repurchases, and we bought back nearly $250 million of shares in the quarter. The 200-basis point improvement in the operating ratio and this team’s ability to deliver productivity savings in any environment gives us a lot of confidence as we move through these uncertain times.

I’ll turn it over to Mark to wrap up.

Mark George: All right. As you have heard, we successfully navigated the first quarter to recover from the significant weather impacts to our network. At the same time, we delivered better service on higher volume all while continuing to drive greater productivity. Now as it relates to our guidance on Slide 19, one thing that we can control is our costs and we remain highly confident in our ability to extract at least $150 million, as evidenced by our strong momentum that continued in Q1. At this time, there’s no clear information on how tariffs may impact our end markets and revenues. So we are reiterating our full year 3% revenue growth guide and 150 basis points of OR improvement, while acknowledging that there is uncertainty on the horizon.

So to drill a little deeper on that point, we will be keeping a close eye on the end markets, staying in close communication with our customers. There may be cases where we see changes in freight, origin and destination as well as changes between customers, some who may be on our network or on others. We may benefit in some instances or suffer in other cases, but our growing track record of service excellence and agility positions us to continue to capitalize on all opportunities. So as the effects become clearer in the months and quarters ahead, we will calibrate and communicate with you accordingly. But right now, our guidance remains intact. So with that, let’s open the call for questions. Operator?

Operator: [Operator Instructions] First, we will hear from Ken Hoexter at Bank of America. Please go ahead, Ken.

Kenneth Hoexter: Hey, great. I guess let’s just start up with the operating ratio, just given the strong performance on the cost savings. And I guess I’d like to hear your thought on upside or speed of targets. But my question would be if you — if 120 basis points of cost, that would have gotten you to a 66.7% without that normally — seasonally. I guess if you or Jason could talk about that 250 basis points, it looks like is your long-term trend. So is that a good benchmark to think you started 66.7% and so the second quarter should be in the 64s. Is that a good way to at least think about your potential here?

Mark George: Jason, why don’t you talk a little bit about the cadence?

Jason Zampi: Yes. Thanks, Ken. So we’re very focused on our full year guidance. As Mark laid out here, delivering that $150 million of productivity and cost reduction savings as well as the 150 basis points of margin improvement on that 3% revenue growth. So as you pointed out, we had some headwinds from the abnormally harsh winter weather as well as 50 basis points of headwind from fuel price. So while there’s obviously some uncertainty on the macro side, we’ve got a lot of good momentum from our strong service product. And as you saw this quarter, we’ve made really good progress towards those productivity targets. So I think about it, Ken from this perspective — I think the math would tell you the remainder of the year needs to be like under a 64% operating ratio to hit our targets.

I would just say that it wouldn’t — it’s not going to be evenly spread over each quarter. I’d expect the second quarter to be better than normal seasonality off of the 67.9% million here that we just posted in the first quarter. But beyond that, I really don’t want to get into too much more specificity on a quarterly basis given this environment of uncertainty we’re in.

Operator: Next question will be from Chris Wetherbee at Wells Fargo. Please go ahead.

Christian Wetherbee: Hey, thanks. Good morning. Maybe I wanted to ask about yields. So merchandise stepped up. I know we have a record there. Intermodal was up year-over-year for the second quarter in a row. Can you talk a little bit about what you’re seeing in the pricing environment? Obviously, service has improved quite a bit. I’m just kind of curious how much you think this is sort of a Norfolk-specific dynamic where you’re seeing some opportunity to play some catch-up on price and what the market has kind of given you?

Ed Elkins: Thanks for the question. This is Ed. We’ve been successful taking price in the merchandise side of the business, really on the back of improving service. And for us, that’s been the headline for the last three quarters. Our customers are trusting us more and more and really offering us more opportunity, both on the price side as well as on the volume side to expand our portfolio with them. On the intermodal side, we’re taking what the market will give us basically, and that’s really a sideways price right now that it’s very flattish, and we’ll see where it goes with all the uncertainty going forward here. But we’re still taking price predicated off the value of the service that we’re providing, and we feel good about our trajectory there.

Mark George: Obviously, the seaborne met coal pricing is the biggest challenge that eats away at a lot of that other good core pricing performance.

Ed Elkins: Clearly, in the coal side, seaborne prices have been a drag and looks like they’re going to be a drag for a few more quarters.

Operator: Next question will be from Scott Group at Wolfe Research. Please go ahead.

Scott Group: Hey, thanks. Good morning. zJust to follow up there. The merchandise yields up 4% ex-fuel is that more about mix? Or is that sort of core price accelerating? And then I understand the point about just all the uncertainty. So I guess I just want to get your perspective in an environment where volumes start declining, if that’s what happens, what’s your ability and willingness to start to further reduce costs? Like if volume — if we wake up and volumes are down 5% or something like do you think you can reduce head count and costs in line with that?

Mark George: Why don’t you answer the yield question.

Ed Elkins: It’s hard to remember it now. It’s been a long. On the merchandise side, it’s a function of both. We’ve been successful in taking share in a couple of key markets. Notably in chemicals, and that’s coming from a variety of sources. That’s good for the portfolio. At the same time, we’re beating our plan for same-store price right now. I feel good about that. And all the indications that we see from our customer base are that, number one, they’re seeing increasing value from the product that we’re delivering. And number two, they’re looking for ways to save money, and we’re clearly in a great place to do that. To your second question, I’ll start and then I’m going to — well I’ll hand it off to Mark here. Go ahead.

Mark George: Yes. No, that’s a hypothetical, if you get a 5%, that’s a 5% decline. It’s pretty cataclysmic scenario. We are not fully volume variable as an enterprise, as you know, you’d have to go and do some draconian things if you wanted to be volume variable, I think we learned a harsh lesson when we tried doing that in 2020 with the onset of COVID and then was unable to respond quickly. So the reality is we’re going to keep our eye on the external outlook. Meanwhile, we’re doing really great stuff looking at being more productive and efficient. And you see the way we’ve been handling the volume last year while actually dealing and absorbing nutrition in our direct headcount, we’re continuing to do that. That’s part of the math this year as well.

I’m not going to respond to a 5% scenario, 5% decline scenario, but just know that we’ve got a lot of productivity runway left. John and the team are doing some great stuff and others are doing great stuff inside the organization, including in IT and technology where we’re trying to drive and find productivity savings. So we’re keeping our eye on the volume trends right now. We hear a lot of the same stuff in the marketplace about potential for recession. We felt really bad last — we felt really good last week. We felt pretty bad yesterday. Today, we feel a little more encouraged. That just shows there’s no way to predict where we go right now. We’re in a really uncertain spot, but we haven’t seen negative trend yet that really alarm us or cause us to do anything.

That said, we’re scenario planning and just stay tuned.

Operator: Next question will be from Brian Ossenbeck at JPMorgan. Please go ahead.

Brian Ossenbeck: Hey, good morning. Thanks for taking the question first, to quickly follow up on the land sale. It sounds like maybe there’s some timing. So I just wanted to see if that was going forward or it was still on the full year expectation, just came a little bit earlier? And then maybe, John, you can just talk about the network performance looks like it’s bouncing back pretty well in terms of resiliency. So I wanted to see how you’re getting about that, if you think that’s sort of the new normal under the 2.0 program. And what sort of market opportunities that brings you because clearly, your peer is having some different issues that they’re not able to recover from as fast as what it seems like you are.

Jason Zampi: This is Jason. I’ll start off on the land sale question. We continue to think about land sales in that $30 million to $40 million range for the year. But as you’ve seen last couple of quarters, those can be lumpy, and that’s kind of what you saw here. But it’s — we still think we’re going to be in that range for the full year.

John Orr: Yes. And I would say I’m never satisfied with how the operating environment is at any given time. So that’s a curse my team has to endure. But I can tell you, I’m very, very pleased that the strength and resilience that we demonstrated coming out of the storms. We recovered quickly between the storms and prepared ourselves for the next round. And I think the efficiencies in the network were really driven by the investments we’ve made in our capital over the years are pulling back and managing our resources so that we had the resilience where we can inject locomotives and cars where the market responded faster than other places so that we could serve our customers and be there for them. And then as we’re doing today, pulling them back out.

So we deploy locomotives. Now we’ve got 40 back in storage service dwell ready for the next round of surge either in a challenge or in an opportunity. So I think the creating efficient transportation networks and really driving volume and resources to meet our GTMs is what we’re all about. One of the things that I think is really important is that we’re in the midst of all of this. We’re still in the midst of transformation, and we’re introducing rigorous standards across the organization relative to our new Zero-Based plan. We’re structurally engineering out cost and improving our customer service offerings, as I said earlier, we’ve accelerated over 600 customer last-mile capabilities, and we’re putting in our yard operating plans and our mechanisms to really create more visibility for our customer and more visibility for our service offerings at the last-mile or first-mile.

And I think that helps Ed because that visibility is in collaboration with the commercial team.

Ed Elkins: Yes. Look, over the past five years, we’ve lost share to a lot of different competitors, and our teams are working every single day to unwind those alternatives as quickly as possible and bring that freight back to NS, and that’s really, like I said earlier, on the back of good service that our customers can count on. And it’s working.

Mark George: Consistent service, you get share gains, and it’s playing out right now in real time. So we’re happy about that.

Operator: Next will be Jonathan Chappell at Evercore ISI. Please go ahead.

Jonathan Chappell: Thank you. Good morning. Ed, you pointed out the 50 — John, you pointed out the $55 million of productivity improvements. And if we look at Jason’s slides, it’s all under the comp and benefit line item. As we think about getting to the $150 million and more importantly, the plus component of that $150 million, does that all still fall in comp and ben as we go through this year? Or are there other opportunities in purchased services, rent, materials, et cetera, where you think it’s more of a second half opportunity to reap the productivity benefits?

Jason Zampi: Yes. So this is Jason. I’ll start off here. We’ve committed to that $550 million of productivity and cost reductions over this 3-year time horizon. And last year, we got more than we had promised that right around $290 million. When you look this quarter, and we’ve highlighted the two most significant areas. So one is labor productivity that you just called out, the other is fuel efficiency. So those are the big pieces this quarter. So a couple of different pieces there. On the labor productivity side, I think last year, we were probably more harvesting that from a T&E perspective. Now it’s really more broad-based across all of our different crafts. You’ll also see productivity really throughout the income statement here.

As you mentioned, purchase services, that’s a great example, equipment rents. You see the improvements we have there just due to a more fluid network. So it’s really across the board here. We just called out kind of two of the bigger ones here on the slide for you.

John Orr: Yes. And you’re right, Jason. And I’ll tell you, we can talk about high numbers, and we can talk about what’s next strategies, where we continue to develop the skills and capabilities of people where we’re really harvesting ROIC on our capital investments and focusing on the diversity of our vendor relationships and really strengthening and narrowing down our purchasing capabilities a lot of those things are building momentum. And then we layer on top of our Zero-Based plan in Phase 1, Phase 2, Phase 3. That’s a continued elevation of our service offering, our commitment to rigorous standards across the organization and really pushing the boundaries of a transportation ecosystem. But then you go down a little deeper and you think about what are we controlling?

From our disciplined approach on service and looking at things that impede that service, we get into war rooms. And our war room, the very first war room that we started was on reliability of our over the road trains. From there, our fleet management, our freight car costs, all of those things are coming down and flowing out. Kudos to Brian Barr and Ryan Clark, who are leading our mechanical department, our freight car maintenance in the quarter was down significantly. And you have to go back to Q1 ’23 to find anything close to that. And when you do that and you think about all of the investments that we’ve made in field operations technology and more sampling we’re doing to really be driving down that cost means we’re getting to the issues before they come across the road.

Same with loss and damage, our safety camp investments. 43% down in our FRA accident ratios and 60% down in non-FRA accident. So really below-the-line activities where customer goods and shipments are less disrupted. The goods that they’re trusting with are leaving and departing and arriving in the same state we get them. That’s reducing our overtime or purchase and services, our resources there, all of the things that cost when you disrupt the natural flow of transit. And even as we get into how we have more reliability and availability of people, our taxi usage is down $15 million in the quarter. You have to go back over three years to find that. That means we’re — our speed is translating into more direct and indirect value. So all of these value streams give us a lot of confidence.

And Jason and his insights into the finance and the linkages to our activities. Between the two of us are really driving attention and attentiveness to that $150 million commitment. And I would say it’s natural. We get a little bit more in the first quarter, but we’re going to keep these initiatives driving value all through the year.

Operator: Next question will be from Jason Seidl of TD Cowen. Please go ahead.

Jason Seidl: Thanks, operator. Mark and team, congrats on the good earnings in a challenging environment. I wanted to focus a little bit sort of on your agility going forward to manage costs because Mark, I think you did a great job of pointing out the uncertainty in the marketplaces and sort of what you might be faced with challenging going forward. I was hoping maybe you could talk to us a little bit about some of the levers you guys could pull and how nimble you think you can be to sort of manage those markets?

Mark George: Thanks, Jason. Appreciate the question. We’re doing really great stuff. John, just really listed a handful of things that we’re focused on. We’re getting down into details now when he’s talking about taxis and meals and overtime and re-crews, in the meantime, on the other side of the ledger, we’ve got IT that’s doing tremendous work trying to find cost reduction and efficiency opportunities. And then on the other administrative functions, you recall we did a RIF, reduction in force, last year that took out 10% of our administrative really, it’s about 9% of our administrative staff at the headquarters. So we’ve been looking at everything and we continue to look, we’re not done. We all are contributing to trying to find opportunities to streamline the company and be more nimble, more efficient.

We know we’re in uncertain times right now. We don’t really know how it’s going to manifest yet on the top line, as I’ve mentioned before. We haven’t seen the evidence yet, but we are scenario planning, and we’re getting into details, as you heard John give you some of those examples. Thank you, john, do you want to add to that?

John Orr: Yes. I would say we talk in terms of the kind of the big five or six initiatives that are big rocks, T&E mechanical and equipment, purchased services and others fuel and as Mark said, even in the G&A. So there are core cost takeouts that we’re looking at. we’re keeping our resources active and in reserve to be able to respond to any kind of market that’s changing, whether it’s a spot market or whether it’s some emerging condition that gives us more volume. And we’ve also accelerated our on-boarding capability for new hires. So we’ve compressed the time it takes to bring on a new conductor for example, bring — take them through the technical training, get them ready for a productive life with NS. And so even our responsiveness on that front is — has been streamlined and optimized.

So we’re a much different railway than we may have been a few years ago and the agility that we’ve created and across all these streams is really giving us pretty good strong confidence that we’re ready to take on the world as it evolves.

Mark George: Yes. Those are great examples. And even last week, you’re right, we tightened controls around the use of consultants. So again, we’re getting into every detail here, where I want to see everything that our team is doing with regard to engaging new consultants. So we’re getting into some details here, and we’re getting ready to hunker down.

Jason Seidl: That sounds good. How should we think about head count overall as we sort of head into these uncertain times? I mean are you guys sort of keeping it flat and maybe thinking about furloughs after you see any impact?

Mark George: Look, I think what we’ve done, and I mentioned this before, is we’ve been managing really well our 83 hiring locations and crew locations with attrition and very controlled hiring practices because we do have a window into attrition in the future just based on the age of our crews that are out there. We know we’re going to have some attrition. So we’re backfilling with hires in the training pool, but we’re being very controlled, very measured for the 83 specific locations, keeping an eye on volume and where that volume is going to show up on the network. So it’s a very delicate balance that we’ve got to do. So we’re — what you’ve seen is that we’ve actually attributed down while we’ve taken on more volume last year.

That was very strategic, and that’s another form of productivity, volume absorption is another angle of productivity, and we don’t give the same credit to, but it’s a very important part of the recipe here. I think in terms of this year, I’d be surprised if you see much growth in head count, if any, at all. And certainly, if top line pressures manifest in the back half, I would imagine we’d have trip down quicker. Jason?

Jason Zampi: Just like Mark said, we’re really matching all of our resources to the volume trends, and obviously, head count is a part of that. And you saw the great productivity that we generating here. And I think just to Mark’s final point there, at this time, we still expect head count flat with kind of where we exited the fourth quarter, but we’re keeping an eye on it and we’ll adjust accordingly.

Operator: Our next question will be from Brandon Oglenski at Barclays. Please go ahead.

Brandon Oglenski: Hey, thanks for taking the question. So John, I was wondering if you could talk about like the intermodal service composite scores that you give and merchandise plan compliance. I know that you definitely had weather impacts in the quarter, but where do you want to see those long term? And maybe if you can just follow up too like what are you seeing domestic intermodal? Are you seeing highway conversions because I think we’re hearing that from some of the IMCs, especially in the East.

John Orr: Yes. From the merchandise and intermodal or trip lane compliance and composites. Those are really internal measures that demonstrate our commitment to our customer plan. And as we evolve the plan, we’re tightening down our standards even more. So I want to see, obviously, the trip-line compliance at a high level. So in the 80s and 90s, respectively. But also bear in mind that as we tighten down our standards, we’re pushing the boundaries within our terminals and forcing waste out of the — even the clock that measures triplane compliance. So I expect some variability in there as we learn and develop the skills and create the environment for better on-time delivery, better standards across the entirety of the over-the-road experience of a customer.

But ultimately, what matters to me is that our customer is getting their goods on us and we’ve got the resources to supply them cars and locomotives in full to move it when they expect it that we do it safely and effectively, and we deliver it to the final terminal so that they can get to their marketplaces and win. And that’s how Ed and I measure ourselves, and we have to put a pin somewhere, and that’s what we put on our merchandise triplane compliance measure.

Mark George: And it’s a perfect segue to we’re getting some highway conversions, right?

Ed Elkins: Yes. We’re a fair part of the way through the spring bid season, and we’ve had very encouraging results so far. What we’re seeing is customers clearly want to save money. And if they have a service product that they can trust from us, then we are a great resource for them to derisk their supply chains from a cost perspective. We see that happening, and I fully expect it to continue.

Operator: Next question will be from Stephanie Moore at Jefferies. Please go ahead.

Stephanie Moore: Hi, good morning. Thank you. Maybe a question for you, Ed here. Based on the conversations you’re having with customers, how is your pipeline of opportunities changed at all as of late, just given kind of the uncertainty in the market, particularly the industrial economy. Have you seen maybe any project pauses or delays? And then maybe in the same vein, any indication of a pull forward of shipments in 1Q due to tariffs?

Ed Elkins: Sure. I think I referenced it when I was talking about industrial development there. We’ve seen the top of the pipeline expand pretty substantially with a lot of companies, both domestic and international. Evaluating where they could expand or create new manufacturing nodes, and we’re really focused on that. Broadly, our teams are very, very focused on how we can solve problems for our customers, whether it’s from the current uncertainty or whether it’s just ongoing business opportunities. We have a great team out there. We’re enhancing our capability when it comes to how we address our customers commercially. And I think that’s paying dividends. When I think about Q1, there’s a lot of put and takes out there. Number one, we had a lot of auto holds and some disruption in the first part of the quarter.

We had all that terrible weather that John referenced, which really impacted our customers as well as us. Miners couldn’t get to the mine and shipments couldn’t get to the rail head, et cetera. Do we see some pull forward? There might have been some in there, or was it makeup from the early part of the quarter. A lot of things going on there, but we’re encouraged by the trends right now. But we’re keeping a real weather eye on what’s happening. And I know I’ve said it over and over again, but I want to reinforce it, staying very close to our customers is the most important thing that we can do commercially right now. It helps us and helps our customers both of us figure out how to solve these problems.

Mark George: I think another point on the whole pull-forward question. You talked to the customers, we’re not necessarily hearing that’s what was going on. The data doesn’t scream out at you, like Ed is saying, so there probably is some in there, but it’s not meaningful to call out.

Operator: Next question will be from Tom Wadewitz at UBS. Please go ahead.

Thomas Wadewitz: Yeah, good morning. Ed, I have, I guess, a couple of kind of just feed into puts and takes on the outlook. You have talked about share gain as you — the railroad runs better despite some of the weather impact in 1Q, and I think you focused on truck. I’m wondering, have you seen any new contracts kind of recovery in chemicals or other areas that you might be more likely to have share in versus the other railroad. Is that something you’ve seen? Or do you think there’s potential there? And then I guess another markets related would just be, I understand the tariff outlook is really hard to factor in. But are there particular segments that you’re most focused on is auto, if you think the 25% tariffs persist. Is that what would be autos and metal?

So just any thoughts on kind of what’s most in focus on tariffs and whether it’s kind of good or bad because it’s tougher to tell for the Eastern Railroad, right? So there could be both good and bad from tariffs, right?

Ed Elkins: No problem. Thank you, Tom, for the question. On the topic of share gain, I’m encouraged by our progress. And I’m encouraged specifically by our progress in our merchandise markets where we’ve been able to take some share back. And that’s coming from a whole variety of sources, including alternative sourcing of the product as well as other modes, other competitors. The thing that we’re really focused on when I talk about share gain is making sure that customers who want to use Norfolk Southern, but in the past haven’t been able to because of our service I can bring them back confidently because I know that the service John is providing is one that they can trust every single day. And that’s really the most important lever that I have when it comes to gaining share wherever it’s coming from.

On tariffs, there’s — you’re right. As an Eastern railroad remember, there’s a whole bunch of put and takes out there. I think it’s certainly plausible that we could see both tailwinds and headwinds in a variety of markets, maybe auto is one of those going forward where perhaps there’ll be more domestic production. But at the same time, you can’t predict. And so we’re just keeping a really, really close eye on it.

Mark George: And it’s probably not going to be short term. It will probably take a while to play out some of those market shifts. But look, I think the challenge to us, I’ll just put a finer point on the whole — what is the tariff impact to us on the top line? Really hard to put a point on it. I think the bigger risk for us is a broader economic slowdown, a recessionary type of scenario where you lose the few points of top line because there’s a general GDP slowdown. Tariffs, it’s harder to say, certainly in short term. And bear in mind, we’re largely a domestic business. We said last quarter, 75% of our business is the U.S-domestic business. And when you look at the other 25% Europe is about high single digits. Right Ed?

Ed Elkins: That’s right.

Mark George: About high single digits. And then when you look at Mexico, Canada and China, each, those are about low single digits of our revenue each, okay. And then the rest of the world is kind of the balance, mid-single digits. So whether — how tariffs play out is going to be hard to say but I don’t think it’s going to be as meaningful as the risk we have on the broader economy.

Operator: Next question will be from Walter Spracklin at RBC Capital Markets. Please go ahead.

Walter Spracklin: Yes, thanks very much. Good morning, everyone. Yes. So John, this question is for you. I know you’ve been working very hard on the resiliency and recoverability of the railroad when you have some of the winter effects like this and you articulated those very well this quarter. My question is really on a kind of run rate basis and we get the weekly data, and we’re always focused on with Norfolk Southern is on those productivity gains. So is there a metric you can kind of indicate where you’re happy? Of those that come out weekly, and I’m kind of leaning toward velocity, but is there a certain car miles per day or something that we get weekly that says, okay, things are running pretty well right now. This is the level we’re pretty happy with so that when we monitor that and we see it at that level, and this could differ by quarter, but to the extent that you can give that seasonality.

When we see that level, we know, okay, things are running according to John’s plan here, and we can feel comfortable by that. Any indication there would be helpful.

John Orr: Yes. Walter, first, congrats on the overtime win last night. Maybe there is hope that the leafs can get out of the first ground.

Walter Spracklin: This is the year. This is the year.

John Orr: Well, let’s hope. There’s a lot of people in Canada that are looking for that silver lining. Listen, I think, as I’ve always said, and as you know well, being an experienced railroad analyst, that there’s no one measure that’s going to drive a good indication of what’s going on in the business. And that’s why we really focus on network asset and customer health indices. And as I once described, it’s an 8-burner stove and we’re always balancing out what we’re doing on that stove to make sure that the products we’re putting in drive safety and service excellence and does it at the best cost structure. And that’s what we’ll continue to do. But what I think as we watch those six numbers, Walter, has been the balance of what we’re doing about it.

Were we sitting on those numbers and just letting them be the status quo are we challenging ourselves to do something more constructive. And that’s why it’s important, the Zero-Based plan. It’s taking our current customer service indices and challenging us to do better. It’s challenging us to cut whatever fat is left in the service schedules, the terminal performance, the over-the-road, the crew change off locations, the meat pass planning and really balance that out. One of the things I thought was very constructive in the fourth quarter, and we’re continuing this quarter is the compression of our fastest lines like our intermodal offerings and our — what has historically been our slowest trains in the unit trains and compressing the gap.

So the speed differential was closed. So that means we’re moving the entire capacity at a faster rate and a more productive rate. And that’s manifesting into cost takeout, less overheads, less crews required and all of those things. So we’re doing that. At the same time, we’re not standing still on the performances that support those things, like our resource management and the work that Mina is doing to draw down our — the complexity, simplify our distribution of materials, simplify our consumption knowledge and give us better visibility. The work that we’re doing on our yard operating plan and daily operating plan, to give our customers more visibility through our Heartbeat initiative, so that — or Home Stretch initiatives so that they can see what our local yard is planning and they can bank on that and save money.

Those are the things that we’re doing that will help enhance what the — those big six numbers are driving. So I think there’s going to be variability within that fuel, loss and damage, crew starts, over time, all are in those big six numbers. And that’s really what’s going to drive the performance.

Operator: Next question will be from Richa Harnain at Deutsche Bank. Please go ahead.

Richa Harnain: Hey everyone. Nice to meet you on this call. So I wanted to hone in, Mark, on your point around seeing meaningful share gains. I know a theme from your prepared remarks was that this came from being very close your current customers? And in response to your prior question, you suggested you are winning new business as well. I’m just curious how sticky that is? And I ask in the context of one of your closest peers recently reporting and lamenting leaving business on the table given their network issues, but showing confidence that, that should turn around in some time. So that’s the first one. And just a quick clarification around the full year guidance. Mark, again, I appreciated the point around scenario planning around a very uncertain backdrop.

But in the event we do have flat revenue or down revenue. Can you still grow operating profit with all of these cost takeout initiatives you have, you’ve done better for the past two consecutive quarters with down revenue and up operating profit. But just wanted to hear more on this from you.

Mark George: I’m going to have Ed talk a little bit about the share gain dynamic and the stickiness, which we think is there. And with regard to growing operating profit, absolutely. That’s our goal. We’re going to be trimming where we can to try to help neutralize and offset some of the challenges that might present in the back half for these last 9 months if they materialize. But again, we’re scenario planning, we’re trying to remain nimble because we have to respond to the growth that we do anticipate happening. So we can’t get too far ahead of the curve here. So it’s really a question of agility and being able to pivot quickly. But Ed, why don’t you talk a little bit about the share gain.

Ed Elkins: Sure. And many of the people in this room and on this call, have heard me talk about this before, but over the past few years because of the service challenges that we had, some of our customers had to make alternative arrangements and go to other modes or other competitors, to satisfy their needs. And frankly, in most cases, we believe those alternatives were more expensive and probably less efficient overall. And so as I said earlier, we’re working on a highway — especially from the highway and maybe from other places as well. But we’re working really hard with our customers to unwind those alternatives and to help them save more money and be more efficient. And when we do that and deliver the kind of service that John has been talking about, we will be sticky, and we are sticky with our customers because they can trust us.

And the fact is we are a highly efficient mode for them to both deliver demand for their customers and satisfy their customers’ needs, but also save money, and we’re confident in that.

Mark George: Yes. I want to just get back and talk again about the guidance that we gave and the scenarios that we have. First, we remain fully committed to the $150 million of cost takeout. We’ve got really good momentum here. You saw the first quarter results. We are going to hit that number or beat it. Now when you look at the revenue outlook on the positive side, right, our volume trends have been consistent with the way we planned them to be in the first quarter, especially since the recovery from the winter storms, right? We were running at, call it, 142,000, 144,000 some weeks, 146,000 carloads per week. We’re feeling pretty good about that. John has done a great job on service, and Ed has been opportunistically leveraging that to bring volume onto the railroad.

Remember, we’ve got a very diversified portfolio of business. So should there be challenges, we’ve got a pretty good hedge in our diversification, and pricing has been pretty steady and pretty good as you heard Ed lay out. That said, export coal pricing has been a challenge, and we have to keep our eye on hopefully, that can recover somewhat in the back half and provide some relief. But we’re keeping our eye on that as well as fuel prices, which have been under pressure as well, that can cause a headwind to us on fuel surcharge revenue. Now on the negative side, we see the same macro headlines you all see, the risk of lower GDP, heightened recession concerns. We are not immune to those same pressures, but we are staying in contact with our customers.

There’s just been no clear sign from our customers that they’re concerned. And we’re not seeing it in the numbers yet. So we’ll see how things play out. But we’ve got to be realistic. There’s two tangible pressures I talked about, and then there’s this risk. So when we’re reiterating our guidance here, we don’t have our heads in the sand. We understand that the situation is fluid. That’s why we’re in a scenario in case things do turn South on us, and we’ll see what we can do to offset and mitigate some of those pressures. Meanwhile, the things we can control. We’ve taken out the cost, John is running an outstanding network right now. That resiliency in the first quarter following the resiliency we had in the fourth quarter after Helene, it’s showing that something is different here, and that’s great.

Our network is responding. And Ed and the commercial agility has been fantastic. We’re seeing it manifest. So we still think even in a down market, we should be able to get some volume from share gains. So that’s the overall kind of look at the way we’re managing the year as we go. Control the controlables and try to help mitigate some of the things we can’t control.

Operator: That is all the time we have for questions today. I will turn the call back over to Mr. George.

Mark George: Okay. Thank you, everyone. We appreciate your participation and for those of you who are just listening in, and we look forward to touching base throughout the quarter. Take care and be safe.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.