Norfolk Southern (NSC) Q2 Earnings Beat, Revenues Miss

Leading U.S. railroad operator Norfolk Southern Corp. (NYSE:NSC) reported second-quarter 2016 earnings of $1.36 per share, down 4% year over year but above the Zacks Consensus Estimate of $1.35.

Total operating revenue of $2,454 million was down 9.5% year over year and also below the Zacks Consensus Estimate of $2,474 million.

Operating income came in at $770 million, down 5.4% year over year. Meanwhile, operating expenses fell 10.5% year over year to $1,684 million. The company reported an operating ratio of 68.6% compared with 70% in the prior-year quarter.

Segments

On a year-over-year basis, Coal revenues declined 25% to $339 million. A soft coal export market, declining natural gas prices and unusually mild winter temperature resulted in a 24% decline in volumes.

Merchandise revenues decreased 3% year over year to $1,552 million due to low oil prices which hampered chemical shipments.

Intermodal revenues deteriorated 15% year over year to $538 million, largely because of a 5% decline in volumes.

Cash Position

Norfolk Southern exited the second quarter of 2016 with cash and cash equivalents of $866 million compared with $1,101 million at the end of 2015. The company had long-term debt of $9,549 million versus $9,393 million at end-2015.

Our Take

We are concerned about the lackluster performance by the company’s coal segment. However, the company’s aim to achieve productivity savings of $200 million and an operating ratio of below 70% in the current year may boost the bottom line.

Zacks Rank & Stocks to Consider

Norfolk Southern has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (NASDAQ:OMAB) and Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) with a Zacks Rank #1 (Strong Buy) and Matson, Inc. (NYSE:MATX) with a Zacks Rank #2 (Buy).