Norfolk Southern Corp.

The outlook is stable. We expect Norfolk Southern's carload volumes to remain somewhat pressured through most of 2020. However, we expect modest pricing improvement and cost-reduction efforts to bolster the company's operating performance over the next two years (barring much tougher economic/trade conditions). In addition, we expect Norfolk Southern's credit metrics to remain relatively consistent over this period, with funds from operations (FFO) to debt in the low-30% area and debt to EBITDA in the low-2x area. Although unlikely, we could lower the rating over the next two years if the company's earnings decline sharply, driven by potential tariffs or weaker-than-expected traffic levels or pricing. We could also lower the rating if larger-than-expected share repurchases lead FFO to debt to

...Norfolk Southern Corp.'s credit metrics should remain relatively consistent despite increased share repurchases.In the first nine months of 2019, Norfolk Southern repurchased $1.6 billion of its shares. Although lower than the $2.3 billion it repurchased in the prior-year period, the company is still devoting a significant portion of its cash flows--as well as incremental debt--to fund shareholder rewards. Nevertheless, its credit metrics have remained relatively consistent because of its increased earnings and strong cash flow, and we expect such trends to continue. The company's free cash flow benefited from the tax reform enacted in December 2017, under which its tax rate declined to 23% in 2018 compared with 36% previously. In addition, we expect earnings to benefit from its precision scheduled railroading (PSR) initiative....

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