CP Canadian Pacific Kansas City Limited

By Anne Steele 

Norfolk Southern Corp. said it would cut 2,000 jobs and downsize its rail lines after reporting its profit dropped a worse-than-expected 29% in the final quarter of the year as the railway tries to fend off a takeover attempt and deals with weak demand for coal.

The job cuts are part of Norfolk Southern's cost-reduction plan, which it had previously announced but hadn't detailed. The company said Wednesday it would cut expenses by more than $650 million annually by 2020 on compensation and benefits cuts as well as savings on fuel, purchased services and rents.

The sweeping cost reduction plans come as the company tries to rebuff a takeover attempt from Canadian Pacific Railway Ltd. Last month, the board shot down Canadian Pacific's latest offer--$30 billion in cash-and-stock plus a financial incentive known as a contingent-value right--calling it "grossly inadequate" in a sharply-worded letter that challenged the rationale for a merger.

To achieve cost savings, Norfolk will reduce its overall head count by about 6.7%, focusing on areas affected by lower coal traffic, and cut its overtime to half its 2015 level. A company spokesperson said its workforce totaled about 30,000.

The company said it would consolidate its operating regions to two from three and halt or reduce operations in several hump or secondary yards in 2016. The railroad will dispose of or downgrade 1,500 miles of its secondary lines by 2020, including 1,000 miles in 2016, and reroute traffic onto higher-density lines.

Norfolk Southern said the improved productivity would help save $420 million annually, accounting for a significant chunk of the $650 million target, by 2020.

"This plan will enable us to achieve significant annual expense savings beginning in 2016 without compromising the company's ability to capitalize on volume and revenue growth opportunities," Chief Executive James Squires said in prepared remarks.

In the most recent quarter, the company posted a profit of $361 million, or $1.20 a share, down from $511 million, or $1.64 a share, a year earlier. Revenue dropped 12% to $2.52 billion. Analysts surveyed by Thomson Reuters forecast earnings of $1.23 a share on $2.57 billion in revenue.

The railroad operator cited the restructuring of the company's Triple Crown Services unit and the closing of offices in Roanoke, Va., for hurting earnings by $31 million.

Meanwhile, revenue from coal--which continues to be a drag on the railroad sector's results--plunged 20% to $433 million when compared with the same period a year ago. Coal volumes fell 18%.

There has been less demand for coal as natural-gas prices have fallen, making the alternative attractive. And slowing economic growth in China and the strengthening of U.S. dollar--which makes most American products and services more expensive overseas--also has dented coal exports. Sliding fuel prices have also pinched fuel-surcharge fees, a key revenue stream for railways.

Intermodal revenue skidded 13% to $563 million, as the Triple Crown restructuring and fewer domestic shipments dented traffic volume 5%.

Shares of Norfolk Southern, which have erased 33% of their value over the past 12 months, were up 1.6% to $70 in morning trading.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

January 27, 2016 10:08 ET (15:08 GMT)

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