Norfolk Southern Corp. (NSC), one of the leading U.S. railroad companies, reported fourth quarter earnings of $1.42 per share surpassing the Zacks Consensus Estimate by a couple of cents and increasing 30.3% from $1.09 in the year-ago quarter. For the full year, the company reported earnings per share of $5.45, up 36.3% year over year.
Norfolk continues to gain from highway-to-railway shift in shipments on the heels of rising fuel prices and tight truck capacity that ensured record high results for Norfolk.
Total operating revenue climbed 17% year over year to $2.8 billion, in line with the Zacks Consensus Estimate. On a year-over-year basis, Coal, Intermodal and General Merchandise revenues grew 24%, 18% and 13%, respectively. The year-over-year growth was buoyed by strong shipments along with higher revenue per unit arising from the growth in freight rates and fuel reimbursements. For the full year, revenues came in at an all-time high of $11.2 billion, up 17.4% year over year.
In the fourth quarter, operating income stood at $800 million, up 24.6% on a 200 basis point (bp) improvement in the operating ratio (defined as operating expenses as a percentage of revenue) to 71.4%. Operating income for fiscal 2011 increased 20.1% year over year to $3.2 billion, as the operating ratio jumped 100 bps to 71.2%. Fuel expenses for the quarter and full year increased 30.8% and 47.3%, respectively.
Cash Position
Norfolk exited the year with cash and cash equivalents of $276 million compared with $827 million at the end of the year-ago period. Cash from operations increased to $3.2 billion compared with $2.7 billion in the year ago.
Dividend
Norfolk’s board of directors announced a 9% increase in its quarterly dividend to 47 Canadian cents per share from 43 Canadian cents. The increased quarterly dividend will be paid on March 10 to shareholders of record as of February 3.
Guidance
Management expects capital expenditure of $2.4 billion in fiscal 2012, with a large portion of it dedicated toward intermodal infrastructural upgrades and new intermodal terminals in Alabama, Pennsylvania and Tennessee in late 2012.
Our Analysis
We remain encouraged by the company’s all-time high revenues, operating income, net income, and earnings per share for the year. Consequently, we expect 2012 to be profitable as management remains committed to enhancing services, maintaining railroad safety and network efficiency, thereby improving cost and productivity. We believe that the strong pricing trend, continued volume growth and heavy investments in key projects will remain growth drivers. We expect these growth factors to substantially compensate for headwinds such as increased headcount, 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).
We are currently maintaining our long-term Neutral recommendation on the stock. For the short term (1–3 months), the stock retains a Zacks # 3 Rank (Hold).
CSX CORP (CSX): Free Stock Analysis Report
NORFOLK SOUTHRN (NSC): Free Stock Analysis Report
UNION PAC CORP (UNP): Free Stock Analysis Report
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