NORFOLK SOUTHERN CORP (NSC)·Q3 2025 Earnings Summary

Executive Summary

• NSC delivered stable operations with slight top-line pressure but solid cost control: revenue $3.10B (+2% YoY), adjusted OR 63.3% (up 10 bps YoY), and adjusted EPS $3.30 (+2% YoY). A late-quarter $65M land sale aided results; fuel surcharge revenue was a $30M YoY headwind .
• Versus S&P Global consensus, NSC posted a modest EPS beat and near-inline revenue: EPS $3.30 vs $3.20*; revenue $3.10B vs $3.11B*; management flagged Q4 revenue pressure from intermodal competitive responses to the UP-NSC merger announcement, while committing to Q4 OpEx of $2.0–$2.1B* .
• Management raised the 2025 productivity target to ~+$200M (from ~$175M+) and reiterated its cost-discipline playbook (fuel efficiency record, labor productivity, purchase services), offsetting macro and coal RPU headwinds .
• Emerging narratives to watch near term: intermodal share pressure (especially Southeast/domestic non-premium), coal RPU stabilization sequentially but still down YoY, and auto volume risk from a supplier disruption into Q4; medium term: regulatory path and integration planning for the proposed UP merger .

What Went Well and What Went Wrong

What Went Well

• Productivity and efficiency: Adjusted OR improved 10 bps YoY to 63.3% (vs 63.4% adj. in Q3’24) despite softer revenue; 2025 productivity now targeted at ~$200M; 2026 cumulative goal raised to ~$600M .
• Fuel efficiency and operating execution: Achieved an all-time quarterly record fuel efficiency (1.01; ~5% YoY gain); train speed rose 3% sequentially; fewer locomotives and leaner fleet, with re-crews down 19% and intermodal train starts down 12% YTD .
• Merchandise outperformance: Merchandise volume +6% YoY; revenue ex-fuel grew 7% with pricing discipline; autos, chemicals, and metals/construction led growth .

What Went Wrong

• Intermodal competitive pressure: Competitor reactions to the merger announcement began eroding intermodal volumes late in Q3; impact expected to intensify in Q4 and persist near term, concentrated in domestic non-premium and Southeast lanes .
• Coal RPU headwind: Weak seaborne prices drove coal RPU (ex-fuel) -7% YoY; management expects sequential stabilization (sideways) but YoY declines to persist into early next year .
• Claims expense and revenue shortfall vs internal expectations: Claims costs were elevated due to older cases and social inflation; revenue tracked ~$75M below internal Q2 materials outlook, partially offset by a $65M land sale late in the quarter .

Financial Results

Headline Metrics (GAAP and Adjusted)

Notes: Q3’24 benefited from ~$380M gains on railway line sales, distorting GAAP OR and EPS; adjusted comparisons provide better underlying trends .

Actual vs S&P Global Consensus (Q3 2025)

Values with asterisks (*) retrieved from S&P Global.

Segment Revenue (Q3 2025 vs Q3 2024)

Operating KPIs and Notables (Q3 2025)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We attained a new quarterly record [in] fuel efficiency... and executed a noteworthy land sale that will ultimately deliver rail volumes for years to come.” – CEO Mark George .
• “We are raising our 2025 cumulative efficiency target to roughly $200 million… while revenue… is proving difficult to guide, you can expect that our fourth quarter cost in absolute dollars will be in the $2.0 to $2.1 billion range.” – CEO Mark George .
• “Volume grew 6% [in] merchandise… Intermodal revenue less fuel and RPU less fuel both grew… [but] volumes [decreased] 2%.” – CCO Ed Elkins .
• “We’re advancing machine vision at speed… deployed a new inspection portal… bringing the total now to eight. We’ve positively identified over 40 wheel integrity defects.” – COO John Orr .
• “We started to see some of the revenue erosion from competitor reactions to the merger announcement… [impact] to grow in the fourth quarter.” – CEO Mark George .

Q&A Highlights

• Intermodal share pressure from merger reactions: Concentrated in domestic non-premium intermodal in the Southeast; late-Q3 onset; expected to intensify in Q4 and linger for “a handful of quarters,” before recapture over subsequent bid cycles via service/value proposition .
• Cost outlook and OR cadence: Q4 OpEx guided to $2.0–$2.1B; seasonal step-up typical; depreciation and managed services to lift purchased services; headcount to tick up slightly from Q3 to Q4 vs Q4’24 exit rate .
• Coal trajectory: Sequential RPU stabilization expected (benchmarks ~ $175), but YoY RPU decline persists; utility demand supportive; export uncertain .
• Auto exposure: Q4 volumes to be impacted by a key supplier disruption at several NS-served plants .
• Integration risk: Management stressed deliberate, benchmarked planning to avoid disruption; foundation is strong safety/service momentum at both roads ahead of potential closing .

Estimates Context

• Q3 2025: EPS beat and revenue essentially in line vs S&P Global consensus – EPS $3.30 vs $3.20*; revenue $3.103B vs $3.109B*; adj. OR 63.3% (+10 bps YoY) .
• Forward snapshot: Q4 2025 consensus EPS ~$2.93*, revenue ~$3.05B*; Q1 2026 EPS ~$2.93*, revenue ~$3.05B*; management flagged Q4 revenue pressure from intermodal competitive responses and an auto supplier issue, suggesting potential near-term estimate risk on revenue and mix .

Values with asterisks (*) retrieved from S&P Global.

Key Takeaways for Investors

• Near-term setup: modestly positive on efficiency (raised 2025 productivity to ~$200M) but cautious on Q4 revenue given intermodal competition and auto supplier headwinds; watch for possible estimate trims on Q4 topline/mix .
• Quality of beat: Q3 EPS outperformed consensus, aided by productivity and a late-quarter land sale (~$65M incremental YoY); underlying OR improved slightly YoY on an adjusted basis despite revenue shortfall vs internal hopes .
• Intermodal dynamics: Expect continued competitive pressure in domestic non-premium intermodal in the Southeast near term; management plans to leverage service advantages (Meridian Speedway, terminal footprint) to recapture share over coming bid cycles .
• Coal remains a drag YoY: Sequential RPU likely flat, but YoY pressure persists; utility strength partially offsets export weakness .
• Execution levers: Sustained gains in fuel efficiency, train speed, crew productivity, and technology-driven inspection underpin cost control; Q4 OpEx framework ($2.0–$2.1B) provides a credible floor for margins despite softer revenue .
• Merger watch: Regulatory timeline and competitor behavior will shape volume trajectories; management focused on “no hiccups” integration planning, safety, and service continuity .
• Tactical: Into prints or updates, the stock may key off evidence of intermodal stabilization, coal RPU trends, and demonstration of Q4 cost discipline within the $2.0–$2.1B range .

Appendix: Prior Quarter Context

• Q2 2025: Revenue $3.11B; adj. OR 63.4%; adj. EPS $3.29; raised 2025 productivity target to $175M+; guided 2–3% 2025 revenue growth and +100–150 bps adj. OR improvement; merger with Union Pacific announced; no earnings call .
• Q1 2025: Revenue $2.993B; adj. OR 67.9% (impacted by storms); adj. EPS $2.69; strong safety improvements and PSR 2.0 execution signaled early productivity traction .

Additional relevant press releases in Q3:

• New UP–NSC intermodal gateway at Louisville (service began mid-October), adding lanes to/from West and South; supports medium-term intermodal growth narrative .
• Quarterly dividend maintained at $1.35 (declared July 21, payable Aug 20) .