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Less Volume Drives Down Norfolk Southern Profit

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Railroad giant Norfolk Southern Corp.'s fourth-quarter profit declined 5% as the company hauled 9% less freight, officials said.

Norfolk Southern (NYSE: NSC) reported its operating and financial results for the fourth quarter of 2019 before the market opened Wednesday.

Norfolk Southern (NS) reported total revenues of $2.7 billion in the fourth quarter, down 7% year-over-year, and net income of $666 million for the quarter, a 5% decrease from a year ago.

NS CEO James A. Squires told reporters during a conference call that volume deterioration throughout the year culminated in fourth-quarter and full-year volume declines of 9% and 5%, respectively. "We remained focused on running our railroad as efficiently as possible and with a high level of customer service, achieving our locomotive and T&E [train and engine crew] workforce productivity goals, despite having less freight to haul."

The railroad's earnings per share for the quarter were $2.55, topping Wall Street analysts' expectation for the quarter at $2.29 per share. Over the last four quarters, NS has surpassed consensus earnings-per-share estimates three times.

Norfolk Southern

2019 Value

2018 Value

Y/Y Gross Change

Y/Y % Change

Freight revenue (in millions)

$2,690.0

$2,896.0

($206.0)

-7.1%

Carloads (000s)

1,803

1,985

-182.60

-9.2%

Revenue per carload

$1,492

$1,458

$34.0

2.3%

Intermodal shipments

1,028

1,119

-90.70

-8.1%

Intermodal revenue per carload

$678

$675

$3.0

0.4%

Gross ton miles (in billions)

88.4

97.6

-9.20

-9.4%

Revenue per tonmile (in billions)

$45

$51

($5.5)

-10.8%

Employee counts (average)

22478

26,638

-4,160.00

-15.6%

Train velocity (mph)

23

19.3

3.70

19.2%

Dwell time (hours)

18.3

25.9

-7.60

-29.3%

OR%

64.2%

62.8%

1.40%

2.2%

EPS

$2.55

$2.57

($0.0)

-0.8%

"Macroeconomic headwinds challenged volume in 2019, particularly in the second half of the year," Alan Shaw, chief marketing officer, told investors.

"The weak manufacturing environment and low commodity prices drove down merchandise volumes in all groups — led by a 17% decline in steel," Shaw said. "Import steel tariffs affected the traffic flows and lower steel prices reflected weak demand."

The company also recorded a 21% decline in coal revenue during the fourth quarter and 7% decline in intermodal revenue. Shaw said revenues for "utility coal" were impacted by low natural gas prices, falling seaborne prices for coal and Chinese tariffs.

"Export thermal coal prices remained at low levels, making it difficult for us to compete globally," Shaw said.

However, NS achieved an operating ratio (OR) of 64.2% for the quarter. But income from railway operations was $1 billion, a decrease of $116 million year-over-year. A drop in expenses wasn't enough to offset declines in freight revenue, including decreases in coal and intermodal revenue.

Meanwhile, service metrics improved amid NS' precision scheduled railroading efforts. Average train speed jumped 19% to 23 miles per hour, while average terminal dwell dropped to 18.3 hours from 25.9 hours.

Squires said one of the strategies for 2020 is getting shippers to use more rail instead of trucks.

NS is the largest rail operator on the East Coast and third largest in the U.S. It operates about 19,500 miles of track in 22 states and the District of Columbia. The company has approximately 23,000 employees.

"We are targeting the truck market. That's the market-share opportunity, that's the big opportunity for us," Squires said, adding that "the linchpin of our growth strategy is getting trucks off the road onto the railroad."

FreightWaves reporter Joanna Marsh contributed to this report.

Image Sourced from Pixabay

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