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What's in Store for Norfolk Southern (NSC) in Q1 Earnings?

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Norfolk Southern Corporation (NSC - Free Report) is scheduled to report first-quarter 2018 results on Apr 25, before the market opens.

In the fourth quarter of 2017, the company delivered a positive earnings surprise of 8.3%. Moreover, an encouraging earnings history shows the stock having surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average beat of 7.2%.

However, the scenario pertaining to this to-be-reported quarter does not appear too bright and this can further be gauged from the stock’s southbound estimate revision. The consensus mark for earnings has been revised 2.7% downward in the last 30 days.

Factors at Play

Sluggish coal and automotive revenues are expected to hurt the top line in the first quarter. Notably, at the J.P. Morgan Aviation, Transportation and Industrials conference, the company stated that automotive and coal volumes declined 7% and 6%, respectively, as of Mar 10. Automotive weakness is thus anticipated to hurt the broader merchandise segment.

The Zacks Consensus Estimate for first-quarter coal revenues is pegged at $401 million, lower than $426 million reported in the previous quarter. The consensus mark for automotive in the quarter to be reported stands at $236 million, also falling below the past quarter’s $242 million.

Additionally, the company’s high-debt levels raise concerns. Apart from a rise in the immediate finance costs, the high leverage ratio will require significant cash flows for repayments.

However, higher volumes are expected to aid results. We expect the intermodal unit to perform impressively in the first quarter of 2018.

The company’s cost-cutting efforts are also projected to generate significant cost savings, thereby boosting the bottom line in the soon-to-be-reported quarter.

The company’s initiatives to reward shareholders through dividends and share buybacks are also encouraging. In January, the company raised its quarterly dividend to 72 cents per share (annualized $2.88) from 61 cents (annualized $2.44).

Earnings Whispers

Our proven model does not conclusively show that Norfolk Southern is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Zacks ESP: Norfolk Southern has an Earnings ESP of -0.50% as the Most Accurate estimate stands at $1.76 per share, lower than the Zacks Consensus Estimate of $1.77. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Norfolk Southern carries a Zacks Rank #3, which increases the predictive power of ESP. However, combined with the company’s negative ESP leaves surprise prediction inconclusive.

We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.


Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like American Airlines Group Inc. (AAL - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) as these possess the right combination of elements to deliver an earnings beat this time around.

American Airlines has an Earnings ESP of +3.35% and a Zacks Rank of 3. The company is scheduled to announce first-quarter results on Apr 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

JetBlue Airways is a #3 Ranked player and has an Earnings ESP of +1.02%. The company is slated to release first-quarter numbers on Apr 24.

Expeditors is a #3 Ranked player and has an Earnings ESP of +2.09%. The company will report first-quarter earnings figures on May 8.

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