Norfolk Southern Corp. (NSC), the leading U.S. railroad company, reported adjusted first quarter earnings of $1.00 per share, beating the Zacks Consensus Estimate of 90 cents. Adjusted earnings per share shot up 33% from 75 cents in the year-ago quarter. Earnings were primarily driven by accelerated growth in rail shipments.
Total revenue improved 17% year over year to $2,620 million, surpassing the Zacks Consensus Estimate $2.470 million. The increase in revenue was driven by higher revenue per unit and traffic.
On a year-over-year basis, Coal revenues registered a robust 30% growth owing to higher export coal demand in Asia, Europe and South America. Similarly, Intermodal and General Merchandise grew 18% and 10%, respectively.
Despite Norfolk’s efforts to control costs, operating expenses increased 20% year over year to $2 billion due to a 53% rise in fuel cost and negative insurance arbitration. However, operating ratio improved 190 basis points to 77.1% from 75.2% in the year-ago quarter.
Cash Position
Norfolk had cash and cash equivalents of $236 million in the reported quarter compared to $1,161 million in the year-ago quarter.
Our Analysis
The company remains optimistic on strong market demand for rail freight transportation, which should propel growth across most of its product lines. Additionally, the long-term prospect of the company remains bright with investments in key projects, lucrative new business initiatives and economic growth. We expect the company to remain well positioned to benefit on these terms. However, increased hiring, weak performance of forest products due to volatile housing and paper markets, unionized workforce and intense competition from companies like CSX Corp. (CSX) keep us on the sidelines.
Consequently, we currently maintain our long-term Neutral recommendation on Norfolk Southern supported by a Zacks Rank # 3 (Hold).
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