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Rail News: Rail Industry Trends

NS notes cost cuts and service-metric gains despite significant earnings drop


The Class Is’ trend of significant revenue and income drops and notable cost cuts in the second quarter continued as Norfolk Southern Corp. became the fifth large road to register those results. Today, NS reported net income of $247 million or 66 cents per diluted share, down 44 percent compared with $453 million, or $1.18 per diluted share, in second-quarter 2008.

Railway operating revenue of $1.9 billion plunged 33 percent year over year primarily because of a 26 percent drop in traffic volume to 1.4 million units and $348 million decline in fuel-related revenue. Analysts had expected income of 64 cents per share on revenue of $2.05 billion, according to a Thomson Reuters poll.

General merchandise revenue fell 33 percent to $978 million, coal revenue declined 34 percent to $511 million and intermodal revenue decreased 31 percent to $368 million compared with second-quarter 2008 figures. Revenue per unit dropped 10 percent to $1,315.

In addition, NS’ operating ratio increased 3.7 points year over year to 74.8.

"Second-quarter results obviously reflect the impact of the recession," said Chairman, President and Chief Executive Officer Wick Moorman during NS’ earnings Webcast and teleconference. “But we are encouraged that the erosion of our traffic volumes that we have seen for the past eight or nine months seems to have at least stabilized. We have seen a couple of signs of increased economic activity with a few of our customers over the past few weeks, and while I think that it’s too early to tell if these are genuine green shoots or not, we’re at least encouraged that we’re not seeing large parts of the lawn continue to die off.”

In terms of promising developments, NS’ rate increases averaged 7 percent in the quarter and railway operating expenses of $1.4 billion declined 29 percent compared with second-quarter 2008. Fuel costs plunged 69 percent to $153 million as NS paid an average of $1.55 per gallon for diesel vs. $3.58 per gallon in the year-ago period. Compensation and benefits expenses decreased 17 percent to $551 million partly because the railroad’s train and engine-service ranks shrank 14 percent vs. second-quarter 2008’s level.

NS also noted gains in three key service metrics. Train performance improved 14.7 percent, connection performance improved 0.9 percent and operating plan adherence improved 3.7 percent compared with second-quarter 2008 metrics.

“In the face of steep volume declines, we demonstrated considerable ability to shed costs from the system while maintaining and improving the safety, service and efficiency of our operations,” said Moorman.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 7/29/2009