Norfolk Southern Corp. (NSC), one of the leading U.S. railroad companies reported third quarter earnings of $1.59 per share that breezed passed the Zacks Consensus Estimate of $1.41 and rose 34% from $1.19 in the year-ago quarter.
Norfolk continues to gain from highway-to-railway shift in shipments on the heels of rising fuel prices and tight truck capacity that propelled continued record high results for Norfolk.
Total operating revenue climbed 18% year over year to $2.88 billion, which was in line with the Zacks Consensus Estimate. The year-over-year growth was buoyed by higher revenue per unit and double-digit revenue growth across all segments. On a year-over-year basis, Coal, Intermodal and General Merchandise revenues grew 27%, 19% and 12%, respectively.
Operating expenses increased 14% year over year due to higher fuel costs (up 48.6%) as well as increased compensation and benefit expenses (up 8.2%). But operating ratio improved 210 basis points to 67.5% from 69.6% in the year-ago quarter.
Cash Position
Norfolk exited the quarter with cash and cash equivalents of $242 million compared with $ 1,129 million at the end of year-ago quarter.
Dividend
The company’s board of directors announced a quarterly dividend of 43 cents per share to the shareholders of record on November 4, payable on December 10.
Our Analysis
Despite the current fluctuation in the economy, Norfolk continues to deliver strong earnings and operating results given its strong pricing trend continued volume growth, heavy investments in key projects, increased productivity, new business initiatives and accelerated growth in most of the business segments.
However, several headwinds such as increased headcounts, rising locomotive material cost and fuel prices, tightened railroad regulation, market uncertainties and competitive pressure from other leading railroads such as Union Pacific Corporation (UNP) and CSX Corp. (CSX) will likely limit the upside potential over the near term.
We are currently maintaining our long-term Neutral rating on the stock. For the short term (1–3 months), the stock retains a Zacks # 3 (Hold) rating.
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