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Leading U.S. railroad Company Norfolk Southern Corp. (NSC - Analyst Report) reported second quarter 2013 earnings of $1.46 per share, missing the Zacks Consensus Estimate of $1.50. The bottom line fell 8.8% from $1.60 earned in the year-ago quarter.

Total operating revenue was down 2.5% year over year at $2,802 million, which also failed to meet the Zacks Consensus Estimate of $2,842 million. On a year-over-year basis, Coal revenues declined 17.0%, while General Merchandise and Intermodal revenues grew 2% and 4%, respectively.

Operating income was $836 million, down 10% year over year. Operating expenses rose 1.3% year over year to $1,966 million, resulting in an operating ratio of 70.2%.

Cash Position

Norfolk exited the second quarter with cash and cash equivalents of $587 million compared with $356 million in the year-ago quarter. The company had long-term debt of $8,430 million compared with $8,432 million at year-end 2012.

Dividend

The company increased its quarterly dividend payment by 4% to 52 cents per share. The increased dividend will be paid on Sep 10 to stockholders of record on Aug 2.

Our Analysis

We believe the company is poised to benefit from strong pricing momentum on the back of growing market demand and shortage in truckload transportation. We expect pricing improvements at Norfolk together with productivity gains to push the profitability level higher.

However, we remain concerned about factors such as the prevailing market condition in the core segment like Coal and uncertainties in the present economic environment that would likely affect shipment. Further, tightened railroad regulation and competitive pressure also remain significant headwinds to the company’s growth.

Norfolk, which operates with the likes of Union Pacific Corporation (UNP - Analyst Report), CSX Corp. (CSX - Analyst Report), and Kansas City Southern (KSU - Analyst Report) carries a Zacks Rank #3 (Hold).

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