Richard Hanan

Richard Harnan questioned whether Norfolk Southern's cost target, designed to accommodate various revenue scenarios, implies a need for mid-single-digit revenue growth to avoid operating ratio deterioration. He also asked if revenue tailwinds would lead to higher personnel expenses or if headcount could remain stable due to productivity gains.

Answer

CFO Jason Zampi and President and CEO Mark George indicated that the low end of the cost range implies 1.8% growth, with productivity largely offsetting inflation. They expect continued net attrition in headcount, even with trainee hiring, and anticipate similar productivity gains as 2025 (3% GTMs up, 4% headcount down). COO John Orr added that system improvements reduce overall employee costs and drive productivity across all assets.

Richard Harnan asked if Norfolk Southern's 2026 cost target implies a need for mid-single-digit revenue growth to avoid operating ratio deterioration and if such a scenario is plausible. He also questioned whether revenue tailwinds would lead to higher personnel expenses or if headcount could remain stable due to productivity gains.

Answer

President and CEO Mark George indicated the low end of the cost range accommodates 1.8% growth, with productivity offsetting inflation, and that volumetric costs could rise with higher revenue. He projected continued net headcount attrition and similar productivity gains as 2025. CFO Jason Zampi confirmed stable headcount around 19,350, maintaining trainee base. COO John Orr emphasized that productivity and technology reduce overall employee costs and manage expense to workload.

Richard Hanan of Deutsche Bank asked why Saia isn't taking more market share given its relatively attractive pricing and new national network. He also asked for a rebuttal to the skeptical view that Saia added too much capacity at the wrong time.

Answer

President and CEO Fritz Holzgrefe responded that Saia did report growth in Q1 while others have not, suggesting some share gain is occurring. However, he stressed the focus is on long-term value creation, not short-term market share. He defended the network expansion as a crucial long-term investment that positions Saia to capitalize significantly when the market turns. He views the current situation as a delay or 'speed bump' in a long-term value story, not a structural misstep.