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Norfolk Southern (NSC) to Post Q4 Earnings: What's in Store?

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Norfolk Southern Corporation (NSC - Free Report) is scheduled to release fourth-quarter 2018 results on Jan 24, after market close.

In the third quarter, the company delivered impressive results, with earnings and revenues beating the Zacks Consensus Estimate. The bottom line was favored by a lower effective tax rate. Also, the top line improved on a year-over-year basis.

Norfolk Southern has an impressive earnings surprise history. The company’s earnings beat estimates in each of the trailing four quarters, the average being 7.2%.

Factors at Play

Norfolk Southern is expected to perform well in the fourth quarter on the back of volume growth. Notably, the Zacks Consensus Estimate for carload volumes in the fourth quarter reflects a rise of approximately 3.7% year over year. The current tax law, which reduces corporate tax rate significantly, is expected to drive the bottom line in the to-be-reported quarter. Moreover, the cost-cutting efforts undertaken by the company are also expected to boost the bottom line.

Furthermore, consistent strength in the company’s Coal, Merchandise and Intermodal segments are expected to boost top-line results in the fourth quarter. The Zacks Consensus Estimate for fourth-quarter coal revenues is pegged at $446 million, indicating a rise from $426 million in the prior-year quarter. The consensus mark for intermodal revenues is pegged at $762 million, indicating a rise from $667 million in the year-ago quarter. Additionally, operating ratio (operating expenses as a percentage of revenues) is likely to improve on the back of higher revenues and cost-cutting efforts in the soon-to-be reported quarter.

However, disappointing performance in the automotive division is likely to dent top-line results in the fourth quarter. Escalating operating expenses related to overall lower network velocity is expected to raise operating expenses and hurt the bottom line in the to-be-reported quarter.

Additionally, we are also concerned about the company’s high debt levels.

Earning Whispers

Our proven model does not indicate earnings beat for Norfolk Southern this quarter. This is because a stock needs to have a positive Earnings ESP and a 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 Rank: Norfolk Southern carries a Zacks Rank #3.

Earnings ESP: Norfolk Southern has an Earnings ESP of -0.66%. The Most Accurate Estimate is at $2.29 per share, lower than the Zacks Consensus Estimate of $2.30. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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 Zacks Transportation sector may check other companies with the right combination of elements to beat estimates in the upcoming releases:

SkyWest, Inc. (SKYW - Free Report) has an Earnings ESP of +2.77% and a Zacks Rank #1.  The company will release fourth-quarter 2018 results on Jan 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alaska Air Group, Inc. (ALK - Free Report) has an Earnings ESP of +2.23% and a Zacks Rank #2. The company will release fourth-quarter 2018 results on Jan 24.

Southwest Airlines Co. (LUV - Free Report) has an Earnings ESP of +3.40% and a Zacks Rank #3.  The company will release fourth-quarter 2018 results on Jan 24.

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