NS reports revenue and earnings drop in 2Q

Strong headwinds created by weak coal demand and lower fuel surcharge revenues proved to be too much for Norfolk Southern Corp. to overcome in the second quarter, financially speaking. In addition, the Class I faced extremely difficult year-over-year comparisons because the railroad set several financial records in second-quarter 2014.

For second-quarter 2015, NS reported operating revenue of $2.7 billion, down 11 percent; income from railway operations of $814 million, down 20 percent; net income of $433 million, down 23 percent; diluted earnings of $1.41 per share, down 21 percent; volume of 1.9 million units, down 2 percent; and an operating ratio of 70, up 3.5 points compared with second-quarter 2014 results. On the positive side of the ledger, operating expenses declined 6 percent to $1.9 billion primarily because fuel costs plunged 38 percent to $519 million and materials and other supply costs dropped 5 percent to $235 million.

Negatively impacted by falling natural gas prices, declining fuel surcharges and growing oversupply globally, domestic utility coal volume dropped 23 percent to 175,400 units and export coal volume plunged 38 percent to 36,600 units. Total coal revenue fell 33 percent to $453 million, and volume declined 21 percent to 275,700 units.

General merchandise revenue decreased 5 percent to $1.6 billion but volume inched up 1 percent to 661,500 units. Volume growth in chemicals, automotive and paper shipments helped offset traffic declines in steel, fertilizers and wheat. Chemicals volume rose 13 percent to 137,300 units primarily due to traffic gains in crude oil and natural gas liquids.

Intermodal revenue dipped 3 percent to $633 million, but volume increased 2 percent to 999,900 units.

The volume growth in both the intermodal and merchandise sectors was encouraging despite the headwinds, as were "significant" service improvements logged in the quarter, said NS President and Chief Executive Officer James Squires during an earnings conference held this morning. There are strong prospects for volume growth in the near and long term in the intermodal, energy, manufacturing and housing markets, he said.

"We are confident in our long-term strategy," said Squires. "Norfolk Southern is well positioned to continue improving service, which will reduce costs and add value to our customers. We have a strong legacy of success, and we are taking the right steps to continue value creation."

During the conference, Executive Vice President of Finance and Chief Financial Officer Marta Stewart announced that NS' capital spending budget for 2015 has been "trimmed back" by $130 million or 5 percent due to business conditions in the year's first half. Earlier this year, NS projected 2015 capital expenditures totaling about $2.4 billion.