Norfolk Southern Rises as Profit Tops Estimates on Volumes

Jan 22, 2014 4:47 pm ET

(Updates with closing share prices in second paragraph and CEO comment in ninth paragraph.)

Jan. 22 (Bloomberg) -- Norfolk Southern Corp. gained the most in almost three months after beating analysts’ estimates as the second-largest U.S. eastern railroad hauled more chemicals, autos and agricultural products.

Fourth-quarter net income rose 24 percent to $513 million, or $1.64 a share, topping the $1.51 average estimate of 25 analysts surveyed by Bloomberg. The shares climbed 4.8 percent to $92.94 in New York, the biggest increase since October.

Increases in so-called general merchandise shipping helped Norfolk, Virginia-based Norfolk Southern offset a drop in coal volumes as utilities switch to cheaper natural gas. CSX Corp., the biggest carrier in the eastern U.S., posted a profit last week that trailed analysts’ estimates for the first time in two years as coal shipments slumped.

Norfolk Southern “was able to achieve record results despite headwind from coal,” Anthony Gallo, an analyst at Wells Fargo & Co., wrote in a note to investors. He rates the stock market perform.

Coal revenue at Norfolk Southern fell 2.4 percent to $641 million, as carloads declined 8 percent, the company said in a statement. Coal accounted for 26 percent of the company’s revenue in 2012.

Intermodal Improvements

Intermodal transportation, which includes shipping by truck, rail or ship, grew 5.8 percent to $618 million, Norfolk Southern said.

Better on-time rail service and highway congestion that places more regulation on trucks make intermodal transportation a growing business segment, said Mark Levin, an analyst at BB&T Capital Markets in Richmond, Virginia, who rates the shares hold.

“The reality is that rail service has improved immensely so that customers are much more comfortable shipping by rail than they ever had been before,” Levin said.

Norfolk Southern has been aggressive in developing new business as the markets have shifted from coal to natural gas and crude oil, Chief Executive Officer Wick Moorman said in a phone interview.

“As we’ve seen the energy markets emerge, we’ve tried to be very nimble to move to address them,” he said.

Norfolk Southern’s 21 percent increase in chemical revenue is likely to continue to help the company in the future, said Logan Purk, an analyst with Edwards Jones & Co.

“If the oil boom continues, this can lead to growth through the rails,” he said.

Total railway operating revenue increased 7.5 percent to $2.88 billion, beating the average estimate from 20 analysts of $2.84 billion. The railroad’s operating ratio, an industry measure of efficiency comparing expenses to revenue improved 5 percent to 69.4 percent.

--Editors: Molly Schuetz, Stephen West