Norfolk Southern railroad 1Q profit up 10 percent
(AP) OMAHA, Neb. - Norfolk Southern reported a 10 percent improvement in first-quarter profit Tuesday as an increase in railroad shipping volume and a land sale helped offset continued weak coal demand.
The Norfolk, Va.,-based railroad said it generated $450 million net income, or $1.41 per share, on $2.74 billion revenue. That’s up from $410 million, or $1.23 per share, a year ago.
The railroad beat Wall Street expectations, even without a one-time profit of $60 million on a sale of land in Michigan that added 19 cents per share to Norfolk Southern’s earnings.
Analysts surveyed by FactSet expected earnings of $1.17 per share on $2.78 billion in revenue.
The railroad’s revenue was relatively flat compared to last year’s $2.79 billion, but that could be considered a victory given the 17 percent decline in coal revenue.
Intermodal revenue improved by 9 percent and revenue from all other shipments improved 2 percent to nearly offset coal’s decline.
It appears that coal demand may be stabilizing for Norfolk Southern after several years of decline. All the major railroads have been dealing with weak coal demand because of relatively cheap natural gas prices. A number of utilities switched from coal to gas for power generation.
"Coal continues to be the wild card in our business outlook, although we do see some signs of stability," CEO Wick Moorman said.
Edward Jones analyst Logan Purk said now that coal appears to have stabilized, the strength of the overall economy and Norfolk Southern’s pricing power will determine how profitable it is.
"There’s a built-in floor for coal demand that’s needed to produce electricity," Purk said.
Major freight railroads like Norfolk Southern are considered gauges of the nation’s economic health because the number of carloads they carry of a broad range of things, like chemicals, crops, lumber and containers of imported goods, reflect the health of those industries.
Union Pacific and CSX expressed optimism about the future last week. They were able to overcome weak coal demand in the first quarter with rate increases and by hauling more carloads of other things.
Norfolk Southern officials say their outlook is mostly positive, but they didn’t provide specific profit targets.
"In general, we see an economy that will continue to grow, albeit at a slow pace," Moorman said.
Norfolk Southern operates about 20,000 miles of track in 22 states and the District of Columbia.
On Tuesday Norfolk Southern shares rose 78 cents to close at $75.84 amid a broad market rally.
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Norfolk Southern Corp.: www.nscorp.com
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