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Why Is Norfolk Southern (NSC) Up 5.4% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Norfolk Southern (NSC). Shares have added about 5.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Norfolk Southern due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Earnings Beat at Norfolk Southern in Q1

Norfolk Southern's first-quarter 2020 earnings of $2.58 per share (excluding $1.11 from non-recurring items) surpassed the Zacks Consensus Estimate of $2.19. Moreover, the bottom line inched up 2.8% on a year-over-year basis.

Railway operating revenues in the quarter under review came in at $2,625 million, edging past the Zacks Consensus Estimate of $2,558 million. The top line however declined 7.8% year over year due to an 11% drop in total volumes owing to weak energy prices and the COVID-19 pandemic.

Income from railway operations plunged 41.2% year over year to $568 million. Operating expenses increased 9.8% on a year-over-year basis to $2,057 million. Norfolk Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) in the first quarterimproved 230 basis to 63.7%. With respect to this metric, the lower the value, the better.

Segmental Performance

On a year-over-year basis, coal revenues totaled $298 million, down 31.5% year over year. Coal volumes contracted 31%. Revenue per unit dropped 1% in the reported quarter.

Merchandise revenues declined 0.8% to $1,672 million and volumes fell 5%. Revenue per unit improved 4% for the segment.

Intermodal revenues reduced 8.9% year over year to $655 million. Segmental volumes also declined 11%. Revenue per unit rose 2% on a year-over-year basis.

Liquidity & Share Buyback

The company exited the first quarter with cash and cash equivalents of $608 million compared with $580 million at the end of 2019. The company had long-term debt of $11,807 million compared with $11,880 million at 2019-end.

Dividend Update

The company’s board cleared a quarterly cash dividend of 94 cents per share, payable to shareholders on Jun 10 of record as of May 8. It paid out dividends for 151 consecutive quarters.

Outlook

Norfolk Southern’s volumes have declined 30% quarter-to-date. Consequently, revenues are anticipated to quite low in the second quarter.

The company has withdrawn its guidance for revenues and operating ratio for 2020 considering the uncertainty surrounding the coronavirus pandemic.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -15.72% due to these changes.

VGM Scores

Currently, Norfolk Southern has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Norfolk Southern has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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