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Norfolk Southern Corp. is closer to joining Canadian National Railway Co. as the only Class Is with operating ratios below 70. In the third quarter, NS’ ratio improved 5.4 points on a year-over-year basis to 70.1 — equaling the railroad’s ratio record set in second-quarter 1997.

NS also broke a few records in the quarter. Operating revenue rose 11 percent to a record $2.4 billion and income from railway operations increased 35 percent to an all-time-high $715 million compared with third-quarter 2005 data. General merchandise revenue rose 13 percent to a record $1.3 billion and coal revenue increased 9 percent to a record $595 million.

In addition, quarterly net income of $416 million, or $1.02 per diluted share, rose 38 percent compared with similar 2005 data.

“We continued to improve operational performance despite a major landslide in the Pittsburgh area in September,” said NS Chairman, President and Chief Executive Officer Wick Moorman during an earnings conference held today in Norfolk, Va. “As an indication of our confidence in our service, we purchased our stock in the quarter.”

NS spent about $730 million to purchase and retire 17.1 million shares of common stock during the third quarter under a share repurchase program.

The lone dark cloud in the Class Is’ quarterly results was operating expenses, which increased 3 percent to $1.7 billion compared with third-quarter 2005 primarily because fuel costs climbed 36 percent to $257 million.

“The fuel expenses reflect the absence of $41 million in hedge benefit that we had last year,” said Vice Chairman and Chief Financial Officer Hank Wolf. “Our hedging wound down in the second quarter of this year.”

During 2006’s first nine months, NS’ revenue increased 13 percent to a record $7.1 billion compared with similar 2005 data. Net income also set a record at $1.1 billion, up 19 percent. In addition, the railroad’s operating ratio improved 3.1 points to 72.6.

But higher fuel prices helped drive up operating expenses, which increased 8 percent to $5.2 billion compared with 2005’s first nine months.

— Jeff Stagl