Norfolk Southern Keeps on Chugging in Second-Quarter 2012, Despite Continued Decline in Coal Revenues

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading North American railroad company Norfolk Southern Corporation (NYSE:NSC) (Norfolk, Virginia) saw mostly positive results in the second quarter of 2012, despite an expected decline in coal-related revenues. Executives cited strong operational efficiency as a driving factor in the gains. Net income for the quarter was reported to be $934 million, a 5.9% increase from second-quarter 2011.

Total revenues stood at $2.87 billion, a 0.28% increase from the same period last year. The Coal segment saw a 21% decline in utility-related business, which was somewhat offset by a 6% increase in the international business. Overall, coal volumes were down 12%. The General Merchandise segment benefited from solid business in activity related to the automotive steel, metal, construction and chemical industries, although the paper-related business recorded a decline. The company saw slightly lower operating expenses when compared with the same quarter last year, due to cost declines for fuel, materials, purchased and rented services, and compensation.

Declines in the domestic coal-related business have been seen in other railroad companies and were mostly expected because utility coal has taken a hit from competition from natural gas. For more information, see July 25, 2012, article - Union Pacific Sees Shale Energy Products Trend Up, Coal Trend Down.

"The overall improvement was led by the automotive [-related business] as well as domestic intermodal," said Wick Moorman, the chief executive officer of Norfolk Southern, in a conference call. The automotive business led volumes gains, while the Intermodal segment reported double-digit percentage gains in the domestic market segment.

Industrial Info is tracking about $700 million in active projects involving Norfolk Southern, including the $105 million construction of an intermodal terminal in Rossville, Tennessee, and the $95 million construction of another in Greencastle, Pennsylvania. The Rossville terminal will be built to handle 327,000 containers and trailers annually on a 570-acre site, while the Greencastle terminal will be built to handle more than 85,000 containers and trailers annually on a 200-acre site. The projects are to be completed in October 2012 and May 2013, respectively.

The Coal segment was the only one to see a decline in revenues when compared with the same period last year:

• The Coal segment reported $755 million in revenues, a 15.45% decrease from second-quarter 2011.
• The General Merchandise segment reported $1.56 billion in revenues, an 8.58% increase from the same period last year.
• The Intermodal segment reported $563 million in revenues, a 4.26% increase from second-quarter 2011.

Norfolk Southern executives expect the company to benefit from the July 1 opening of a new terminal in Memphis, Tennessee, as well as from projected growth in crude oil-related and plastics-related demand. Materials for natural gas-drilling operations also are expected to see a jump in demand, while automotive steel production is expected to continue its growth. However, the Coal segment is not expected to see any substantial gains.

"We expect utility coal volumes to continue to be negatively impacted by high stockpiles, and the overall market demand for utility coal will be affected," said Donald Seale, the executive vice president and chief operating officer of Norfolk Southern, in the conference call. Although opportunities still exist in the Asian market, European demand for metallurgical and steam coal is expected to remain weak in the near future.

Moorman said the outlook for export metallurgical coal is positive in the long run, and that near-term growth is expected in the domestic metallurgical market to support steel production.

For more information, visit Industrial Info's North American Industrial Manufacturing Project Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.