Norfolk Southern Q2 Earnings Top Estimates on High Revenues

Norfolk Southern Corp. NSC reported second-quarter 2014 adjusted earnings of $1.79 per share that beat the Zacks Consensus Estimate of $1.74 and exceeded the year-ago number of $1.46 per share. Significant growth across all commodity groups and a substantial improvement in operating ratio drove gains across the company, supporting strong earnings this season.

Total operating revenue was up 9% year over year at $3.042 billion and was marginally higher than the Zacks Consensus Estimate of $3.027 billion. Carloads grew 8% year over year.

On a year-over-year basis, Metals and Construction rose 17%, Intermodal grew 11%, Metals and Construction rose 17%, Chemicals climbed 10%, Coal grew 7%, Agriculture moved up 5%, Automotive was up 3% and Paper increased 2%.

Operating income was $1 billion, up 22% year over year. Operating ratio improved 500 basis points year over year to 66.5%. 

Cash Position

Norfolk exited the second quarter with cash and cash equivalents of $1,667 million compared with $1,443 million at year-end 2013. The company had long-term debt (including current portion) of $8.8 billion, which decreased from $8.9 billion at year-end 2013.

Our Analysis

We believe Norfolk is poised to benefit from strong pricing momentum on the back of abundant opportunities within the transportation sector. Growing market share of its Intermodal segment and an improving Merchandize segment along with recovery in the construction and agriculture market will likely support the company's efforts to generate even higher revenues in the coming quarters.

However, we remain concerned about the weak performance of the Coal segment. Further, tightened railroad regulation and competitive pressure from peers like CSX Corp. CSX remain as significant headwinds to the company's growth.

Norfolk Southern currently carries a Zacks Rank #2 (Buy).

Other Stocks

Other stocks in this sector include Kansas City Southern KSU and Union Pacific Corporation UNP, both with the same Zacks Rank #2.