(The following story by Robert McCabe appeared on The Virginian-Pilot website July 30, 2009.)
NORFOLK, Va. — A day after Norfolk Southern Corp. reported that its second-quarter profit dropped 45 percent from a year ago, its top executives told Wall Street analysts in a teleconference Wednesday that the company is continuing to cut costs wherever possible and improve efficiencies while waiting for the economy to turn around.
“Norfolk Southern’s second-quarter results, while obviously adversely impacted by the continuing recession, reflect solid operating performance and aggressive cost control,” said Wick Moorman, the Norfolk-based railroad’s chairman and CEO. “While revenues declined 33 percent on a 26 percent reduction in volume, we reduced operating expenses by 29 percent, outpacing the very substantial volume drop and partially offsetting the reduction in revenues.”
On Tues day, Norfolk Southern reported that its net income for the April-to-June quarter was $247 million, or 66 cents a share, down from $453 million, or $1.18 a share, in the second quarter of 2008.
The company’s operating revenues for the quarter were $1.86 billion, down a third from $2.76 billion a year earlier.
On a percentage basis, Norfolk Southern’s revenue drop was steeper than that of the nation’s other big freight carriers, which ranged from 25 percent for CSX Corp. to 28 percent for Union Pacific Corp.
Asked why, Moorman cited several reasons.
“First and foremost, our volumes were down more; that’s really a component of the franchise that we have,” he said. “If you kind of look at the big pieces of our business, it just seems like this particular recession may have had a slightly disproportionate impact on us.”
In the East, Norfolk Southern has the predominant share of international intermodal traffic – shipping containerized cargo coming into and, to a lesser extent, going out of the country, Moorman said.
“There’s not quite that split in the West, and so that affected us disproportionately on a percentage basis,” he said.
Moorman also cited the company’s metallurgical coal business, which has been affected by cutbacks in steel production, and its automobile franchise, directly affected by the car industry’s problems.
“These are great franchises and, you know, they’ll come back and be great again, but I think we saw some of that disproportionate impact, and that’s why we had a higher-volume decline,” he said.
Looking forward, Donald W. Seale, the railroad’s executive vice president and chief marketing officer, saw some signs of hope. He cited weak but improving automotive volumes, an ongoing ramp-up of the railroad’s ethanol network, more fertilizer traffic and a new fly-ash train, hauling coal waste from Kingston, Tenn., to Alabama for disposal.
“In summary, economic conditions remain unstable and uncertain for the second half of the year, but it does appear we’ve experienced a bottom in the economy,” Seale said.
Moorman agreed.
“We do see a little increased activity in a few of our business segments,” he said, citing the reopening of a couple of domestic steel plants, an uptick in activity with automotive customers such as Ford and Chrysler and improvement in its utility coal shipments.
He added, however, that it’s too early to tell if any of the changes will be sustained.
“While I think it’s too early to tell if these are genuine green shoots or not, we’re at least encouraged that we’re not seeing large parts of the lawn continue to die off,” Moorman told the analysts.