Railroad shipping: Norfolk Southern reports 3Q earnings are down 42 percent
Jeff Berman, Group News Editor -- Logistics Management, 10/28/2009
NORFOLK, Va.-Class I railroad carrier Norfolk Southern reported third quarter earnings of $303 million-or $0.81 per share-representing a 42 percent year-over-year decline. And operating revenue at $2.1 billion was down 29 percent. While earnings and revenue were both down, these figures topped Wall Street estimates, which were roughly between $0.77 and $0.79 per share.
NS officials cited a 20 percent volume decline, coupled with a reduction in fuel-related revenues as the drivers for the revenue shortfall. They added that general merchandise revenues were $1.1 billion, a 24 percent year-over-year decline, with coal revenues off 35 percent at $571 million, and intermodal revenue at $389 million, representing a 31 percent dip.
Despite the financial and volume decreases, NS Executive Vice President and Chief Marketing Officer Donald W. Seale said on an earnings conference call that pricing improvement continued during the quarter with an average pricing gain of 6.2 percent. This was comparable to CSX' 6.3 percent quarterly pricing gain and ahead of Union Pacific's 4 percent gain.
"While the outlook and shape of the economic recovery remain uncertain, we are increasingly confident that we have seen the bottom," said Wick Moorman, NS CEO, on the earnings call. "As the economy does revive, we remain focused on ensuring that the efficiencies we have achieved will remain in place as we emerge from this recession and we will continue to leverage and enhance the strength of our network."
As is the case with all transportation companies, keeping an eye on the bottom line has become vital. NS was no exception with third quarter operating expenses down 25 percent or $499 million.
Along with operating expenses, Tony Hatch, principal of ABH Consulting, commented that operating leverage will be key to driving future success-rather than pricing-in the face of the economic recovery. Some key service operating metrics for the quarter were in line with last year, including gross ton miles per train hour (85.8 in 2008 compared to 88.7 in 2009) and revenue train miles per hour (47.1 in 2008 compared to 47.2 in 2009).
"NS strongly claimed it will have operating leverage in the recovery, and I believe them," said Hatch. "But it had better, for that really is the key issue, not pricing in the face of the economic crisis. Without showing good service with higher volumes they wont produce that operating leverage, face political problems that may dwarf these (the ‘lessons of 2004') and most importantly blow a chance to gain significant market share in the next cycle."
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