Norfolk Southern fires CEO for troublesome behavior

The Ohio derailment didn’t taint Alan Shaw’s CEO career, but a relationship with a colleague has brought it to an end.

Shaw became Norfolk Southern’s (NSC) chief executive in May 2022 and has been with the company since 1994. He was fired for “engaging in a consensual relationship with the company’s chief legal officer,” Nabanita Nag, who was also terminated, the railroad company said on Sept. 11.

Mark George, Norfolk Southern’s chief financial officer, was named president and CEO, effective immediately, the company said.

Companies establish anti-fraternization policies to prevent conflicts of interest and harassment, but these rules are often broken. McDonald’s former CEO, Steve Easterbrook, was fired in 2019 for a consensual relationship with an employee, while Intel’s Brian Krzanich resigned for a similar reason in 2018.

Norfolk Southern has been in turmoil over the past year, including a train derailment in East Palestine, Ohio, in February 2023. The incident led to a toxic chemical spill, which resulted in a payment of $600 million settlement with local residents.

Norfolk Southern affirmed its full-year 2024 guidance on Sept. 11.
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Activist investor Ancora Holdings criticized the railroad's handling of the incident and its financial performance, pushing for seven board seats and calling for the replacement of Shaw and other executives.

While Shaw retained his position, Ancora achieved a partial victory as shareholders voted to replace three members of the company’s 13-member board, The Wall Street Journal reported.

Norfolk Southern’s Q2 earnings beat estimate

Despite the management change, Norfolk Southern affirmed its full-year 2024 guidance on Sept. 11, which was initially provided on July 25 alongside its Q2 financial results.

The company earned an adjusted $3.06 a share for the most recent quarter, topping analysts' consensus estimate of $2.86. Revenue of $3 billion fell short of analysts' forecast of $3.04 billion.

Shaw affirmed a full-year adjusted operating-ratio guidance of approximately 66% in the Q2 earnings release. The measure, which reflects expenses as a percentage of revenue, was 65.1% in the second quarter, improving by 1.6 percentage points from a year earlier. A higher ratio indicates increased costs and lower profitability.

Norfolk Southern expects to enhance productivity by $550 million and widen its profit margin over the next two years. In its Q2 report, the railroad showed improvement across all performance metrics, including train-car velocity and time spent in railyards, AP reported.

Norfolk Southern is one of the largest freight-rail networks in the eastern U.S. It was formed in 1982 when Norfolk and Western Railway and Southern Railway merged.

Analysts are positive about Norfolk Southern stock

Barclays analyst Brandon Oglenski says Norfolk Southern's CEO change "caps an eventful year" following a proxy contest.

While new CEO Mark George does not have railroad operating experience, stability and continuity in the C-suite "is likely desired at this time in Norfolk's transformation as network service improves," the analyst told investors in a research note, according to thefly.com.

Barclays affirmed an overweight rating on Norfolk Southern stock with a $275 price target.

More Wall Street Analysts:

B of A analyst Ken Hoexter says the management transition will be smooth. Chief Operating Officer John Orr will continue the operational overhaul while new CEO George will ensure continuity.

The analyst expects the company's earnings growth to accelerate due to improved productivity, a focus on increasing volumes, and accelerated yields. B of A reiterated a buy rating and a $259 price target on the stock.

The shares closed on Sept. 12 at $254.59.

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