Norfolk Southern Reaches End of 2012 Line with Strong Intermodal, Declining Coal Businesses

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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, as the company benefited from strong intermodal business while confronting a continued decline in coal shipments. Results in the quarter were generally strong, although they trailed those of the record-setting fourth quarter of 2011. Net income was reported to be $413 million for the quarter, a 13.96% decrease from fourth-quarter 2011, and $1.75 billion for the year, an 8.72% decrease from 2011.

Total revenues stood at $2.68 billion for the quarter, a 4.04% decrease from the same period in 2011, and $11.04 billion for the year, a 1.18% decrease from 2011. The Intermodal segment saw a gradual improvement in volumes during the fourth quarter, attributed to an improving domestic market and strong highway-rail conversions, and the General Merchandise segment reported stronger business from the automotive and chemicals markets, with the latter benefiting from a growth in crude oil traffic from the Bakken and Canadian oil fields. In the agriculture market, increased shipments of feed and soybeans made up for weaker business from corn and ethanol. The fourth quarter also saw lower costs for fuel and services.

Still, as with previous quarters, the Coal segment suffered from weak demand and ever-increasing competition from natural gas. Also, a decline in raw steel production negatively affected the domestic metallurgical business.

Norfolk Southern reported capital expenditures of $2.24 billion for full-year 2012.

Industrial Info is tracking $522 million in projects involving Norfolk Southern, including the planned $97.5 million construction of a grassroot intermodal terminal in Mc Calla, Alabama. The new terminal will transfer shipping containers between trucks and trains. Dunn Building Company LLC (Birmingham, Alabama) is serving as the general contractor. It will have the capacity to handle 165,000 truck trailers and shipping containers annually.

"With respect to service, the railroad continues to run extremely well," said Wick Moorman, the chief executive officer of Norfolk Southern, in a conference call. "We have maintained superior service levels throughout 2012, and we saw continued improvement our network velocity and terminal dwell during the fourth quarter. These items were a big driver in our ability to maintain an average composite service index at an all-time high of above 83%. And as we have mentioned, an efficiently run network helps in our efforts to keep expenses under control."

The Coal segment was the only one to see a decline in revenues when compared with either fourth-quarter or full-year 2011:

• The Coal segment reported $657 million in revenues for the quarter, a 23% decrease from fourth-quarter 2011, and $2.9 billion for the year, a 17% decrease from 2011.
• The General Merchandise segment reported $1.4 billion in revenues for the quarter, an 4% increase from the same period in 2011, and $5.9 billion for the year, a 6% increase from 2011.
• The Intermodal segment reported $584 million in revenues for the quarter, a 5% increase from fourth-quarter 2011, and $2.2 billion for the year, a 5% increase from 2011.

Norfolk Southern executives say that the company is planning capital expenditures of $2.01 billion in 2013. The Coal segment is expected to face further challenges, including increased competition from natural gas; higher stockpiles; a weaker domestic metallurgical market; and diminishing European demand for metallurgical and steam coal. The Intermodal segment, however, is expected to see more opportunities for highway-rail conversions and a growth in business with international shipping partners, while the General Merchandise segment is forecast to benefit from growth in the crude oil, housing, and automotive markets.

"On the capital side, we're committed to using new technologies, which will allow us to maintain our infrastructure at its current high state of repair with lower material costs," Moorman said in the conference call. "An example is our continuing programs to rebuild our existing locomotives fleet using our superb locomotive shop at Altoona, Pennsylvania.

"We're also making sure we spend our capital dollars wisely, based on our business level. For example, a large percentage of our coal car fleet is becoming life-expired over the next few years. However, given the near-term uncertainty around our coal franchise, we chose this year to only continue with a less expensive program to re-body some of the fleet, rather than buy any new cars. And we'll make sure that we match our purchases, and therefore our asset base, with the business levels in future years."

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.