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Rail News: Rail Industry Trends

NS beats Street's earnings expectation, remains upbeat about gradual traffic growth


The largest Class Is now are six-for-six when it comes to registering double-digit decreases in traffic volume and revenue, and posting double-digit drops in operating expenses. Norfolk Southern Corp. joined the group yesterday after reporting its third-quarter financial results.

Unfortunately for NS, the railroad’s income fell by a significant double-digit mark, as well. The Class I reported net income of $303 million, or 81 cents per diluted share, down 41 percent compared with $520 million, or $1.37 per diluted share, in third-quarter 2008. But NS beat Wall Street projections — analysts polled by Thomson Reuters had expected earnings of 79 cents per share.

In terms of operating revenue, the Class I generated $2.1 billion, down 29 percent as fuel surcharge revenue declined by $436 million.

“To illustrate the impact of the volatility in oil prices, without the effect of the fuel-related revenue, total revenue would have declined by 17 percent,” said NS Executive Vice President and Chief Marketing Officer Don Seale during yesterday’s earnings teleconference and Webcast.

Coal revenue plunged 35 percent to $571 million, intermodal revenue fell 31 percent to $389 million and general merchandise revenue dropped 24 percent to $1.1 billion primarily because total carloads declined 20 percent to 1.5 million units compared with third-quarter 2008 data. However, traffic showed “sequential improvement” during the quarter, rising from 494,279 units in July to 513,373 units in August and 514,563 units in September, said Seale.

“Our third quarter traffic volumes continue to suggest stabilization,” said Chairman, President and Chief Executive Officer Wick Moorman. “Volumes improved 8 percent sequentially from the second quarter to the third quarter.”

NS’ quarterly operating ratio didn’t improve, rising 3.7 points to 72.8. But operating expenses declined 25 percent to $1.5 billion. Fuel expenses plummeted 59 percent to $192 million as diesel consumption dropped 19 percent and NS paid an average fuel price of $1.85 per gallon vs. $3.59 per gallon in third-quarter 2008.

In addition, materials and other expenses decreased 25 percent to $149 million, purchased services and rent costs declined 16 percent to $352 million, and compensation and benefit costs fell 16 percent to $598 million. NS’ train and engine-service workforce totaled 10,422 in the quarter compared with 12,078 in third-quarter 2008 — a 14 percent reduction — and total number of railroad employees dropped 9 percent year over year to 27,514, said EVP and Chief Operating Officer Mark Manion.

NS expects to continue controlling costs and “making the investments necessary to position us for the future of transportation” despite economic volatility, said Moorman.

“While my crystal ball has its usual amount of sediment swirling around inside, we're hopeful that an economic recovery may have commenced, although its shape and duration are uncertain," he said.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 10/28/2009