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Leading U.S. railroad company, Norfolk Southern Corp. (NSC - Analyst Report) reported third quarter 2013 earnings of $1.53 per share, handily beating the Zacks Consensus Estimate of $1.39. The bottom line rose 23.4% from $1.24 earned in the year-ago quarter.

Strong performance by the company’s chemical, metal and construction, intermodal and automobile business coupled with higher productivity led to the impressive showing. Shareholders reacted positively to the news as the stock price gained 6.77% in Wednesday trade on Nasdaq.

Total operating revenue was up 4.9% year over year at $2,824 million, which also beat the Zacks Consensus Estimate of $2,769 million.

Operating income was $849 million, up 16.1% year over year. Operating expenses increased 8.0% year over year to $1,975 million, resulting in an operating ratio of 69.9%.


On a year-over-year basis, Coal revenues declined 8.6% to $641 million owing to lower average revenue per unit and a 2% decline in volumes.

General Merchandise revenues grew 10.7% year over year to $1,578 million on 6% growth in shipments.

Intermodal revenues grew 6.7% year over year to $605 million owing to 5% volume expansion.

Cash Position

Norfolk exited the third quarter with cash and cash equivalents of $984 million compared with $653 million at the end of 2012. The company had long-term debt of $8,499 million compared with $8,432 million at year-end 2012.

Our Analysis

We believe Norfolk is poised to benefit from strong pricing momentum on the back of abundant opportunities within the transportation business sector. Growing market share of its Intermodal segment and an improving Merchandize segment coupled with recovery in the construction and agriculture market will likely support the company’s efforts to generate better revenues in the coming quarters.

However, we remain concerned about the lackluster performance of the Coal segment. 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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