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A soft economy and high fuel costs didn't prevent Norfolk Southern Corp. from setting revenue, earnings and income records in the fourth quarter.

The Class I's railway operating revenue rose 6 percent to $2.5 billion, income from railway operations jumped 12 percent to $686 million, net income increased 4 percent to $399 million and diluted earnings per share climbed 7 percent to $1.02 — all new quarterly highs — compared with fourth-quarter 2006 totals. In addition, NS' operating ratio improved 1.5 points to 72.

"I get asked all the time how deep and long-lasting are the changes in the marketplace that drive performance. And I always say we'll know when we see a downturn," said NS Chairman, President and Chief Executive Officer Wick Moorman during the Class I's earnings conference held this morning. "Well, we had a downturn last year, and in the face of it, we improved year-over-year financial numbers and lowered our operating ratio."

Although traffic volume declined 3 percent, NS increased revenue in every sector compared with fourth-quarter 2006 totals. General merchandise revenue jumped 10 percent to a record $1.4 billion, coal revenue rose 2 percent to an all-time-high $601 million and intermodal revenue inched up 1 percent to $496 million.

Quarterly railway operating expenses increased 4 percent year over year to $1.8 billion, primarily because fuel costs soared 38 percent, rising by $97 million, said Executive Vice President Finance and Chief Financial Officer James Squires.

For the full year, NS set several records, as well. Railway operating revenue reached $9.4 billion (up slightly year over year), income from railway operations climbed to $2.6 billion (up 1 percent) and diluted earnings per share hit an all-time-high $3.68 (up 3 percent).

In addition, the Class I's operating ratio improved slightly from 2006's level to 72.6 — NS' lowest annual ratio since the Conrail integration in 1999, said Moorman. Railway operating expenses held steady at $6.8 billion.

During the conference, EVP of Planning and Chief Information Officer Debbie Butler outlined NS' capital spending plan for 2008. The railroad has budgeted $1.4 billion, up 6 percent compared with 2007's budget. Seventy-one percent of the budget is targeted at maintaining the railroad and the remaining 29 percent, at growth- and productivity-related improvements, said Butler.

NS plans to spend $613 million on maintenance of way, $339 million on capacity expansion projects, $264 million on locomotives and freight cars, $143 million on terminals and facilities, and $66 million on technology upgrades. The Class I will acquire 15 new locomotives in early 2008, buy out leases on 321 coal cars and acquire 319 auto racks, and build or expand terminals in Columbus and Maple Heights, Ohio, said Butler.

— Jeff Stagl