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Norfolk Southern Corp. (NSC - Analyst Report) reported first quarter 2014 adjusted earnings of $1.17 per share that surpassed the Zacks Consensus Estimate of $1.14 but deteriorated from $1.22 earned in the year-ago quarter.

Total operating revenue was down 2% year over year at $2.7 billion but came in line with Zacks Consensus Estimate. Carloads decreased 1% year over year.

On a year-over-year basis, Coal revenues fell 15% while General Merchandise and Intermodal revenues grew 1.4% and 4.0%, respectively.

Operating income was $667 million, down 3% year over year. Operating expenses remained unchanged year over year at $2 billion, resulting in an operating ratio of 75.2%.

Cash Position

Norfolk exited the first quarter with cash and cash equivalents of $1,522 million compared with $1,443 million at year-end 2013. The company had long-term debt (including current portion) of $8,909 million, representing debt-to-capitalization ratio of 73.9%.

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 along with recovery in the construction and agriculture market will likely support the company's efforts to generate even better revenues in the coming quarters.

However, we remain concerned about the weak performance of the Coal segment. Further, tightened railroad regulation and competitive pressure from peers like CSX Corp. (CSX - Analyst Report) remain significant headwinds to the company's growth.

Norfolk Southern currently carries a Zacks Rank #3 (Hold).

Other Stocks

Better-ranked stocks in this sector include Kansas City Southern (KSU - Analyst Report) and Union Pacific Corp. (UNP - Analyst Report), both carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on NSC
Read the Full Research Report on KSU
Read the Full Research Report on CSX
Read the Full Research Report on UNP

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