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To say Norfolk Southern Corp.’s fourth quarter was record-setting is an understatement. The Class I set four financial records.

Operating revenue reached $2.3 billion (up 3 percent year over year); income from railway operations, $614 million (up 3 percent); net income, $385 million (up 6 percent); and diluted earnings per share, 95 cents (up 9 percent).

Revenue was driven by an all-time-high $1.2 billion in general merchandise revenue and record-setting $592 million in coal revenue, representing a 2 percent and 13 percent increase, respectively, compared with fourth-quarter 2005 figures. However, intermodal revenue decreased 5 percent to $493 million because traffic volume dropped 3 percent year over year.

NS’ fourth-quarter operating ratio improved 0.2 points to 73.5 and railway operating expenses increased only 3 percent to $1.7 billion despite higher compensation and fuel costs. But traffic volume decreased 3 percent to 1.9 million units compared with fourth-quarter 2005’s volume.

“We’re clearly facing a softer economy, at least in terms of some of our important markets and the overall surface transportation marketplace,” said NS Chairman, President and Chief Executive Officer Wick Moorman during an earnings conference call this morning. “But our traffic volumes are still at levels close to our all-time highs, evidence that the railroad renaissance is still alive and well.”

For the year, NS set three financial records. Annual operating revenue climbed to $9.4 billion (up 10 percent year over year); income from railway operations, to $2.6 billion (up 21 percent); and net income, to $1.5 billion (up 16 percent). General merchandise revenue jumped 11 percent to a record $5.1 billion, coal revenue increased 10 percent to a record $2.3 billion and intermodal revenue rose 8 percent to a record $2 billion compared with 2005 data.

NS also made headway with its annual operating ratio, which improved 2.4 points to 72.8 compared with 2005’s ratio. In addition, traffic volume increased 1 percent to 7.9 million units.

“Last year at this time, I was a new CEO and the railroad had just come off its third-straight record-setting year. I thought it would be difficult to make it four in a row my first year in the job,” said Moorman. “I’m relived to say 2006 was another strong year, capped off by a record-setting fourth quarter.”

However, annual operating expenses increased 7 percent to $6.9 billion primarily because of higher compensation, benefits and fuel costs, and increased maintenance activities.

— Jeff Stagl