The first-quarter earnings for Norfolk Southern provided the Atlanta-based railroad an opportunity to make a case for its current executive leadership before a significant board vote on May 9. In spite of Norfolk Southern's earlier admission this month of a disappointing outcome, inclusive of a $600 million settlement tied to the 2023 Ohio derailment, the figures presented at Wednesday's review held few shocks for observers. The report confirmed earnings of $53 million, or 23 cents per share, whereas last year's first quarter boasted a $466 million, or $2.04 per share profit, as per details shared by WABE.
Amidst scrutiny from both investors and competitors, CEO Alan Shaw asserted that their strategy focuses on a tripartite balance of service, productivity, and growth, with an emphasis on safety. Shaw contends that under his stewardship, Norfolk Southern is on a path to closing the profit margin gap with rival railroads over the next few years. Yet the dissenting chorus, led by investor group Ancora Holdings, disparages Shaw's approach. They argue the efficiency model known as Precision Scheduled Railroading (PSR) should take precedence, favoring minimal staffing and equipment to boost profitability.
Tension mounts as Norfolk Southern stands at a crossroads, with Ancora pushing for Jim Barber, an ex-UPS COO and their CEO candidate, who is critical of maintaining a larger workforce during economic lulls, recalling his UPS tenure when he told WABE, "This concept of Precision Scheduled Railroading is the exact same way that UPS has run its network for 60 or 70 years, which is you run it very efficiently, very effectively, and very balanced with as few assets as you can and leverage the efficiency of your employee base and the assets."
Railroad unions and key regulators, however, have lined up behind Shaw, echoing a sentiment of caution that Ancora's strategy might undermine the safety and service advancements seen after the East Palestine derailment. Despite unions and regulator support, the decision rests with the investors, and some, such as EdgePoint Investment Group, have indicated a preference for Ancora's strategy and nominees for the board. Ancora's plans, which include parking locomotives and railcars and improving fuel efficiency, ostensibly do not ax jobs but rather aim for a workforce reduction through natural attrition and strive for cutting over $800 million in expenses in the initial year.
Meanwhile, new Chief Operating Officer John Orr has been highlighting his efforts to fine-tune Norfolk Southern’s operations since joining this spring from CPKC railroad. According to WABE, Orr mentioned, “I’ve made a career out of going across Canada, the United States, and Mexico, unclogging drains and creating a lot of momentum and then leveraging that momentum.” On the flip side, Ancora's pick for chief operating officer, Jamie Boychuk, fears that without a complete overhaul, a piecemeal approach could simply transfer operational impediments elsewhere along the network.
As Norfolk Southern shares dipped by 3.5% following the day's report, the upcoming board vote becomes all the more pivotal. Depending on the leanings of the investor base, the outcome may very well redirect the future of the railway, charting either a course for meticulous internal improvement under current leadership or a bold, efficiency-driven revamp heralded by Ancora and their chosen executives.
