NS Net Profit Up 23% in 2nd Quarter

Norfolk Southern said this week that its second quarter 2017 net profit was up 23 percent and revenue had risen by 7 percent to $2.6 billion.

The railroad said traffic and revenue growth combined with productivity gains enabled it to achieve a record operating ratio of 66.3 percent. That compared with 68.6 percent during the same period in 2016.

Citing gains in coal and intermodal traffic, NS said it posted a 6 percent increase in volume. Income from operations was up 15 percent, to $888 million.

Intermodal traffic increased by 6 percent overall during the quarter with domestic business up 6 percent due to highway conversions and new service offerings.

International intermodal business rose 5 percent due partly to a 13 percent increase in volume from East Coast ports.

The company said it continues to see international volume shift from West Coast ports to the East Coast as a result of the expanded Panama Canal.

Coal traffic was up 27 percent with utility and export metallurgical coal both posting increases in traffic. Some of the traffic came from a 23 percent rise due to lower utility stockpiles and higher natural gas prices.

Export coal volume skyrocketed by 78 percent due to constrained Australian supply and increased steel making in China.

Merchandise traffic was flat with metals and construction the only categories seeing increases. There were declines in chemicals, automotive, agriculture, paper, clay and forest traffic.

NS reported earnings per share of $1.71, which beat the forecast of Wall Street analysts of $1.65 per share, according to Thomson Reuters I/B/E/S.

“Norfolk Southern’s strong financial results and all-time record operating ratio reflect the power of our team, successful execution of our dynamic plan, and focus on operating even more efficiently while providing high quality service to customers,” CEO Jim Squires during an earnings call.

NS Chief Marketing Officer Alan Shaw said the railroad has seen some traffic come its way from CSX, but it is a small amount. Trucks remain the chief competitor of NS, Shaw said.

Some key operating metrics suffered during the quarter due in part to flooding near the Cincinnati terminal and on its line linking Louisville, Kentucky.  There was also flooding near Kansas City and operating issues related to fires in northern Florida.

Average train speed decreased, while terminal dwell grew. “We’ve turned the corner on that,” Squires said. Train speed has increased 10 percent and terminal dwell bounced back to previous levels.

NS expects to achieve $100 million in productivity gains in 2017. It has retired 100 locomotives and cut the work force by 10 percent compared with 2015.

Chief Operating Officer Mike Wheeler said NS set quarterly marks for locomotive productivity, fuel efficiency, and train length,

In looking toward the rest of 2017, NS management expects continued growth in intermodal and coal traffic while merchandise traffic is likely to decline slightly due in part to slowing auto production and assembly plant downtime.
NS plans to increase its share buyback program by 25 percent to $1 billion for the year.

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