(The following story by Gregory Richards appeared on The Virginian-Pilot website on January 24.)
NORFOLK, Va. — Norfolk Southern Corp.’s stock jumped Wednesday after railroad officials said it expects to increase both its revenue and freight volumes this year, despite “soft” economic conditions.
The Norfolk-based company’s stock climbed 9.6 percent Wednesday to close at $ 49.41 a share, after it reported strong fourth-quarter results Tuesday after the markets closed.
The cargo growth is anticipated to come from additional shipments of coal and ethanol and more international freight moving through Hampton Roads and other East Coast ports, said Wick Moorman, Norfolk Southern’s chairman and chief executive, at a meeting with Wall Street analysts in New York that was broadcast on a conference call.
The pick up “comes on throughout the year,” Moorman said.
“It’s not really tied to any kind of economic forecast that has a much rosier second half of the year,” he said. “The economy will look like it has for a while.”
Norfolk Southern, the fourth-largest U.S. railroad, also expects to continue raising prices this year. The company believes it can push shipping rates up an average of 4 percent as it continues to make service improvements, said Donald W. Seale, the railroad’s chief marketing officer.
On Tuesday, Norfolk Southern said its quarterly profit was $399 million, 3.6 percent higher than the October-to-December period in 2006. Operating revenue for the quarter was $2.5 billion, up 5.8 percent from a year earlier. All three of the company’s business segments – coal, general merchandise and intermodal, which refers to shipments of cargo containers and truck trailers – posted gains.
Edward M. Wolfe, a transportation analyst with Bear, Stearns & Co., issued a report Wednesday that said Norfolk Southern’s fourth-quarter performance was “surprisingly strong.” Wolfe said Norfolk Southern’s fourth-quarter results gave him “increased conviction” that the railroad can increase earnings even without higher cargo volumes. He said Norfolk Southern remains the firm’s “top rail pick.”
Despite a 4.2 percent drop in intermodal shipments last year, Norfolk Southern anticipates growth in intermodal shipments of international cargo because of changes in the global maritime industry. The railroad, with tracks running through 22 Eastern states, is benefit ing as more cargo is being shipped through East Coast, rather than West Coast, ports. The shift is being driven in part by congestion at West Coast ports, concerns about labor strife at those ports, and high railroad rates for shipping goods across the country.
Five years ago, 20 percent of Norfolk Southern’s international container traffic moved through East Coast ports, Seale said. The rest arrived on the West Coast, with Norfolk Southern carrying it for a portion of the trip to eastern destinations.
At the end of 2007, half of the railroad’s import container business arrived via the East Coast, he said.
In the fourth quarter of last year, international intermodal shipments through East Coast ports grew 23 percent, while volumes moving from the West Coast fell 13 percent, Seale said.
“The shift is now, and it’s happening and it will continue to happen in our view,” Seale said.
Norfolk Southern projects steady growth in intermodal volume from Hampton Roads for the next few years as more shipping lines come to the port, Moorman said. The growth is being pushed by the opening of APM Terminals’ new port facility in Portsmouth and construction of the Heartland Corridor, a railroad project to speed double-stacked container shipments between Hampton Roads and the Midwest.
Also Wednesday, Norfolk Southern announced it would invest $1.43 billion this year on such capital improvements as maintaining its track and buying more rail cars. That’s an increase of 6 percent from 2 007 expenditures, said Debbie H. Butler, Norfolk Southern’s executive vice president of planning.
About 71 percent of the 2008 capital spending will go to maintenance, such as repairing and replacing track and bridges, she said.
The largest expenditures include:
– $613 million for track maintenance.
– $339 million for infrastructure projects that increase capacity, such as the Heartland Corridor.
– $145 million for new freight cars.