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In the fourth quarter, Norfolk Southern Corp. faced ongoing weak economic conditions and record financials results in the year-ago period. Ultimately, the headwinds proved to be too strong to overcome.

Diluted earnings per share tumbled 32 percent to 82 cents, income from railway operations fell 32 percent to $549 million, railway operating revenue dropped 16 percent to $2.10 billion and the Class I’s operating ratio climbed 6.4 points to 73.9 compared with fourth-quarter 2008 figures. Analysts had expected earnings per share of 84 cents and revenue of $2.12 billion, according to Thomson Reuters.

Nonetheless, the results “demonstrate a continuation of the momentum we have generated since the second quarter of 2009,” said Chairman, President and Chief Executive Officer Wick Moorman during NS’ earnings Webcast and teleconference held yesterday.

“The results reflect a high level of performance throughout Norfolk Southern, and showcase the strength and flexibility of our franchise,” he said, adding that the railroad showed “continuing strong cost discipline” as operating expenses fell 8 percent to $1.6 billion.

Senior execs are encouraged by traffic trends in the quarter. Although volume declined 9 percent to 1.6 million units, agricultural product carloads rose 8 percent, chemical carloads increased 4 percent and automotive carloads went up 3 percent. In addition, traffic increased 3 percent vs. third-quarter volume.

“We saw a 52-week high in several commodities late in the quarter,” said Moorman.

And although overall coal volume dropped 19 percent, export metallurgical coal volume increased 31 percent to 60,000 units.

“This represented the highest volume of any quarter in 10 years led by shipments through Lambert’s Point in Norfolk,” said Executive Vice President and Chief Marketing Officer Don Seale.

But the few traffic gains weren’t enough to offset revenue declines in NS’ three major traffic categories. General merchandise revenue declined 9 percent to $1.1 billion, coal revenue plunged 27 percent to $580 million and intermodal revenue decreased 15 percent to $407 million.

In terms of expenses, compensation and benefit costs inched up from $609 million in fourth-quarter 2008 to $613 million, but fuel costs tumbled 18 percent to $221 million and purchased services/rent costs fell 11 percent to $362 million.

For the full year, NS’ revenue dropped 25 percent to $8 billion, income from railway operations declined 36 percent to $2 billion, operating expenses tumbled 21 percent to $6 billion and operating ratio climbed 4.3 points to 75.4 compared with 2008 figures.

Given the “backdrop of continuing modest economic recovery,” fourth-quarter trends “set the stage for an improved 2010,” said Moorman.

The Class I is banking on a rebound in basic chemical markets; an increase in agri-fuels, export soybeans and fertilizers; higher global demand for steel as China exits the coke market; and more truckload conversions in the domestic intermodal sector, said Seale. Those traffic gains would help offset slowly improving domestic steel demand, high utility coal stockpiles, and flat housing and automotive markets.

“We remain confident in the fundamentals of our business,” said Moorman.

— Jeff Stagl