Norfolk Southern reports record financial results despite congestion problems

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NORFOLK, Va. — Norfolk Southern produced record financial results in the second quarter as strong volume and pricing growth overcame the impact of the railroad’s ongoing congestion problems.

“We continue to deliver record results,” CEO Jim Squires told investors and analysts on the railroad’s Wednesday morning earnings call.

NS’s operating income was up 18 percent, to $1 billion, as revenue grew 10 percent, to $2.9 billion. Net income was up 43 percent, to $710 million, thanks to lower tax rates. Earnings per share was up 46 percent, to $2.50, beating the consensus analyst estimates of $2.32.

The railroad’s operating ratio was 64.6 percent, down from 66.9 percent a year ago.

Each of the marks was a record for NS as traffic grew 6 percent, to its highest levels in a decade.

“Our strategy continues to deliver improved financial performance,” Squires says, noting that it’s the tenth straight quarter of improvement in the operating ratio.

The NS results reflect an unusually strong pricing environment as truck capacity remains tight, trucking rates soar, and diesel prices rise.

Norfolk Southern’s intermodal traffic was up 8 percent to an all-time record but generated 20 percent more revenue, while merchandise carloads were up 3 percent but produced 8 percent more revenue.

Coal traffic, which generally is not truck-competitive, was up 3 percent by volume but 4 percent by revenue.

NS expects strong demand and pricing to continue well into 2019, Chief Marketing Officer Alan Shaw says.

The railroad remained fluid despite the heavy traffic, executives said, although service remained below levels NS and its customers expect as cars spent more time in yards and average train speeds dropped compared to a year ago.

Squires said costs related to the network slowdown came down in the second quarter, from $43 million in the first quarter. But he did not provide a specific figure for the second quarter.
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