April 22, 2016 / 5:42 PM / a year ago

UPDATE 1-Norfolk Southern on track to achieving 2016 savings goal -CEO

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By Nick Carey

CHICAGO, April 22 (Reuters) - The top executive of Norfolk Southern Corp said the railroad was on track to achieve its planned savings target of $200 million this year and that the No. 4 U.S. railroad could further trim capital spending if freight volumes remain weak.

“I think we’re well on track and we’re confident we can achieve those savings,” Chief Executive James Squires told Reuters in a telephone interview on Friday.

Squires spoke to Reuters the day after the Norfolk, Virginia-based railroad posted a better-than-expected first-quarter net profit driven by cost savings.

Norfolk Southern had been under pressure following a hostile takeover bid from Canadian Pacific last November to boost profitability and prove to investors it was a viable standalone entity. Canadian Pacific dropped its bid last week.

Investors reacted warmly to the company’s first-quarter beat and its stock was up 10.4 percent at $91.20 in midday trading.

“Overall, we applaud the solid execution from management in anticipation of what could have escalated into a more serious conversation with shareholders regarding the overtures from CP,” Nomura analyst Matt Troy wrote in a client note.

Squires said Norfolk Southern would have been ”open to any and all strategic alternatives that will create value for our shareholders.

“The recent set of proposals (from CP) did not pass muster in terms of value or demonstrate a path through the regulatory process,” he added. “Whether there might be another effort in the future, I just wouldn’t want to speculate at this point.”

Squires said cost savings throughout 2016 will be achieved through selling off, downgrading or idling 1,000 miles of track, plus further streamlining of its operations.

The company said after reporting earnings on Thursday it was cutting planned 2016 capital expenditures to $2 billion from $2.1 billion. Squires said if freight volumes continue to decline, further cuts could be made.

Like other major U.S. railroads, Norfolk Southern has been struggling with what industry executives describe as a “freight recession.” Coal volumes in particular have plummeted as utilities have switched to burning cheaper natural gas and the strong U.S. dollar has hurt exports.

Squires said with coal stockpiles high, the company does not expect a rebound until 2017.

“We would not expect coal to resume its place in our top line at any point,” he said. “What we’re looking for is a modest rebound off current levels based on normal weather patterns in the next few years.” (Reporting by Nick Carey; editing by Bernadette Baum and Dan Grebler)

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