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Norfolk Southern Hurt By Low Volumes Amid Coronavirus Woes

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We recently issued an updated report on Norfolk Southern Corporation NSC.

Like many other transportation companies, Norfolk Southern is hit by uncertainties related to the COVID-19 pandemic.

The below-par performance of the intermodal segment, is a major concern. Notably, revenues in the intermodal segment declined 9% year over year in the first quarter. The downside was caused by decline in international intermodal volumes from the coronavirus pandemic and excess truck capacity. Moreover, plant shutdowns due to the coronavirus outbreak are putting pressure on automotive volumes. Reduced consumer spending and supply chain disruptions are expected to continue affecting automotive intermodal and other consumer-driven products.

Norfolk Southern anticipates the coronavirus-induced adversities to affect its second-quarter performance (volumes have declined as much as 30% in April) as well as its current-year results. The company expects volumes to decline across all segments.

Besides, coal segment weakness stemming from low natural gas prices and unfavorable weather conditions is worrisome. The company anticipates lower seaborne coal prices as well as the pandemic to continue to hurt coal export.

Meanwhile, Norfolk Southern is undertaking efforts to streamline operations by curbing costs. During the first quarter, operating ratio (operating expenses as a percentage of revenues) improved 230 basis points to 63.7%. Notably, lower the value of the metric the better. The company lowered operating expenses (excluding the non-cash locomotive charge) by $202 million in the first quarter owing to increased efficiency from its operating model. Also, capital expenditures for 2020 are now expected to be $1,500 million, much lower than 2019 levels.

Zacks Rank & Key Picks

Norfolk Southern carries a Zacks Rank #4 (Sell).

A Few better-ranked stocks in the Zacks Transportation sector are Scorpio Tankers Inc. STNG, Teekay Tankers Ltd. TNK and Nordic American Tankers Limited NAT.  Scorpio Tankers sports a Zacks Rank #1 (Strong Buy), while Nordic American Tankers and Teekay Tankers carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.

The Zacks Consensus Estimate for Teekay Tanker’s current-year earnings has been revised upward by 35.6% in the past 60 days.

The Zacks Consensus Estimate for Nordic American Tankers’ current-year earnings has been revised upward by 14.1% in the past 60 days.

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Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
 
Nordic American Tankers Limited (NAT) : Free Stock Analysis Report
 
Teekay Tankers Ltd. (TNK) : Free Stock Analysis Report
 
Scorpio Tankers Inc. (STNG) : Free Stock Analysis Report
 
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