(The Virginian-Pilot posted the following article on its website on July 28.)
NORFOLK, Va. — Topping the best estimates of Wall Street, Norfolk Southern Corp. reported second-quarter net income of $424 million, or $1.04 per diluted share, on Wednesday, helped by increased rates, higher shipments of coal, chemicals and consumer goods, and a tax-law change in Ohio.
That’s nearly double the $213 million, or 54 cents per diluted share, the Norfolk-based railroad earned in the same quarter last year. Revenue surged 19 percent to $2.15 billion from $1.81 billion, including a 36 percent rise in coal revenue boosted in part by the settlement of two rate cases.
“Norfolk Southern not only met but also exceeded expectations – even our own ,” said David R. Goode, chairman and chief executive officer. “There’s no getting around that this was a great quarter for our company.”
Norfolk Southern’s second-quarter income was bolstered by two one-time items. The settlement of coal rate cases with Duke Energy Corp. and Progress Energy Inc. added $24 million, or 6 cents per share. The Ohio tax-law change tacked $96 million, or 23 cents per share, to its income.
Without those items, profit at the nation’s fourth-largest railroad would have been $304 million, or 75 cents per share. The company was expected to earn 65 cents per share, the average of nine analysts surveyed by Thomson Financial.
“All the railroads have had reasonably optimistic economic outlooks,” said New York-based independent rail analyst Tony Hatch. “Norfolk was able to capitalize on an unprecedented time by gaining volume, market share and raising rates.”
The company’s shares jumped $1.57 to $36.10 in New York Stock Exchange trading.
Norfolk Southern’s rival in the eastern United States, CSX Corp., also reported its second-quarter results Wednesday.
Based in Jacksonville, Fla., CSX said it made $165 million, or 73 cents per share, in the quarter ended June 30, up 38 percent from $119 million, or 53 cents per share , a year ago. Excluding one-time expenses and benefits, earnings were 96 cents per share, above the average estimate of 81 cents reported by Thomson Financial.
CSX’s revenues at its core surface transportation business were $2.17 billion, up about 8 percent from $2 billion a year earlier.
Both railroads said the increased transportation revenues for coal, which is used to fuel power plants and to make steel, and products such as construction materials offset rising diesel and labor costs.
Norfolk Southern’s 36 percent increase in coal revenue came despite an 11 percent drop in carloads of export coal, which it ships through terminals in Norfolk and Baltimore.
The drop in exports did not reflect a decline in demand but was the result of a temporary closure of Consol Energy Inc.’s Buchanan Mine in southwestern Virginia, said L.I. “Ike” Prillaman, Norfolk Southern’s vice chairman and chief marketing officer.
That mine, which ships a lot of coal to European steel producers through the railroad’s Lamberts Point terminal in Norfolk, closed after a February fire and did not reopen until mid-June.
The railroad also saw an 18 percent increase in intermodal revenue in the quarter. Intermodal refers to the shipment of truck trailers and the trailer-sized international shipping containers.
The revenue growth was generated partly by rate increases and 8 percent volume growth, driven by a 14 percent increase in international shipments of containers to and from ports. Norfolk Southern has benefitted along with the port of Hampton Roads from shippers shifting cargo away from congested West Coast ports.
For the first half of 2005, Norfolk Southern has earned $618 million, or $1.51 per diluted share, including several one-time gains and charges, on $4.1 billion in revenue. That’s up from $371 million, or 94 cents per diluted share, of income on revenue of $3.5 billion in the first six months of 2004.
Railroad executives expressed optimism for the remainder of the year.
“The recent forecast for continued economic growth and positive reports about the rebound of the manufacturing economy, as well as the projected 10 percent growth in international trade is encouraging for the second half of 2005,” Prillaman said.