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Norfolk Southern Corp. (NSC - Analyst Report), one of the leading U.S. railroad companies, reported quarterly adjusted earnings of $1.22 per share, surpassing the Zacks Consensus Estimate of $1.17. However, the bottom line fell 0.8% from earnings of $1.23 in the year-ago quarter. Adjusted earnings in the reported quarter excluded a favorable impact of 19 cents related to a gain from the sale of land.

Total operating revenue was down 1.8% year over year at $2,738 million and failed to meet the Zacks Consensus Estimate of $2,772 million. On a year-over-year basis, Coal revenues declined 17.0%, while General Merchandise and Intermodal revenues grew 2.3% and 8.7%, respectively.

In the first quarter, operating income was $691 million, down 7.2% year over year. Operating expenses remained flat year over year at $2,047 million, resulting in an operating ratio of 74.8%.

Cash Position

Norfolk exited the quarter with cash and cash equivalents of $672 million compared with $829 million in the year-ago quarter. The company had long-term debt (including current portion) of $8,438 million compared with $8,432 million in 2012.


The company’s board of directors approved a quarterly cash dividend of 50 cents to shareholders of record on May 3, payable on Jun 10.

Our Analysis

We believe the company is poised to benefit from strong pricing momentum on the back of growing market demand and shortage in truckload transportation. We expect pricing improvements at Norfolk together with productivity gains to push the profitability level higher.

However, we remain concerned about factors such as the prevailing market condition in the core segment like Coal and uncertainties in the present economic environment that would likely affect shipment. 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, implying a short-term Hold rating.

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