advertisement

---

Weak traffic demand in the coal, intermodal, automotive and housing-related sectors created a significant headwind for Norfolk Southern Corp. in the third quarter.

As a result, the Class I's railway operating revenue fell 2 percent from a record $2.39 billion in third-quarter 2006 to $2.35 billion, net income tumbled 7 percent from $416 million to $386 million, diluted earnings per share dropped 5 percent from $1.02 to 97 cents and operating ratio went up from 70.1 to 71.1.

General merchandise revenue rose 1 percent year over year to $1.29 billion despite a 3 percent volume decline. However, coal revenue decreased 3 percent to $578 million as traffic fell 2 percent, and intermodal revenue dropped 6 percent to $484 million as traffic declined 6 percent. Overall, traffic decreased 4 percent compared with third-quarter 2006’s volume.

In the good news department, NS' quarterly operating expenses totaling $1.67 billion remained flat compared with third-quarter 2006. Casualties and other claims dropped 34 percent, compensation and benefits declined 1 percent and diesel costs rose only slightly — by $1 million year over year — even though fuel prices increased 13 percent in the quarter.

"Softness in certain segments of the economy resulted in reduced traffic volumes, which we were substantially able to offset through pricing gains and cost control," said NS Chairman, President and Chief Executive Officer Wick Moorman during an earnings conference held this morning. "We're focused on reducing operating costs wherever possible, but we're not cutting costs in areas where we'll have to spend additional dollars to catch up in the future."