Eastern Railroad Discussion > NS: we want a 60% OR by 2021

NS is presenting an investor conference.  This article in seeking alpha summarizes the targets.

The payout ratio mentioned is the % of earnings actually distributed to share owners. You want to have a dividend rate that reflects the company's earnings, and is sustainable over time.  Cutting a dividend is considered poor financial management in many cases

Buybacks are mentioned as supported by earnings power and borrowing.

https://seekingalpha.com/pr/17407761-norfolk-southern-announces-strategic-plan-targeting-60-percent-operating-ratio-investor

And once they get to 60%, how long before somebody decides it should be 50% OR 40%?  I'm not sure it's feasible for a capital intensive business operating in that territory to have that low of an OR,  and actually SERVE anyone.  It's  just like more of  "We're going to run our trains the way WE want to run our trains, and the hell with whether that actually meets the needs of the customer base".

Any mention of line sales and yard closures?

Thank you in advance.

junctiontower Wrote:
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> And once they get to 60%, how long before somebody
> decides it should be 50% OR 40%?  I'm not sure
> it's feasible for a capital intensive business
> operating in that territory to have that low of an
> OR,  and actually SERVE anyone.  It's  just
> like more of  "We're going to run our trains the
> way WE want to run our trains, and the hell with
> whether that actually meets the needs of the
> customer base".

My thoughts exactly...

No mention of line sales or yard closures YET...

Posted from Android

Didn't NS sell a cluster of coal lines to Watco? They may be waiting to see how that works out.

Posted from Android

At some point shippers are going to notice that an operating ratio of 60 percent or less leaves a lot of room for rate reductions and start demanding those reductions.  They may get tired of hedge fund billionaires who do nothing worthwhile living off organizations that actually produce something that can move by rail.  Goodby 60 percent OR.

junctiontower Wrote:
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> And once they get to 60%, how long before somebody
> decides it should be 50% OR 40%?  I'm not sure
> it's feasible for a capital intensive business
> operating in that territory to have that low of an
> OR,  and actually SERVE anyone. 

It should be fine (sarcasm).   In the December issue of Railway Age, Clark Cheng, NS' Senior Director of Operations Research says, "We want to be a tech company that runs trains."

So perhaps the priority now is developing technology, not moving freight. 

zchcsse Wrote:
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> junctiontower Wrote:
> --------------------------------------------------
> -----
> > And once they get to 60%, how long before
> somebody
> > decides it should be 50% OR 40%?  I'm not sure
> > it's feasible for a capital intensive business
> > operating in that territory to have that low of
> an
> > OR,  and actually SERVE anyone. 
>
> It should be fine (sarcasm).   In the December
> issue of Railway Age, Clark Cheng, NS' Senior
> Director of Operations Research says, "We want to
> be a tech company that runs trains."
>
> So perhaps the priority now is developing
> technology, not moving freight. 

Cheng is a dumb ass....

Borrowing money to buy back shares now that’s makes perfect sense...... not!!

Posted from iPhone

JOHNY5ALIVE Wrote:
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> Borrowing money to buy back shares now that’s
> makes perfect sense...... not!!
>
> Posted from iPhone

Actually, it has made a lot of sense in the past.  If interest rates are allowed to rise to market rates, that could change.

The cost of money is low right now, and the interest paid on loans is generally deductible.  That makes cheap money even cheaper to a business.  Stock / equity, on the other hand, is relatively expensive and generally double taxed, which makes it even more expensive from a cost of capital perspective.  So, you borrow cheap money, and retire expensive stock. And issue more stock options and restricted stock grants to management.

AOC and some left leaning folks would like to change this equation, and make borrowing more expensive. making debt over some threshold / ratio not tax deductible would be one way to do do this. Similar to limits on deducting home mortgages for loans of over a million dollars, etc.  There's a lot going on that has attracted the attention of Wall Street (which makes money selling stock and debt) and many corporate management. 

People who build hotels and office buildings are perfect examples of borrowing huge amounts of money to put up a building, deducting much of the cost, then selling the building to pension plans, foreign government funds, etc and taking a capital gains favored rate on the transaction.  The 2017 tax bill made that even more lucrative...

Lackawanna484 Wrote:
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> People who build hotels and office buildings are
> perfect examples of borrowing huge amounts of
> money to put up a building, deducting much of the
> cost, then selling the building to pension plans,
> foreign government funds, etc and taking a capital
> gains favored rate on the transaction.  The 2017
> tax bill made that even more lucrative...

And gee, looks who's the president!  Damn it's good to be the king!

Any ways, back to railroads and PSR, etc, an interesting thread on the Western Board in how UP is apparently jumping off the cliff...

https://www.trainorders.com/discussion/read.php?1,4729819

 

PSR is going to lead the NS to being re-regulated.  At some point the Feds are going to want their public-private project money back.

611Doug Wrote:
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> PSR is going to lead the NS to being
> re-regulated.  At some point the Feds are going
> to want their public-private project money back.

Oh, that would be so sweet if the Fed and States make NS and CSX pay back all that pork that they got for their expansions!  This is exactly why I hated to see that, because I knew they would just turn around and use all that new productivity to pay off high management and Wall Street instead of doing what they said they would do, provide competitive service to trucks to get them off the highways.  Nothing but a bunch of f'in liars!

Now, if they actually did try to get competitive and really work to provide good service to get the trucks on to the railroads and to serve the communities that they operate in by providing a good, reliable transportation system, then yes, I'd be all for the railroads getting a fair share of the highway pork.  But, I knew that wasn't going to happen.

Lackawanna484 Wrote:
-------------------------------------------------------
> NS is presenting an investor conference.  This
> article in seeking alpha summarizes the targets.
>
> The payout ratio mentioned is the % of earnings
> actually distributed to share owners. You want to
> have a dividend rate that reflects the company's
> earnings, and is sustainable over time.  Cutting
> a dividend is considered poor financial management
> in many cases
>
> Buybacks are mentioned as supported by earnings
> power and borrowing.

Share repurchases, dividend payouts and operating ratio (mentioned prominently in NS's announcement) are all aimed directly at Wall St guys--certainly not to the guys responding to this thread.  After the announcement, NS stock soared today (Mon. 2/11), up $5.49/share, a 3.2% jump in a single day.
 

This is why I believe the best term for what PSR really means is "Precision Stock Manipulation."