Norfolk Southern Earnings Call Nuggets: Coal Yield Mix and Utility Stockpiles
Coal Yield Mix
Christopher Ceraso – Credit Suisse: I was hoping you could give us a little bit more color on the decline in yield in coal maybe just bracketing how much of that is associated with the change in mix versus how much is the reductions you had to take in price for export coal?
Donald W. Seale – EVP and Chief Marketing Officer: As we discussed in the calls in the past, over the last few quarters. Our met coal pricing has been adjusted downward to reflect the world market, which as you know, declined from $330 per ton down to $160, it has improved back up to $170, but we are still in the range of 25% to 30% declines year-over-year in met coal pricing and we will continue to face those headwinds until we clear part of the second quarter, as we complete the second quarter. Also with respect to mix, we handled 2 million tons of export thermal coal in the first quarter, versus about 600,000 tons of thermal coal handled in the first quarter of 2012. It’s good business for us, but it is lower revenue per car – lower revenue per ton than the met coal as you know. The other moving parts that I mentioned in my remarks was our longer haul southern utility business was down 16% in the quarter, our northern utility coal was only down 3%, and as we’ve discussed in the past, the revenue per car differential of those two books of business is 50%, so it’s material. One other quick comment, little color, Chris, hopefully will answer your question fully. Our utility business for the quarter, 31% of that book was shorter haul utility business in Illinois, Ohio and Indiana and averaged only about 25% to 30% of our normal revenue per unit of utility coal as a whole.
Christopher Ceraso – Credit Suisse: I had just one quick follow-up, not to give you a hard time, but can you just talk about the rationale behind not buying back stock and waiting to see what’s happening in Washington. I mean, you’ve got a very strong balance sheet. You generated a lot of cash flow in the quarter and now the stock is 20% higher than it was three, four months ago. So maybe you’ve missed out on an opportunity. Can you just take us through your rationale there?
John P. Rathbone – EVP, Finance and CFO: As we finished – as you know you have to use a planned purchasing and as we look to the fiscal cliff, one of the issues as we slow down purchases going into the fiscal cliff, because of the way those programs work, we were precluded from entering the market until after earnings release in January. So the full month of January was basically lost to us as far as purchases. We reentered the market; our intention – but albeit at a lower rate – and you’re quite right, we did miss certainly a buying opportunity during that at very favorable pricing. But going forward, we expect to resume our share repurchases at levels – that were at more historic levels.
Christian Wetherbee – Citigroup: Maybe just sticking on coal, could you talk a little about where inventories kind of ended the quarter, maybe where you think we are, kind of in April with utilities?
Donald W. Seale – EVP and Chief Marketing Officer: Our utility stockpiles, we ended the quarter with 41 days on average through the network that’s about a 7.5% reduction from the fourth quarter.
Christian Wetherbee – Citigroup: Okay. In relative to normal, how does that look?
Donald W. Seale – EVP and Chief Marketing Officer: The northern utilities in our network are normalized now. We’re approaching normal throughout the north. The stockpiles have been pulled down. The weather has been colder through the Midwest and Northeast. Our southern utilities are still marginally above target.
Christian Wetherbee – Citigroup: Maybe just a quick follow-up on the coal to gas switching or maybe gas back to coal with prices above $4 I know in the average and its maybe a little bit higher in some cases on the breakpoint between the two, but have you seen any kind of marginal demand come back to coal from gas.
Donald W. Seale – EVP and Chief Marketing Officer: Yes we have Chris. The NYMEX delivered price of gas is now 4.25 per million Btu for May. And the shoulder months of March and April have been fairly cold. So we’ve seen demand electricity production continue fairly strong or at least an uptick in it. So with those gas prices and the pull down in gas storage we have seen marginal dispatch of coal in our network pickup.
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