(The Virginian-Pilot posted the following story on its website on October 30.)
NORFOLK, Va. — With revenues and expenses flat, Norfolk Southern Corp. still boosted earnings 9 percent in the third quarter.
The nation’s fourth-largest railroad, headquartered in Norfolk, announced Wednesday that it earned $137 million, or 35 cents per share, in the quarter ended Sept. 30 for its best quarterly result since it broke up Conrail Inc. with CSX Corp. in 1999.
That compares to earnings of $126 million, or 32 cents per share, in third quarter 2002. It’s also a penny more than the mean estimate of 14 analysts surveyed by Nelson Information.
The earnings gain came despite no increase in revenue — $1.6 billion — or change in operating expenses — $1.3 billion — between the third quarters of 2003 and 2002.
“We produced those results in spite of stubborn economic slowness throughout the quarter,” said David R. Goode, Norfolk Southern’s chairman, president and chief executive officer.
The railroad’s stock rose 87 cents to $19.37 a share in Wednesday trading on the New York Stock Exchange.
“All in all, it was an OK quarter,” said Kirk Schmitt, an analyst for Victory Capital Management, which owns 2.2 million Norfolk Southern shares.
The earnings gain came from a $3 million reduction in interest expense and $8 million in other income, including a gain from corporate-owned life insurance and lower fees related to the sale of accounts receivable.
Henry C. Wolf, the railroad’s vice chairman and chief financial officer, also credited a favorable tax ruling earlier this year that lowered the railroad’s effective income tax rate to 31.5 percent from 33.3 percent in 2002’s third quarter.
Wolf and Goode discussed the results at an analysts’ meeting in New York on Wednesday.
For the first nine months of the year, Norfolk Southern earned $483 million, or $1.24 a share, including $120 million, or 32 cents per share, in one-time gains recorded in the first quarter. That’s up from $331 million, or 85 cents per share, in the comparable period last year.
Revenue through the three quarters was up 2.2 percent to $4.8 billion compared to last year.
While the railroad’s revenue was flat, there were fluctuations in the revenue stream, and traffic volume even dropped 1 percent.
Merchandise revenues slipped $6 million, driven by a $26 million, or 11 percent, drop in automotive revenue as domestic vehicle production fell and plants closed to retool for the new model year.
The automotive decline was only partially offset by gains in agricultural, paper and chemical shipment revenue.
The drop in merchandise revenues was offset by a $5 million gain on intermodal revenue and a $1 million increase in coal revenue.
The gain in coal revenue came from an unlikely source that is linked to Norfolk.
“A 40 percent increase in export volume was the primary driver in the improvement for the quarter,” said Donald W. Seale, Norfolk Southern?s senior vice president-merchandise marketing.
The railroad’s coal export volume rose to 2.8 million tons in the third quarter, up from 2 million tons a year ago, thanks to the dollar’s decline against international currencies and a sharp rise in bulk ocean shipping rates.
Those factors have begun to make U.S. coal competitive again with coals from Australia and South Africa. This might be the first sign of a turnaround in the export coal business since the current decline began in the mid-1990s.
“There is considerable opportunity there,” Goode said of the export market. “There are some challenges getting a supply of U.S. coal to meet that market.”
Much of Norfolk Southern’s export coal is shipped through the railroad’s terminal at Lamberts Point in Norfolk.
The railroad’s intermodal business, which involves the transport of truck trailers and international shipping containers, achieved its best quarter ever in terms of volume and revenue, Seale said.
The railroad’s operating performance continued to improve in the third quarter.
For example, on-time performance improved to 88 percent in the third quarter, 3 percentage points better than a year earlier, Goode said.
Looking ahead, Goode said, the railroad is seeing gains in almost every category of traffic in October. Still, he was cautious in ascribing the gains to a full-fledged economic recovery.
“We are seeing some good signs,” Goode said. “I remain reasonably optimistic. I can’t say we have yet seen a strong recovery in the industrial sector.”
(Bloomberg News contributed to this report.)