After railroad operator Kansas City Southern KSU slashed its 2015 revenue growth outlook last month, it is now Norfolk Southern Corporation's NSC turn to tread on the same path. The company has issued a disappointing outlook for the first quarter of 2015. The below-par guidance naturally caused Norfolk Southern’s shares to tumble in after-market trading on Apr 13. The company will unveil its first quarter 2015 results on Apr 29.
Norfolk Southern stated that it expects first quarter 2015 earnings to come in at $1.00 per share, which is much below the Zacks Consensus Estimate of $1.31. Moreover, the earnings projection is 15% below the first-quarter 2014 number.
Further, the company expects to report first quarter revenues of $2.6 billion on account of weak demand for coal. The revenue estimate is also shy of the Zacks Consensus Estimate of $2.73 billion and 5% below the year-ago figure.
The railroad operator pointed out that coal shipments have been experiencing a downward trend mainly due to the decline in coal exports. Apart from weak coal shipments, lower fuel surcharges received from customers due to declining fuel costs and inclement weather are also expected to hurt the company’s first quarter results. According to the U.S. Energy Information Administration, coal exports have declined mainly due to weak fuel prices and soft global fuel demand apart from increased output from other coal-exporting nations.
The silver lining in the otherwise gloomy outlook is the 3% expected decline in expenses to $2 billion for the first quarter. The decline is primarily attributable to weak fuel costs. However, high service-recovery costs, and increased hiring and training costs in addition to a labor deal signing bonus, will tend to scale up expenses in the first quarter.
Norfolk Southern, however, believes weather conditions will improve in the second quarter of the year resulting in improved volumes, with the exception of coal. Coal shipments are expected to remain under pressure in the coming quarters mainly due to a challenging global market.
The pessimistic outlook provided by this major railroad player impacted shares of its peers, such as CSX Corp. CSX and Union Pacific Corp. UNP as well, causing them to lose value in after-market trading.
CSX Corp., which will reveal its first quarter results after the close of trading on Apr 14, had earlier stated that it anticipates at least a 5% decline in its domestic coal shipments in 2015. The disappointing projection for domestic coal shipments takes into account the extreme climatic conditions experienced this winter and weak natural gas prices currently prevalent in the U.S.
Furthermore, declining crude oil prices have also resulted in the company toning down its projection for crude oil shipments which is expected to display moderate growth compared to original expectations. Union Pacific will disclose its first quarter results on Apr 23. Coal revenues are expected to take a hit for Union Pacific as well.
Last month, Kansas City Southern had predicted its first quarter 2015 revenues to be flat on a year-over-year basis reflecting adverse foreign currency movements, low fuel surcharge revenues and slow carload growth from the energy sector. The company expects first-quarter 2015 earnings to be flat to slightly higher compared with earnings of $1.05 per share recorded in the first quarter of 2014.
We expect investors to keep a keen eye on the impact of weak coal shipments on the first-quarter 2015 results of railroad operators.
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