Yesterday, after the closing bell, one of the leading U.S. railroad companies Norfolk Southern Corp. (NSC) reported its adjusted second quarter earnings of $1.38 per share, beating the Zacks Consensus Estimate by 9 cents.
Adjusted earnings exclude income tax benefits of 18 cents per share. Including the benefit, earnings shot up 50% to a record $1.56 from $1.04 in the year-ago quarter.
The highway-to-railway shift in shipments on the heels of rising fuel prices and tight truck capacity worked in favor of the railroad industry and propelled record second quarter results for Norfolk.
Total revenue climbed 18% year over year to $2.90 billion, surpassing the Zacks Consensus Estimate of $2.75 million, 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 28.3%, 19.7% and 11.7%, respectively.
Operating expenses increased 17.3% year over year driven by higher fuel costs (up 59.7%) as well as increased compensation and benefit expenses (up 10.3%). But operating ratio improved to 69.5% from 69.8% in the year-ago quarter.
Cash Position
Norfolk exited the quarter with cash and cash equivalents of $678 million compared with $827 million at the end of 2010.
Dividend
Norfolk raised its quarterly dividend by 7.5% from 40 cents per share based on record second quarter results. The company will pay an increased quarterly dividend of 43 cents per share on September 10 to shareholders of record as on August 5.
Our Analysis
Norfolk remains well positioned to gain from strong pricing trends, continued volume growth, heavy investments in key projects, increased productivity, new business initiatives and accelerated growth in most of the business segments (especially, Coal and Intermodal). Hence, the company expects strong growth prospects for 2011.
However, several 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) 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.
CSX CORP (CSX): Free Stock Analysis Report
NORFOLK SOUTHRN (NSC): Free Stock Analysis Report
UNION PAC CORP (UNP): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment