(Reuters circulated the following article by Nick Carey on April 26.)
CHICAGO — Railroad operator Norfolk Southern Corp. on Wednesday said quarterly earnings rose 57 percent on strong pricing and higher volumes, beating Wall Street expectations and sending the company’s stock up more than 3 percent.
U.S. railroads have seen revenue and profits increase in recent years due to rising imports and a trucking industry hurt by high fuel prices and a shortage of drivers. Norfolk Southern said it benefited in the quarter from surging coal demand from utilities in the eastern United States and more U.S. imports.
Like other railroads, Norfolk Southern has worked to improve network speed and boost capacity, resulting in improved efficiency and lower costs. But as demand exceeds supply on the railroads, companies like Norfolk Southern have also been able to hike the prices of transporting goods.
“Norfolk Southern’s results show tremendous pricing power due to tight capacity as the U.S. economy continues to chug along,” said Shawn Campbell, principal at Campbell Asset Management, a Chicago-based fund that holds Norfolk Southern stock in a $30 million fund.
“Unless something happens to slow economic growth, there is no stopping this (company),” he added.
Norfolk Southern reported first-quarter net profit of $305 million, or 72 cents a share, compared with $194 million, or 47 cents a share, a year earlier.
Wall Street analysts were expecting 67 cents per share, according to Reuters Estimates.
Over the past year, transportation analysts have recommended buying railroad stocks as their improving performance dovetails with soaring demand.
RISING RAILROAD STOCKS
Norfolk Southern’s stock has risen more than 50 percent in the past 12 months. Shares in Union Pacific Corp.
Norfolk Southern said it saw strong increases in its coal, general merchandise and intermodal divisions in the first quarter, compared to the year-earlier period. Intermodal uses standardized containers transferable between different modes of transport – ship, truck or train. It is the fastest-growing form of rail transport and reflects rising U.S. imports from developing nations such as China.
The railroad operates about 21,200 miles of track in 22 predominantly eastern states. It is North America’s largest rail carrier of automotive parts and finished vehicles.
Chief Executive Wick Moorman said on a conference call with analysts that he saw no reason for any slowdown in intermodal growth in 2007 or 2008 and beyond.
“It seems to us there has been a permanent change in (U.S.) ground transportation capacity,” he said. “But as our performance is closely aligned with that of the economy, we’ll have to see” how this segment performs in a recession.
The Norfolk, Virginia-based company reported operating revenue of $2.3 billion, up from $1.96 billion in the same quarter in 2005. Wall Street was expecting $2.21 billion.
First-quarter operating ratio, a measure of efficiency, was 76.1 percent, compared with 79.4 percent a year earlier. A decline indicates improvement.
As railroads have seen train speeds and system costs improve, operating ratios have followed suit.
In afternoon trade on the New York Stock Exchange Norfolk Southern shares were up $1.40 at $55.65, down from a high for the day of $56.18.