Norfolk Southern’s first-quarter earnings report confirmed disappointing results, with the railroad earning $53 million, or 23 cents per share. Without one-time costs, the railroad could have made $2.39 per share, falling short of Wall Street’s predictions. CEO Alan Shaw defended the company’s strategy of balancing service, productivity, and growth with safety at its core, promising to close the profit margin gap with other major railroads.
The battle for control of Norfolk Southern is between the railroad and Ancora Holdings, which disagree on Shaw’s strategy and leadership. Ancora’s CEO candidate, Jim Barber, believes in running the railroad efficiently with as few assets as possible, citing the Precision Scheduled Railroading model used by UPS. However, all railroad unions support Shaw, despite the job cuts made under his leadership. Regulators also warn against Ancora’s strategy potentially jeopardizing safety and service advancements made by Norfolk Southern since a past derailment.
Investors will ultimately decide on Ancora’s proposed board nominees, with some big investors already backing Ancora’s slate. Ancora’s plan involves implementing Precision Scheduled Railroading to align Norfolk Southern’s profits with other major freight railroads, focusing on running fewer, longer trains on a tighter schedule to reduce the need for workers, locomotives, and railcars. The company’s on-time delivery rates were questioned in comparison to its competitor CSX railroad, prompting the need for efficiency improvements.
Ancora aims to shrink Norfolk Southern’s workforce by about 1,500 jobs through attrition while cutting expenses by over $800 million in the first year. Norfolk Southern believes this plan would require layoffs affecting around 2,900 workers. The company highlights its own cost-saving plan, predicting similar benefits without extensive layoffs. Ancora defends its approach, stating that most savings come from streamlining operations and improving fuel efficiency, rather than from layoffs.
Boychuk, Ancora’s pick for chief operating officer, has experience with implementing Precision Scheduled Railroading at CSX. While the model initially led to service problems at CSX, the railroad now outperforms Norfolk Southern in most aspects. Norfolk Southern’s current Chief Operating Officer, John Orr, is making incremental adjustments opposed by Ancora, who claim major changes are needed. Shaw and Orr aim to streamline operations and improve efficiency gradually, while Ancora pushes for more significant changes to drive profitability.
The battle for control of Norfolk Southern has already impacted the rail industry, reminding CEOs to balance cost efficiency with customer service and growth. Investors have a history of forcing changes in the industry, with notable instances of new CEOs hired under pressure. The outcome of the upcoming vote will determine the direction of Norfolk Southern, potentially setting a precedent for future rail industry movements. CEO Shaw’s strategy and leadership will be scrutinized by investors and industry analysts as the railroad navigates through this challenging period.
