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    NSC
    Earnings call· Dec 2025(Q4 FY25)

    NORFOLK SOUTHERN CORP NSC

    Jan 29, 2026 Source

    Executive summary

    Norfolk Southern Q4 FY25 — Strong Productivity and Safety Amidst Volume Headwinds

    Norfolk Southern delivered strong operational performance in Q4 FY25, marked by record safety achievements and significant cost takeout, exceeding targets. Despite a challenging demand environment and competitive pressures, particularly in Intermodal and seaborne coal, the company maintained cost discipline and improved network fluidity. Management is focused on safety, service, and cost control for 2026, while actively fighting for quality revenue amidst ongoing merger-related uncertainties.

    Highlights

    5

    • Achieved 0 reportable mainline derailments in Q4 FY25, contributing to the best train accident rates in over a decade.

    • Delivered $216 million in full-year cost takeout savings, exceeding the raised target of $200 million.

    • Generated $2.2 billion in free cash flow for FY25, an increase of almost $500 million YoY, with the highest conversion rate since 2021.

    • Merchandise revenue less fuel grew 4% for the full year 2025, driven by volume growth and pricing discipline, setting a record.

    • Increased GTMs by 3% in 2025 with 4% fewer employees, achieving 7% productivity.

    Concerns

    5

    • Overall Q4 volume was down 4% and total revenue was down 2% due to softer demand and competitive dynamics.

    • Intermodal volume declined 7% in Q4 due to shifting market conditions and enhanced competition.

    • Seaborne coal prices remained pressured, driving Q4 revenue down 11% despite a 1% volume increase.

    • Fuel surcharge revenue represented a $134 million drag for the full year 2025.

    • Expecting a 1% revenue headwind in 2026 due to enhanced competition from the merger.

    Guidance & targets

    4
    CategoryTargetConfidence
    Full-year 2026 capital budget
    $1.9 billion
    high materiality
    High
    Full-year 2026 cost takeout savings commitment
    $150 million
    medium materiality
    High
    Full-year 2026 cost base
    $8.2 billion to $8.4 billion
    high materiality
    High
    Full-year 2026 revenue headwind from competition
    1 point
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Merchandise
    Q4 volume increased, driven by auto and chemicals markets. Positive mix offset by core pricing. Full-year performance was strong, enabled by train performance, car order fill, and 4% YoY improvement in equipment cycle times.
    Revenue less fuel: +2% YoY (Q4 FY25)RPU less fuel: +1% YoY (Q4 FY25)Revenue less fuel: +$287 million or +4% YoY (FY25, record annual revenue)Automotive franchise: record annual revenue and revenue less fuel (FY25)
    		—+1%——
    Intermodal
    Q4 volume declined due to shifting market conditions and an unexceptional pricing environment. Full-year revenue was flat, impacted by trade volatility and second-half share losses due to merger-related competitor activity.
    RPU: +1% YoY (Q4 FY25)Revenue: flat (FY25)
    		-6%-7%——
    Coal
    Q4 volume increased due to higher electricity demand, favorable natural gas prices, and regulatory support for utility markets, but this was partially offset by reduced export volume. Lower seaborne coal prices drove the revenue decline. Full-year decline due to seaborne market weakness, even as utility coal volumes increased.
    RPU less fuel: -12% YoY (Q4 FY25)Seaborne market weakness: -$108 million YoY decline (FY25)
    		-11%+1%——

    Operational metrics

    25
    Total costs attributable to Eastern Ohio incident
    $29 million
    Q4 FY25

    Included $24 million of recoveries under property insurance policies.

    Merger-related costs
    $65 million
    Q4 FY25

    Consisting primarily of legal and professional services and employee retention accruals. Excluded from non-GAAP operating ratio.

    Operating expenses benefit from land sale
    $85 million
    Q4 FY25

    One large land sale in the quarter benefited operating expenses, not originally counted on closing in the quarter.

    State tax issue resolution benefit
    $50 million
    Q4 FY25

    Increased net income and EPS by $0.22.

    Capital plan spend
    $2.2 billion7.5% decrease from 2024
    FY25

    Spent on the capital plan as guided.

    Fuel surcharge revenue drag
    $134 million
    FY25

    Volatile fuel surcharge revenue represented a drag for the year.

    Total revenue
    -2%YoY
    Q4 FY25

    Due to volume impacts partially offset by positive mix.

    Total volume
    -4%YoY
    Q4 FY25

    Overall volume for the fourth quarter was down.

    Revenue per unit (RPU)
    +2%YoY
    Q4 FY25

    Overall RPU increased due to positive mix.

    GTMs per employee productivity
    7%
    FY25

    Moved 3% more GTMs with 4% fewer employees.

    T&E headcount reduction
    7%
    Q4 FY25 vs Q4 FY24

    6% reduction for the full year.

    Unscheduled stops
    -31%
    YoY

    Improved over-the-road performance.

    Train load increase
    4%
    FY25

    Increased train size as a productivity lever.

    Horsepower per ton decrease
    nearly 10%
    FY25

    Lowering the horsepower used to move trains.

    Fuel efficiency improvement
    4%
    FY25

    Achieved 5% fuel efficiency for the year, with 4% to 5% each quarter.

    GTMs per crew start
    +2.5%
    FY25

    Increased GTMs per crew start.

    Equipment cycle times improvement
    4%
    YoY

    Enabled by strong train performance and focused efforts to reduce on-terminal dwell.

    Train accident rates
    best in over a decade
    FY25

    Progress comes from better technology tools, rigorous standards, and safety culture.

    Locomotive productivity
    10%
    FY25

    Improved locomotive productivity.

    Inflation rate
    4%vs CPI forecast of 2.6%-2.7%
    FY26

    Expected inflation rate for the company, higher than general CPI.

    Wage inflation
    4%increase last July
    H1 FY26

    Another 3.75% increase expected in H2 FY26.

    Health and welfare rates increase
    over 12%
    FY26

    Expected increase in health and welfare rates.

    Insurance premium increase
    25%
    FY26

    Expected increase in insurance premiums.

    Headcount
    19,350bit lower than projected
    FY25 quarterly average

    Headcount held relatively steady during 2025. Expected to be flat to down for 2026 with net attrition, maintaining trainee base.

    Recrews reduction
    21%
    FY25

    Reduction in recrews due to technology and tighter network.

    Industry KPIs

    11
    MetricValueDetails
    Safety0reportable mainline derailments
    Volumedown 4%%
    Operating ratio65.3%%
    Service metricsconsistent and reliable
    Network fluidity4%%
    Merger synergy metricsaugmented application
    Pricing vs rail inflationgood
    Fuel surcharge diesel price$134 millionUSD
    Intermodal truckload volume-7%%
    Labor productivity headcount7%%
    Tariff trade policy revenue impactuncertain

    Product announcements

    2
    ProductTypeDetails
    Louisville servicelaunch
    Air Massachusetts servicelaunch

    Deals & partnerships

    2
    Union Pacific (UP)Proposed merger to create the nation's first transcontinental rail network, connecting the United States from East to West.

    Working closely with UP to include additional information requested by the STB and submit an augmented application. The STB's initial review was based on completeness, not merits. Management believes it will provide shippers with a more competitive single-line rail option.

    Warrior Met CoalPartnership to service their new Blue Creek facility in Alabama.

    The mine was in development in 2024, and the ribbon-cutting ceremony was held earlier this month. Mining operations, belts, and rail loadout are now fully operational.

    Capital programs

    1
    Overall Capital Programscompleted
    Period spend: $2.2 billion

    Benefit: supporting a safe and reliable network ready for future growth

    Delivered on time and on budget in 2025. Network reliability derived from PSR 2.0 flywheel has allowed for a 14% reduction in the 2026 capital envelope, bringing it down to $1.9 billion.

    Risks & headwinds

    5
    Softer volume demandQ4 FY25, expected to continue in H1 FY26

    Q4 volume down 4%, total revenue down 2%

    Mitigation: Focus on cost control, productivity, fighting for quality revenue, accommodating various volume scenarios with existing capacity.

    Enhanced competitive environment due to mergerQ4 FY25 and FY26

    7% decline in Intermodal volume in Q4; 1% revenue headwind expected for 2026

    Mitigation: Offering new services (e.g., Louisville, Air Massachusetts), fighting for quality revenue, focusing on service and pricing discipline.

    Persistently weak export coal marketsQ4 FY25, expected to continue in H1 FY26

    Q4 revenue down 11%, RPU less fuel down 12%; FY25 decline of $108 million

    Mitigation: Leveraging new Blue Creek facility for future recovery, focusing on utility demand.

    Inflationary pressures (wages, materials, depreciation, insurance)FY26

    4% overall inflation expected for FY26 (vs CPI 2.6-2.7%), including 4% wage increase, >12% health & welfare, 25% insurance premium increase

    Mitigation: Aggressive cost takeout targets ($150M for FY26), productivity gains (7% GTMs per employee in FY25), asset efficiency.

    Uncertainty around STB merger approval processOngoing

    Initial application marked incomplete

    Mitigation: Working closely with UP to submit augmented, thorough application, committed to constructive engagement with stakeholders.

    What to watch in Q1 FY26

    5

    Intermodal volume recovery

    next quarter
    Currentdown 7% in Q4 FY25
    Targetstabilization or growth

    Why it matters

    Intermodal was a battleground segment, and its recovery is key to overall volume growth and mitigating competitive headwinds.

    In our Intermodal business, shifting market conditions during the quarter drove a 7% decline in volume.

    Q&A highlights

    5

    How is NS thinking about volume and revenue for 2026, especially given the 1% revenue headwind from competition and the weak freight backdrop? Will they be more aggressive or take what the market brings?

    Mark George acknowledged the tough demand environment and the 1% revenue headwind from competition. He stated they are focused on maintaining costs within the guidance range, which can accommodate various volume scenarios with strong incrementals. Ed Elkins added they will fight for every revenue dollar, expecting continued momentum in merchandise but sluggish intermodal and weak coal prices, with softness likely continuing in H1 2026.

    “But right now, we're really focused on just maintaining our cost within the guidance range that we gave you, where we can accommodate a variety of different volume scenarios. And so we can handle growth up to several points. And frankly, whatever revenue we get, it's going to come with really strong incrementals because we've got the capacity.”

    asked by Thomas Wadewitz · answered by Mark George

    2 min read6 chapters

    Detailed Narrative

    01

    Safety and Operational Excellence

    Norfolk Southern achieved exceptional safety performance in 2025, culminating in 0 reportable mainline derailments in Q4. The FRA reportable injury ratio improved 15% to 1.0, and reportable accidents improved 31% to 2.19, marking the best train accident rates in over a decade. This progress is attributed to investments in digital inspection technology, enhanced processes, and a maturing operational culture under PSR 2.0, which also led to a 31% decline in unscheduled stops.

    02

    Cost Discipline and Productivity Achievements

    The company demonstrated strong cost control, delivering $216 million in full-year cost takeout savings, surpassing the raised target of $200 million. For 2026, the cost takeout commitment has been further increased to $150 million. Productivity gains were significant, with 3% more GTMs moved with 4% fewer employees, resulting in 7% productivity. T&E headcount was reduced by 7% in Q4 YoY, and fuel efficiency improved by 5% for the year.

    03

    Mixed Market Conditions and Revenue Performance

    Q4 FY25 presented volume challenges, with overall volume down 4% and total revenue down 2%. Merchandise revenue less fuel grew 2% in Q4 and 4% for the full year, driven by strong performance in auto and chemicals, setting a record. However, Intermodal volume declined 7% due to shifting market conditions and competitive responses to the merger. Seaborne coal revenue fell 11% in Q4 due to lower prices, despite a 1% volume increase from utility demand, and fuel surcharge revenue was a $134 million drag for the year.

    04

    Capital Spending Reduction and Asset Efficiency

    Norfolk Southern plans to reduce its 2026 capital budget to $1.9 billion, a $300 million decrease from 2025's $2.2 billion spend. This reduction is a result of improved asset efficiency and network fluidity achieved through PSR 2.0, allowing the company to pull back on equipment spending while continuing to support network safety and reliability. The company noted that prior investments in strategic areas like the Blue Creek facility are now benefiting operations.

    05

    Merger Update and Strategic Rationale

    The company is actively working with Union Pacific to submit an augmented application to the STB after the initial filing was deemed incomplete. Management reiterated its commitment to the merger, emphasizing its benefits in creating the nation's first transcontinental rail network, enhancing competition, recapturing freight from highways, and strengthening supply chains. They dismissed competitor arguments as inconsistent and self-serving, asserting the merger will provide more options for shippers.

    06

    Warrior Met Coal Partnership

    Norfolk Southern highlighted its partnership with Warrior Met Coal, announcing that the new Blue Creek facility in Alabama is now fully operational. The company is ramping up rail service to deliver high-quality metallurgical coal to global markets, positioning itself to benefit as these markets potentially recover.

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