(The following story by Gregory Richards appeared on The Virginian-Pilot website on October 10.)
NORFOLK, Va. — Norfolk Southern Corp. warned Tuesday that its third- quarter earnings per share likely will be 97 cents, about 5 percent below what it earned in the same quarter in 2006.
The Norfolk-based railroad, the country’s fourth-largest, attributed the expected drop to higher taxes and oil prices.
Norfolk Southern will announce earnings for the July-to-September period Oct. 24. Wall Street analysts expected net income of $1.05 per share, the average of estimates compiled by Thomson Financial.
The higher taxes stem from legislation enacted in Illinois in the third quarter that modifies how transportation companies report taxable income to that state, according to Norfolk Southern. The change is expected to lower third-quarter net income by about $19 million, or 5 cents per share.
With higher crude oil prices, the railroad estimates that its synthetic-fuel-related investments will provide reduced benefits. For several years it has been investing in companies that convert coal into such products as diesel and jet fuel to gain federal tax credits.
In the third quarter, Norfolk Southern expects its synthetic-fuel investments to boost its bottom line by roughly $7 million, or 2 cents per share. That is about $11 million, or 3 cents per share, less than previously projected based on second-quarter crude oil prices, it said.
Wall Street shrugged off the news. Norfolk Southern’s stock rose $1.08 to close at $54.03 Tuesday on the New York Stock Exchange.
Anthony B. Hatch, an independent railroad analyst in New York, said he does not see Tuesday’s announcement having any long-term effect on the railroad. What’s key is Norfolk Southern’s ongoing railroad operations, and those appear “just fine,” he said, citing improving operations and good pricing despite “somewhat sluggish” traffic.
The higher Illinois tax rate will probably affect other railroads, Hatch said. However, Norfolk Southern is the only railroad with large investments in synthetic fuels, he said.
It isn’t clear if declines in railroad freight shipments also are impacting Norfolk Southern’s third-quarter finances. With a slowing economy, U.S. rail shipments were down 3.2 percent in the first nine months of the year, according to the Association of American Railroads. Company spokeswoman Susan Terpay said she could not comment beyond the news release.
Tuesday’s announcement was Norfolk Southern’s second earnings warning of the year. In April, it said slumping freight volumes and reduced property sale income would lower first-quarter earnings per share.