NSC Net Income Plunges 35% Amid Merger Costs, Despite Revenue Growth

TL;DR

**Norfolk Southern's Q3 earnings are a train wreck, but the Union Pacific merger could be its golden ticket if regulators don't derail it.**

AI Summary

NORFOLK SOUTHERN CORP (NSC) reported a significant decline in net income for the third quarter of 2025, falling to $711 million from $1,099 million in the third quarter of 2024, a decrease of 35.3%. Diluted earnings per share also dropped to $3.16 from $4.85 year-over-year. Railway operating revenues saw a modest increase of 1.7% to $3,103 million in Q3 2025 from $3,051 million in Q3 2024. However, total railway operating expenses surged by 37.8% to $2,005 million, primarily driven by a $15 million charge for merger-related expenses and a substantial shift in 'Materials and other' from a gain of $188 million in Q3 2024 to an expense of $147 million in Q3 2025. The company also incurred $12 million in restructuring and other charges in Q3 2025. A major strategic development is the proposed acquisition by Union Pacific Corporation in a stock-and-cash transaction, valued at $88.82 in cash per share plus one share of Union Pacific common stock, subject to shareholder and Surface Transportation Board approval. The company recognized a $243 million credit related to the Eastern Ohio incident for the first nine months of 2025, a significant reversal from a $368 million expense in the prior year period. For the first nine months of 2025, net income increased to $2,229 million from $1,889 million in 2024, a 18.0% rise, largely due to the Eastern Ohio incident reversal and lower restructuring charges.

Why It Matters

This filing reveals a mixed financial picture for Norfolk Southern, with a sharp Q3 net income decline driven by merger expenses and a significant swing in 'Materials and other' costs, even as revenues slightly increased. The proposed acquisition by Union Pacific, if approved, would fundamentally reshape the competitive landscape of the North American rail industry, creating a larger, more dominant player. Investors face uncertainty regarding the merger's approval and its long-term implications for NSC's stock value, while employees and customers will be watching for potential operational changes and service impacts. The $2.5 billion termination fee highlights the high stakes involved for both companies.

Risk Assessment

Risk Level: high — The high risk level is primarily due to the pending merger with Union Pacific, which carries a $2.5 billion termination fee if not consummated under specific circumstances, as stated in Note 1. Additionally, the significant 35.3% drop in Q3 2025 net income to $711 million from $1,099 million in Q3 2024, coupled with a 37.8% surge in railway operating expenses, indicates operational challenges and financial volatility.

Analyst Insight

Investors should closely monitor the Surface Transportation Board's review of the Union Pacific merger, as its approval is a critical determinant of NSC's future valuation. Given the Q3 earnings decline and merger-related uncertainties, a cautious approach is warranted, potentially considering a hold or partial profit-taking until regulatory clarity emerges.

Financial Highlights

revenue

$3,103M

total Assets

$44,580M

total Debt

$16,476M

net Income

$711M

eps

$3.16

cash Position

$1,418M

revenue Growth

+1.7%

Revenue Breakdown

Key Numbers

• $711M — Net income for Q3 2025 (down 35.3% from $1,099M in Q3 2024)
• $3,103M — Railway operating revenues for Q3 2025 (up 1.7% from $3,051M in Q3 2024)
• $2,005M — Total railway operating expenses for Q3 2025 (up 37.8% from $1,455M in Q3 2024)
• $15M — Merger-related expenses for Q3 2025 (new expense in 2025)
• $2.5B — Merger termination fee (payable under specific circumstances)
• $88.82 — Cash component per share in Union Pacific merger (part of the stock-and-cash transaction)
• $2,229M — Net income for first nine months of 2025 (up 18.0% from $1,889M in 2024)
• $243M — Eastern Ohio incident credit for first nine months of 2025 (reversal from $368M expense in 2024)
• $3.16 — Diluted EPS for Q3 2025 (down from $4.85 in Q3 2024)
• 224,386,617 — Common Stock shares outstanding at September 30, 2025 (excluding treasury shares)

Key Players & Entities

• NORFOLK SOUTHERN CORP (company) — registrant
• Union Pacific Corporation (company) — acquiring company in merger agreement
• Surface Transportation Board (regulator) — approves merger
• Ruby Merger Sub 1 Corporation (company) — direct wholly owned subsidiary of Union Pacific
• Ruby Merger Sub 2 LLC (company) — direct wholly owned subsidiary of Union Pacific
• Virginia Passenger Rail Authority (company) — purchaser of railway line
• City of Charlotte (company) — purchaser of railway line
• FASB Accounting Standards Codification (ASC) 740 (regulator) — governs income taxes
• One Big Beautiful Bill Act (OBBBA) (regulator) — new tax legislation

FAQ

Risk Factors

• Surface Transportation Board Approval [high — regulatory]: The proposed acquisition by Union Pacific is contingent upon approval from the Surface Transportation Board (STB). Delays or denial of approval could significantly impact the transaction and the company's strategic direction.
• Merger Termination Fee [high — legal]: A termination fee of $2.5 billion is payable under specific circumstances if the merger agreement is terminated. This represents a significant financial risk if the deal does not close as planned.
• Eastern Ohio Incident Impact [medium — operational]: While a $243 million credit was recognized for the first nine months of 2025, reversing a $368 million expense from the prior year period, the long-term operational and reputational impacts of the Eastern Ohio incident may persist.
• Increased Operating Expenses [medium — financial]: Total railway operating expenses surged by 37.8% in Q3 2025 to $2,005 million, driven by a shift in 'Materials and other' from a gain to a significant expense and merger-related charges. This pressure on expenses impacts profitability.
• Shareholder Approval for Merger [medium — regulatory]: The acquisition requires approval from Norfolk Southern's shareholders. A failure to secure this approval would prevent the transaction from proceeding.
• Merger-Related Expenses [low — operational]: The company incurred $15 million in merger-related expenses in Q3 2025, impacting short-term profitability. These costs are associated with advisors, legal services, and employee retention for the proposed Union Pacific acquisition.
• Restructuring and Other Charges [low — operational]: The company recorded $22 million in restructuring and other charges for the first nine months of 2025, a decrease from $156 million in the prior year period. While reduced, these charges indicate ongoing business adjustments.

Industry Context

The North American railroad industry is highly consolidated and capital-intensive, characterized by significant barriers to entry. Norfolk Southern operates within this environment, facing competition from other Class I railroads, trucking, and other transportation modes. Recent trends include a focus on operational efficiency (Precision Scheduled Railroading), managing fluctuating commodity prices, and navigating increasing regulatory scrutiny.

Regulatory Implications

The proposed acquisition by Union Pacific is subject to stringent review by the Surface Transportation Board (STB), which will assess potential impacts on competition, service, and the broader rail network. Any significant changes in environmental regulations or safety standards could also impose additional compliance costs and operational constraints.

What Investors Should Do

1. Monitor STB approval process for Union Pacific acquisition.
2. Analyze the sustainability of operating expense increases.
3. Evaluate the impact of the Eastern Ohio incident reversal on underlying performance.
4. Assess the company's financial position in light of potential merger termination fees.

Key Dates

• 2025-07-28: Entered into Agreement and Plan of Merger with Union Pacific Corporation — Marks the initiation of the proposed acquisition, a major strategic event for the company.
• 2025-09-30: End of Third Quarter 2025 — Reporting period for the financial results discussed in the 10-Q, showing a significant drop in net income.

Glossary

Railway operating revenues

The total income generated from the core business of operating a railway, including freight and passenger services. (Key top-line metric indicating the company's business volume and pricing power.)

Railway operating expenses

All costs incurred in the operation of the railway, including labor, fuel, maintenance, and other direct operational costs. (Crucial for understanding cost control and operational efficiency, directly impacting profitability.)

Merger-related expenses

Costs incurred specifically due to the process of a merger or acquisition, such as advisory fees, legal costs, and employee retention bonuses. (These are one-time or temporary expenses that can significantly impact short-term net income.)

Eastern Ohio incident

Refers to a specific event (likely a derailment or environmental incident) that resulted in significant expenses in the prior year and a credit in the current period. (The reversal of a large expense significantly boosted net income for the first nine months of 2025.)

Diluted EPS

Earnings per share calculated after accounting for all potential dilutive securities, such as stock options and convertible bonds. (A key profitability metric for shareholders, reflecting the earnings attributable to each outstanding share of common stock.)

Surface Transportation Board (STB)

An independent adjudicatory board of the U.S. government whose mission is to promote a safe, adequate, and efficient rail transportation system. (The STB's approval is a critical regulatory hurdle for the proposed Union Pacific acquisition.)

Year-Over-Year Comparison

Compared to the prior year, Norfolk Southern reported a significant 35.3% decrease in net income for Q3 2025, falling to $711 million from $1,099 million, despite a modest 1.7% increase in revenue to $3,103 million. This divergence was primarily driven by a substantial 37.8% surge in total railway operating expenses to $2,005 million, influenced by a large swing in 'Materials and other' from a gain to an expense and new merger-related charges. However, for the first nine months of 2025, net income saw an 18.0% increase to $2,229 million, largely due to a significant reversal of the Eastern Ohio incident expense from the prior year.

Key Financial Figures

• $1.00 — ern Corporation Common Stock (Par Value $1.00) NSC New York Stock Exchange Indicate

Filing Documents

• nsc-20250930.htm (10-Q) — 1217KB
• nsc093025exhibit102.htm (EX-10.2) — 63KB
• nsc093025exhibit31a.htm (EX-31.A) — 9KB
• nsc093025exhibit31b.htm (EX-31.B) — 9KB
• nsc093025exhibit32.htm (EX-32) — 7KB
• nsc-20250930_g1.jpg (GRAPHIC) — 41KB
• 0001628280-25-046128.txt ( ) — 6710KB
• nsc-20250930.xsd (EX-101.SCH) — 47KB
• nsc-20250930_cal.xml (EX-101.CAL) — 58KB
• nsc-20250930_def.xml (EX-101.DEF) — 202KB
• nsc-20250930_lab.xml (EX-101.LAB) — 566KB
• nsc-20250930_pre.xml (EX-101.PRE) — 387KB
• nsc-20250930_htm.xml (XML) — 928KB

Financial Statements

Financial Statements: Consolidated Statements of Income Third Quarter and First Nine Months of 2025 and 2024 3 Consolidated Statements of Comprehensive Incom e Third Quarter and First Nine Months of 2025 and 2024 4 Consolidated Balance Sheets At September 30, 2025 and December 31, 2024 5 Consolidated Statements of Cash Flows First Nine Months of 2025 and 2024 6 Consolidated Statements of Changes in Stockholders' Equity Third Quarter and First Nine Months of 2025 and 2024 7

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 9 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 40 Item 4.

Controls and Procedures

Controls and Procedures 40 Part II. Other Information: Item 1.

Legal Proceedings

Legal Proceedings 41 Item 1A.

Risk Factors

Risk Factors 41 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 43 Item 3. Defaults Upon Senior Securities 43 Item 4. Mine Safety Disclosures 44 Item 5. Other Information 44 Item 6. Exhibits 45

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

. Financial Statements

Item 1 . Financial Statements Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Income (Unaudited) Third Quarter First Nine Months 2025 2024 2025 2024 ($ in millions, except per share amounts) Railway operating revenues $ 3,103 $ 3,051 $ 9,206 $ 9,099 Railway operating expenses Compensation and benefits 738 690 2,169 2,126 Purchased services and rents 519 497 1,537 1,541 Fuel 237 216 700 757 Depreciation 348 339 1,040 1,011 Materials and other 147 ( 188 ) 547 200 Merger-related expenses 15 — 15 — Restructuring and other charges 12 60 22 156 Eastern Ohio incident ( 11 ) ( 159 ) ( 243 ) 368 Total railway operating expenses 2,005 1,455 5,787 6,159 Income from railway operations 1,098 1,596 3,419 2,940 Other income – net 23 34 78 69 Interest expense on debt 197 203 597 608 Income before income taxes 924 1,427 2,900 2,401 Income taxes 213 328 671 512 Net income $ 711 $ 1,099 $ 2,229 $ 1,889 Earnings per share Basic $ 3.16 $ 4.86 $ 9.89 $ 8.35 Diluted 3.16 4.85 9.88 8.34 See accompanying notes to consolidated financial statements. 3 Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Unaudited) Third Quarter First Nine Months 2025 2024 2025 2024 ($ in millions) Net income $ 711 $ 1,099 $ 2,229 $ 1,889 Other comprehensive income (loss), before tax: Pension and other postretirement expense — ( 2 ) — ( 15 ) Other comprehensive income (loss) of equity investees ( 1 ) — — 1 Other comprehensive loss, before tax ( 1 ) ( 2 ) — ( 14 ) Income tax benefit related to items of other comprehensive income — — — 2 Other comprehensive loss, net of tax ( 1 ) ( 2 ) — ( 12 ) Total comprehensive income $ 710 $ 1,097 $ 2,229 $ 1,877 See accompanying notes to consolidated financial statements. 4 Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) September 30, 2025 December 31, 2024 ($ in millions) Assets Current assets: Ca

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements (Unaudited) In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly Norfolk Southern Corporation (Norfolk Southern) and subsidiaries' (collectively, NS, we, us, and our) financial position at September 30, 2025 and December 31, 2024, our results of operations, comprehensive income and changes in stockholders' equity for the third quarters and first nine months of 2025 and 2024, and our cash flows for the first nine months of 2025 and 2024 in conformity with U.S. Generally Accepted Accounting Principles (GAAP). These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our latest Annual Report on Form 10-K. 1. Merger Agreement On July 28, 2025, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Union Pacific Corporation, a Utah corporation ("Union Pacific"), Ruby Merger Sub 1 Corporation, a Virginia corporation and a direct wholly owned subsidiary of Union Pacific ("Merger Sub 1"), and Ruby Merger Sub 2 LLC, a Virginia limited liability company and a direct wholly owned subsidiary of Union Pacific ("Merger Sub 2"). The Merger Agreement provides that Union Pacific will acquire the Company in a stock-and-cash transaction whereby (a) Merger Sub 1 will be merged with and into the Company (the "First Merger"), with the Company surviving the First Merger as a direct wholly owned subsidiary of Union Pacific, and (b) immediately following the First Merger, the Company will be merged with and into Merger Sub 2 (the "Second Merger" and together with the First Merger, the "Mergers"), with Merger Sub 2 surviving the Second Merger as a direct, wholly owned subsidiary of Union Pacific. At the effective time of the First Merger, each share of common stock, par value $ 1.00 per share, of the

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