(The following article by Christopher Dinsmore was posted on the Virginian-Pilot website on January 27.)
NEW YORK — Norfolk Southern Corp. outstripped even its own high expectations in 2004 as strong demand for rail transportation pushed it to its best year ever.
The Norfolk-based railroad reported Wednesday that it made $923 million in 2004, up from $535 million in 2003. Per-share earnings rose to $2.31 last year, up from $1.37 in 2003. The 2004 results include a gain of $53 million, or 13 cents a share, for a reorganization of how it accounts for its 1999 purchase of Conrail Inc., while 2003 included some one-time charges.
Click here The railroad’s revenue grew 13 percent to $7.3 billion last year as Norfolk Southern increased traffic in metals, coal and intermodal, which is the shipment of truck trailers and international shipping containers.
“In practically every way, 2004 was a record year for Norfolk Southern,” said David R. Goode, the railroad’s chairman and chief executive officer. “We topped $7 billion in revenue for the first time in our history, and all of our major business sectors set revenue records.”
A strong fourth-quarter performance topped off the year, Goode told rail stock analysts at a meeting at the J.P. Morgan Chase Co. building on Park Avenue in New York City.
The railroad earned $264 million, or 65 cents a share, in the year’s final quarter, up from $52 million, or 13 cents a share, a year earlier.
The 2003 fourth-quarter results were depressed by one-time charges of $119 million, or 30 cents a share, for a management reduction program and the write down of telecommunication assets.
Revenues surged 16 percent to $1.95 billion in the fourth quarter compared with a year earlier.
The results “show what can be done when business conditions coincide with an operating system that is fluid and efficient,” Goode said.
Norfolk Southern operates a 21,500-mile railroad through 22 states, Washington, D.C., and Ontario, Canada. It employs about 28,500 people, including about 1,000 in Hampton Roads.
The quarter and year-end results exceeded the average estimates of analysts who track the company. They had expected Norfolk Southern to earn 62 cents a share in the quarter and $2.15 a share for the year, according to Nelson Information.
“This is a great quarter capping off a great year,” said Tony Hatch, an independent rail stock analyst. “The rail renaissance that I’ve been predicting for years is finally here, and the carriers that have the capacity like Norfolk Southern are benefiting from it.”
Norfolk Southern’s stock fell 63 cents to $34.08 Wednesday in New York Stock Exchange trading.
Historically, Goode has opened the company’s quarterly analyst meetings with a reference to the railroad’s stellar safety record, the industry’s best for 15 years.
But Wednesday, Goode opened by talking about the railroad’s Jan. 6 train wreck in Graniteville, S.C., which spilled chlorine gas into the small mill town, killing nine people, injuring hundreds of others and driving 5,500 people from their homes for a week or more.
“I have expressed, and want to express again, our most profound regrets and apologies to the people of Graniteville,” Goode said.
The railroad is working hard to restore the community, its people and its businesses, and cooperating with authorities on the investigation and the cleanup, he said. Norfolk Southern estimated Monday that the accident would cost it $30 million to $40 million in 2005’s first quarter.
“We will redouble our efforts to ensure the safety of our employees and the communities around us,” Goode added.
Despite Norfolk Southern’s dramatic revenue growth, the railroad was able to manage its operating costs. The railroad reported its best annual operating ratio – its costs expressed as a percent of its revenue – since it divided Conrail’s northeastern rail network with CSX Corp. in 1999. The operating ratio fell to 76.7 in 2004, compared with 81.9 in 2003.
“None of us foresaw the growth we experienced in 2004,” said Charles W. “Wick” Moorman IV, Norfolk Southern’s president.
Moorman attributed the railroad’s revenue growth to the strength of the U.S. industrial economy and ongoing shifts in the global markets for consumer goods and energy. The railroad is seeing more consumer imports from Asia through the East Coast ports it serves and rebounding demand abroad for coal mined in the Appalachians.
“To the extent these trends continue, they bode well for the future strength of our franchise,” Moorman said.
While rate increases accounted for some of the railroad’s revenue growth, volume was the key driver. And the railroad’s 9 percent volume growth was driven by its intermodal, metals and coal markets, which accounted for 95 percent of that gain, said L.I. “Ike” Prillaman, the railroad’s vice chairman and chief marketing officer.
Coal exports through Norfolk and Baltimore surged 35 percent in 2004 and 45 percent in the fourth quarter as the U.S. dollar’s decline and rising shipping rates made U.S. coals the choice for steel production in Europe, Prillaman said.
The railroad’s intermodal volume surged 17 percent for the year and 19 percent in the fourth quarter with across-the-board growth in imports and domestic shipments.
“Intermodal experienced strong volume growth throughout the year driven by an expanding economy, growth in international trade, and constraints in truck capacity,” Prillaman said.
He expects such intermodal growth to continue, thanks to the ongoing shortage of truck drivers and continued growth in Asian imports through East Coast ports.
Norfolk Southern’s weakest market was automotive shipments, which has anchored its revenue growth for years. Auto revenue rose just 2 percent in 2004 and actually fell 1 percent in the fourth quarter as lagging demand prompted Ford and General Motors to cut production, Prillaman said.
However, the railroad’s overall fourth-quarter volume growth has continued into January, Goode said. And while he doesn’t anticipate “the same level of extraordinary growth in 2005,” he is confident Norfolk Southern is prepared for it.