Export coal drop the main flop in NS' 2Q financial results

A soft export coal market and $65 million fuel revenue lag served as "considerable headwinds" to Norfolk Southern Corp.'s financial fortunes in the second quarter even though volume increased 2 percent to 1.8 million units, said Chairman and Chief Executive Officer Wick Moorman during the Class I's earnings conference late yesterday afternoon.

As a result, diluted earnings per share declined 9 percent to $1.46, net income fell 11 percent to $465 million, income from railway operations decreased 10 percent to $836 million, railway operating revenue dipped 3 percent to $2.8 billion and NS' operating ratio worsened 2.7 points to 70.2 compared with second-quarter 2012 results.

Coal revenue dropped 17 percent to $626 million and volume declined 4 percent primarily because increased competition in overseas markets and a global oversupply negatively impacted export metallurgical and thermal coal, said Executive Vice President and Chief Marketing Officer Don Seale.

NS fared much better in its other two major business groups. Intermodal revenue rose 4 percent to a record $588 million and and merchandise revenue ratcheted up 2 percent to a record $2.8 billion. In the merchandise group's chemicals category, crude-by-rail revenue jumped 51 percent compared with the revenue generated in the first quarter, said Seale. Total revenue excluding coal rose 3 percent year over year.

In terms of operating costs, total railway operating expenses increased 1 percent to nearly $2 billion primarily due to a 5 percent increase in purchased services and rent costs to $410 million, said EVP and Chief Financial Officer John Rathbone. Compensation/benefits and fuel costs were relatively flat.

Looking ahead to the remainder of 2013, coal business "remains a real question mark" as exports appear to be weakening while domestic utility coal "shows signs of bottoming as excess stockpiles decline and natural gas seeks a reasonable price point," said Moorman.

Overall, NS is anticipating more "slow and uneven economic growth" for at least the next few quarters, he said.

"Our overall carloads in the second quarter do not indicate that the pace of recovery in the U.S. economy has quickened," said Moorman. "In fact, the latest data would indicate that the economy actually slowed somewhat."

— Jeff Stagl