Thursday, October 29, 2015

Why I'm not the boss of Norfolk Southern

I listened in to Norfolk Southern's third quarter Wall Street analyst webcast.  I was disappointed.  Not so much in the results - which were lousy, but not as lousy as Wall Street thought they'd be - but in the rhetoric that went along with the presentation.

What I heard versus what I wanted to hear

Heard: Our strategy is:
1.       Rate increases
2.       Small growth
3.       Small, targeted  capacity investment
Wanted to hear:  Investment in velocity to reduce cost, create value, fill RR up with IM traffic

Heard:  Triple Crown to do auto-parts.  IM will try to convert existing FAK, but lanes don’t match well. 
Wanted to hear:  Triple Crown expertise in door to door service will be applied to existing IM lanes

Heard:  Velocity trend is headed right direction
Wanted to hear:  An actual plan or strategy to increase velocity

Heard: (analyst:  less than 2006 traffic but 2006 employee count) Velocity is good.  Reduces recrews and overtime
Wanted to hear:  Aggressive pursuit of long pool crews through process improvement/targeted investment

Heard: comparisons to 2014
Wanted to hear: comparisons to 2013

Heard:  implications that RR the way  is will be just fine in the long run, we just have to get back to previous performance levels.
Wanted to hear:  There is a fundamental shift from coal to intermodal and we have plans to configure our assets accordingly. 

Heard: nothing
Wanted to hear:  something about PTC risk, workforce transition and training, how technology is helping velocity

Heard: employee safety stats lead off operation’s slides
Wanted to hear:  to hear almost nothing about employee safety.  It’s just one of many internal processes that are important.  Safety is not our value-added product.

Heard:  We are keeping assets because coal may turn around
Wanted to hear:  Coal is dying, we are planning accordingly, specifically X, Y, Z.

Heard:  we have enough crews.
Wanted to hear:  We have enough crews.  I know we’ve said it before, but this time you can believe it  - here’s proof, or tell about a new process that tells us how many is enough

Heard: nothing
Wanted to hear:  Here’s what we’ve done to make sure 2014 meltdown doesn’t happen again.

Conclusion:  Management is completely in “reaction” mode with short term goal of driving up share price to avoid a near-term take over.  There is little or no vision beyond the next 12 months.  Where we’ve been is all we ever need to be.   This is a recipe for a slow death and/or a yard sale.  

I suspect that my view of where Norfolk Southern should be headed is either not realistic or feather's the wrong nests.  

That's why (among a whole host of reasons) I'm not the boss.

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