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Rail News: Rail Industry Trends

NS reins in costs to offset lower revenue, income


To say Norfolk Southern Corp.’s first-quarter financial results were impacted by the recession is an understatement. The Class I’s net income tumbled 39 percent to $177 million, or 47 cents per diluted share, compared with first-quarter 2008’s $291 million, or 76 cents per diluted share.

Quarterly railway operating revenue plunged 22 percent to $1.9 billion primarily because traffic volume plummeted 20 percent to 1.5 million units compared with first-quarter 2008. In addition, NS generated less fuel-related revenue, which represented about 41 percent of the overall revenue decline. Analysts polled by Thomson Reuters expected earnings of 54 cents per share on revenue of $2.04 billion.

General merchandise revenue fell 28 percent to $975 million as volume plunged 29 percent, coal revenue declined 9 percent to $602 million as volume dropped 11 percent and intermodal revenue decreased 25 percent to $366 million as volume fell 18 percent. In addition, the railroad’s operating ratio climbed 3.4 points to 80.3 compared with first-quarter 2008, primarily because of declining revenue.

“’Unprecedented’ is used a lot these days, but for good cause,” said NS Chairman, President and Chief Executive Officer Wick Moorman during the Class I’s earnings conference held this morning, describing tough economic conditions in the quarter.

As in the worst U.S. housing market since World War II and lowest low-tech industrial production since third-quarter 1994.

“Reduced consumer spending, plant closures, production curtailments, falling international volumes and increased truck competition were major contributors” to the traffic volume and revenue declines, said Executive Vice President and Chief Marketing Officer Donald Seale.

On the plus side, NS achieved overall yield improvement of 7 percent from a combination of price and traffic mix, and a reflection of NS’ service, he said. In addition, quarterly railway operating expenses dropped 19 percent to $1.6 billion as fuel costs fell 61 percent from $404 million to $159 million, compensation/benefit costs dipped 9 percent from $705 million to $639 million and materials/other costs dropped 17 percent from $240 million to $200 million.

The fuel cost reduction resulted from “a combination of lower usage and lower prices,” said EVP and Chief Financial Officer James Squires.

NS was able to mitigate most of the recession’s effects via “effective cost control,” said Moorman.

"We are aggressively controlling costs, while enhancing our service and continuing to invest in projects that will drive future growth,” he said. “This approach will position us to participate in the economy's eventual recovery as we tightly manage the company in the face of an ongoing reduction in railway traffic volumes."

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 4/22/2009