Norfolk Southern Railroad Reports 16% Jump in Third-Quarter Profits

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Researched by Industrial Info Resources (Sugar Land, Texas)--Norfolk Southern Corporation (NYSE:NSC) (Norfolk, Virginia) reported Wednesday that the eastern U.S. railway saw third-quarter net income of $559 million, a 16% increase over the same quarter last year. The company, which operates in 22 eastern states, reported third-quarter operating revenue increased 7% to $3 billion. Merchandise and intermodal traffic offset a weaker coal market, according to the railway.

Industrial Info is tracking 59 Norfolk Southern projects worth $1.73 billion. With a total investment value of $92 million, the Greencastle 2015 Freight Rail State-Wide Network Upgrade/Rehabilitation Program in Pennsylvania is Norfolk Southern's most expensive project. The railway was defining the scope of the work, which would involve upgrades, modifications and rehabilitation across 2,281 miles of track. The kickoff is proposed for first-quarter 2015, with completion in the fourth quarter of that year.

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Norfolk Southern reported revenue hikes ranging from 3% to 14% from intermodal, chemicals, metals/construction, agriculture, automotive and paper and forest shipments.

Coal revenue, however, totaled $626 million, down 2% from third-quarter 2013.

Executive Vice President and Chief Marketing Officer Donald Seale said during the company's earnings conference call that looking forward, the railway expects to see continued earnings growth in its intermodal and merchandise market segments, with the exception of coal, which faces "challenging and uncertain conditions."

He continued: "So far this year, utility coal shipments have been higher than expected due to elevated natural gas prices and the need to replenish stockpiles." But the impact of milder weather and lower natural gas prices are now reversing some of that positive trend.

"On the plus side, we estimate that stockpiles of our utilities remain 19% below December 2013 levels, going into the winter heating season, so the wild card is what kind of winter demand lies ahead."

Executive Vice President and Chief Operating Officer Mark Manion outlined a handful of key projects in the upper Midwest and Chicago areas that have recently been completed or are nearing completion. He said the most important one was the $160 million terminal expansion in Bellevue, Ohio, which will double the facility's capacity. The project will be completed in December, and operations there will ramp up during first-quarter 2015, he said. The project will add 38 new tracks, according to Norfolk Southern.

Industrial Info is tracking four Norfolk Southern projects in Ohio with a combined value of $219 million.

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Manion also outlined projects in the Chicago area that are meant to improve the railway's flexibility and its ability to divert traffic in times of bad weather.

Industrial Info is tracking four Norfolk Southern projects in the Chicago area, with a combined worth of $106 million.

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Norfolk Southern executives said during the conference call that the company was still working to alleviate service issues including railroad operating velocities.

Chief Executive Officer Wick Foreman said service levels "were considerably reduced year over year as we continue to be challenged by demand in excess of our forecasts for the year."

Manion said the railway has agreed to buy 150 new locomotives, with deliveries of 90 of them through the end of the year and 60 more in early 2015. Company executives said the railway was hiring and training hundred new workers to improve service.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, 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.