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Norfolk Southern (NSC) Q3 Earnings & Sales Beat Estimates

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Leading U.S. railroad operator Norfolk Southern Corp. (NSC - Free Report) reported third-quarter 2016 earnings of $1.55 per share that beat the Zacks Consensus Estimate of $1.45. Lower costs contributed to the earnings beat. The bottom line, however, declined 1.3% year over year.

Operating revenues of $2,524 million edged past the Zacks Consensus Estimate of $2,521 million. Revenues declined 7% year over year owing to persistent coal-related headwinds.

Income from railway operations declined marginally to $820 million. Operating expenses decreased 9.9% year over year to $1,704 million. The company’s operating ratio was 67.5% in the reported quarter as against 69.7% in the prior-year period. The ratio was 68.7% in the first nine months of the year.

Segments

On a year-over-year basis, coal revenues declined 17.6% to $397 million. Above-average stockpiles, coupled with soft natural gas prices, resulted in a 15% decline in volumes.

Merchandise revenues dipped 3.6% year over year to $1,552 million, while volumes declined 4%. The chemicals sub-group was the worst performer with revenues decreased 10%. Revenues remained flat at agriculture, inched up 2% at Metals/construction, fell 4% at Automotive and declined 6% at paper/forest.

Intermodal revenues deteriorated 7% year over year to $575 million. Volumes declined 1%.

NORFOLK SOUTHRN Price, Consensus and EPS Surprise

 

NORFOLK SOUTHRN Price, Consensus and EPS Surprise | NORFOLK SOUTHRN Quote

Cash Position

NorfolkSouthern exited the third quarter with cash and cash equivalents of $984 million compared with $1,101 million at the end of 2015. The company had long-term debt of $9,555 million as against $9,393 million at end-2015.

Our Take

We are concerned about the lackluster performance by the company’s coal segment. However, the company’s aim to achieve productivity savings of approximately $250 million and an operating ratio of below 70% in the current year is encouraging. We note that other companies from the railroad space like Union Pacific Corporation (UNP - Free Report) and Kansas City Southern are also suffering from coal-related woes.

Zacks Rank & A Stock to Consider

NorfolkSouthern has a Zacks Rank #3 (Hold). A better-ranked stock in the transportation space is Copa Holdings (CPA - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

For 2016, the Zacks Consensus Estimate for Copa Holdings has climbed 12 cents to $4.57 per share over the last two months.

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