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    NSC
    Earnings call· Jun 2026(Q2 FY26)

    NORFOLK SOUTHERN CORP NSC

    Jul 23, 2026 Source

    Executive summary

    Norfolk Southern Q2 FY26 — Strong Volume Inflection Drives EPS Growth

    Norfolk Southern delivered a strong second quarter, benefiting from a sharp inflection in volumes across energy, intermodal, and industrial markets. Despite significant fuel price and inflationary headwinds, the company achieved solid EPS growth and made progress on operational improvements, including safety and network fluidity. Management remains cautiously optimistic about the demand environment, focusing on disciplined execution and capitalizing on profitable growth opportunities while navigating broader economic uncertainties.

    Highlights

    5

    • Net income and EPS grew 7% year-over-year.

    • Volume increased 4% year-over-year, driven by strength in energy, domestic intermodal, and industrial products.

    • Merchandise revenue less fuel achieved a record, increasing 4% from a year ago.

    • Intermodal volumes increased 5%, with revenue less fuel up 7%.

    • FRA personal injury index was down 16% year-over-year, and accident rate was down approximately 25%.

    Concerns

    4

    • Operating ratio increased 210 basis points year-over-year, with fuel price headwinds driving an approximate 110 basis point increase.

    • Inflationary pressures drove another 190 basis point headwind compared to last year.

    • Network disruptions and volume surges placed additional pressure on crew resources and created variability in portions of the network.

    • Merger-related share losses impacted intermodal growth by approximately 3 points in the quarter.

    Guidance & targets

    4
    CategoryTargetConfidence
    Full-year 2026 Operating Expense Outlook
    $8.8B to $8.9B
    high materiality
    High
    Full-year 2026 Capital Expenditure
    approximately $1.9B
    medium materiality
    High
    Cost Takeout
    at least $150M
    medium materiality
    High
    Operating Ratio Sequential Improvement
    up to 100 basis points better than normal seasonality
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Merchandise
    Driven by continued gains in energy demand and chemicals markets. Supported by price and mix.
    Volume: 2% increaseRevenue less fuel: 4% increaseRPU less fuel: 3% growth
    		————
    Intermodal
    Reflected firm consumer demand, favorable highway market conditions, and recent business wins, particularly in the domestic segment. Marks the beginning of a positive shift in intermodal pricing.
    Volumes: 5% increaseRevenue less fuel: 7% increaseRPU less fuel: 1% increase
    		————
    Coal
    Benefited from the ramp-up of a new metallurgical coal export customer and incremental export thermal business opportunities. RPU less fuel growth due to favorable seaborne coal pricing, partially offset by negative mix.
    Volume: 3% increaseRPU less fuel: 1% increase
    		————

    Operational metrics

    9
    Adjusted Earnings Per Share
    $3.527% increase YoY
    Q2 FY26

    Adjusted for $51M merger-related expenses, $15M Eastern Ohio incident costs, and $6M restructuring costs.

    Adjusted Operating Ratio
    65.5%210 bps increase YoY
    Q2 FY26

    Adjusted for merger-related, Eastern Ohio incident, and restructuring costs. Sequential improvement exceeded historical seasonality and expectations.

    Cost Takeout Target
    $150M
    FY26

    Exceeding original target for cumulative savings over a 3-year period.

    On-time Originations
    20%increase from Q2
    Last month (July 2026)

    Reflects improvements in network performance and efficiency.

    Outbound Tender Rejections
    around 15%multiyear high
    Current

    Indicates tight capacity in the trucking market, favorable for rail conversion.

    ISM Manufacturing Index
    sequential improvementbest post-COVID performance
    Last 6 months

    Positive indicator for the U.S. economy and industrial activity.

    T&E Attrition Rate
    around 8%
    Annual

    Requires continuous hiring to replace departing employees.

    Fuel Price Headwind
    $400M to $500Mincremental expense vs. beginning of year review
    FY26

    Significant driver for the updated operating expense outlook.

    Wage Increase
    4%
    July 2026

    Went into effect in July, will temper Q3 margin tailwinds from fuel.

    Industry KPIs

    10
    MetricValueDetails
    Safety—
    Volume4%%
    Operating ratio65.5%%
    Network fluidity—
    Merger synergy metrics—
    Pricing vs rail inflation—
    Fuel surcharge diesel price—
    Intermodal truckload volume5%%
    Labor productivity headcountaround 8%%
    Tariff trade policy revenue impact—

    Deals & partnerships

    1
    CNAgreement to enhance competition and provide single-line frictionless service.

    Part of proposed company supply chain, further enhances competition in freight rail space. Additional enhancement features to be presented in STB response.

    Risks & headwinds

    6
    Sustained higher fuel pricesLong-term

    If fuel goes to $110-$120 per barrel for a prolonged period.

    Mitigation: Monitoring impact on consumer demand and overall economy.

    Inflationary pressuresOngoing

    190 bps headwind to OR YoY in Q2.

    Mitigation: Disciplined cost control and leveraging volume growth to improve margins.

    Network pressure from volume surgesQ2 FY26

    Placed additional pressure on crew resources and created variability.

    Mitigation: Focus on improving on-time originations, reducing terminal dwell, and increasing velocity; tactical actions to free up resources.

    Tariff and trade uncertaintyNear-term

    Partially offsetting firm demand for international intermodal volumes.

    Mitigation: Focus on domestic intermodal strength and overall market opportunities.

    Natural gas prices and growing renewable energy productionSecond half of year

    Creates uncertainty for utility coal.

    Mitigation: Leveraging continued overall strength in export and metallurgical coal business.

    Uncertainty in broader economyOngoing

    Wildcards include energy prices, consumer behavior, and interest rates.

    Mitigation: Well-positioned to capitalize on profitable growth opportunities and improve operational performance.

    What to watch in Q3 FY26

    5

    Operating Ratio Sequential Improvement

    Q3 FY26
    Current320 bps improvement Q2 over Q1
    Targetup to 100 bps better than normal seasonality in Q3

    Why it matters

    Indicates the effectiveness of cost control and operational efficiency initiatives in a dynamic environment.

    So you put that all together, I think we're at a place where we believe we can beat that normal sequential seasonality. And I'd put that up to 100 basis points better than normal.

    Q&A highlights

    6

    How will the tight truck market translate into pricing opportunities for intermodal and merchandise?

    Management is optimistic about the freight environment, citing improved GDP, manufacturing, and housing starts. Outbound tender rejections are at a multi-year high (15% overall, 40% for flatbed), indicating tight truck capacity. This, coupled with elevated fuel prices, creates significant pricing opportunities for both intermodal and merchandise.

    “That is a multiyear high in and of itself. And then we look at flat dead rejections, which are a subset of that, that's about 40% right now, which is about as high as I've ever seen it.”

    asked by Chris Wetherbee · answered by Mark George

    2 min read5 chapters

    Detailed Narrative

    01

    Volume Inflection and Market Dynamics

    Norfolk Southern experienced a sharp inflection in volumes during Q2 FY26, initially driven by the Iran conflict bolstering energy markets, which then spread to domestic intermodal and industrial products. This led to a 4% year-over-year volume increase and record revenue less fuel. The company observes encouraging trends in manufacturing, with the ISM Manufacturing Index showing six consecutive months of improvement, the best post-COVID performance, and strong outbound tender rejections in the trucking market, indicating a favorable environment for rail conversion.

    02

    Operational Improvements and Network Resilience

    The company is intensely focused on improving network resilience and operational performance, addressing pressures from winter disruptions and volume surges. Key initiatives include improving on-time originations, reducing terminal dwell, and increasing velocity. In the last month, on-time originations increased 20%, and train velocity is rising due to reduced recrews. Tactical actions, such as optimizing car movements in Chattanooga and Birmingham, are freeing up resources and improving service reliability across the network.

    03

    Industrial Development and Project Pipeline

    Industrial development remains a key strategic priority, with the project pipeline gaining momentum. New manufacturing facilities and expansion projects expected to enter design and construction in 2026 are projected to nearly double last year's level, leading to substantially more carload potential across multiple commodity groups. Examples include a new ladder frame manufacturing facility for Scout Motors, a power transformer plant for Virginia Transformer, and new cement terminals for Sylvie Materials, indicating broad-based industrial growth beyond data centers.

    04

    Intermodal Market Conditions and Pricing

    The intermodal market is experiencing a positive shift, with firm consumer demand and highway market conditions increasing demand for intermodal services. Spot truck prices have been trending upward for several months, creating upward pressure on contract prices, which is expected to flow through to Norfolk Southern's long-term contracts over the next two to three quarters. The company is very constructive on domestic intermodal, while international volumes are partially offset by tariff and trade uncertainty.

    05

    Merger Impact and Strategic Positioning

    Management believes the proposed merger with CN is accelerating, rather than paralyzing, decision-making among potential customers, who anticipate a more powerful transcontinental network. While the company experienced some share losses immediately following the merger announcement, these are expected to be lapped by Q4 FY26, with growth in other areas offsetting the impact. The company is confident in its ability to regain business due to its network's value proposition and strategic positioning in the East.

    AI-generated summary of the company’s earnings call. Not investment advice.