January 27, 2016 / 6:54 PM / 2 years ago

Norfolk Southern CEO touts cost cuts; Street wants more details

CHICAGO, Jan 27 (Reuters) - The top executive of Norfolk Southern Corp said on Wednesday that the railroad’s strategic five-year plan, seen by many analysts as a bid to thwart Canadian Pacific’s takeover attempt, allows it to cut costs and capitalize on growth.

But the plan lacks details to satisfy investors, analysts said.

“I think we have the best combination of cost reductions through productivity and revenue growth opportunity in this plan that we could come up with,” Norfolk Southern Chief Executive Jim Squires told Reuters. The plan is “dynamic and flexible,” he said, adding, “if necessary, we have the ability to pivot to additional cost savings.”

Earlier on Wednesday the No. 4 U.S. railroad posted lower quarterly profit and outlined a plan to cut annual costs by more than $650 million by 2020.

Canadian Pacific in mid-November disclosed its $28 billion offer to buy Norfolk Southern, touting far higher cost savings of $1.8 billion.

Customers of Norfolk Southern and lawmakers have complained to rail regulator the Surface Transportation Board that Canadian Pacific would gut the U.S. railroad by cutting employees and investments.

Norfolk Southern’s plan includes cutting 1,200 jobs in 2016, a 4 percent workforce reduction, with a total of 2,000 job losses by 2020. The company plans to downgrade 1,500 miles (2,414 km) of track associated with declining coal business, with 1,000 miles of that in 2016.

The railroad said it would reduce its operating ratio, a key metric for analysts and investors, to below 70 percent in 2016 and under 65 percent by 2020.

But S&P Capital IQ analyst Jim Corridore wrote in a note that “even if it (Norfolk Southern) met its goals for ‘16 and ‘20 it will still lag peers in our view.”

Squires said he could not speculate on possible mergers, adding “we are singlemindedly focused on executing our strategic plan.”

He said the plan was a response to shareholder requests for more information. “We took in that feedback and we crafted the presentations that we gave today.”

But Nomura analyst Matt Troy said the amount of disclosure from the railroad on cost savings - which are well below those touted by Canadian Pacific - “will be insufficient to meet Street expectations.”

“When the barbarians are at the gate and you’re trying to fend them off with your own plan, more is more,” he said. “The time for NS to say ‘trust us, we’ll get this done’ is long past.” (Editing by Matthew Lewis)

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