Coal And Intermodal Declines Put Pressure On Norfolk Southern's Profits

Declining coal and intermodal volumes contributed to a 3% drop in third-quarter profits for Norfolk Southern (NYSE: NSC).

Third-quarter net income fell 6% to $657 million, or $2.49/diluted share, compared with $702 million, or $2.52/diluted share, in the third quarter of 2018. 

Operating ratio was 64.9%, which is a third-quarter record, the company said when it released its results on October 23. A lower operating ratio can signal increased profitability. Third-quarter 2018's operating ratio was 65.4%.

Coal volumes slumped in the third quarter, declining 14% from the third quarter of 2018. Intermodal volumes also fell, slipping 5% year-over-year.

Those volume declines contributed to lower revenue for the coal and intermodal segments. The operating revenue for coal fell by 13% to $403 million, while intermodal's operating revenue slipped 5% to $707 million. Operating revenue from merchandise was flat at $1.7 billion. 

Meanwhile, overall third-quarter operating revenue fell 4% to $2.8 billion, with a 2% increase in average revenue partially offsetting a 6% drop in total revenue.

Operating expenses also fell 4% to $1.8 billion amid lower compensation and benefits, equipment rents and fuel prices.

Source: Norfolk Southern

The company said a $32 million write-off of a receivable resulting from a legal dispute unfavorably impacted the operating ratio by 110 basis points and earnings per share by $0.09. 

"Our team achieved a record third-quarter operating ratio while successfully rolling out the first phase of our TOP21 operating plan, followed by the swift transition to the plan's second phase. These efforts produced an 11% reduction in crew starts and recrews compared to the third-quarter last year, robustly outpacing the 6% volume decline while maintaining resilient service that supported an 11th consecutive quarter of year-over-year revenue per unit growth," said James A. Squires, Norfolk Southern chief executive officer.

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