advertisement

---

For Norfolk Southern Corp., first-quarter financial performance included three records. But it also included a $58 million non-cash charge from an unfavorable insurance arbitration ruling associated with the 2005 Graniteville, S.C., accident, which drove down net income and drove up operating expenses and the operating ratio.

The 1Q records included railway operating revenue, which jumped 17 percent year over year to $2.6 billion — the highest level since third-quarter 2008 and third-highest of all time, said Executive Vice President and Chief Marketing Officer Don Seale during an earnings conference held yesterday. NS also earned an all-time-high $600 million in income from railway operations, up 8 percent, and record 90 cents in diluted earnings per share, up 32 percent. Analysts polled by FactSet had expected earnings of 89 cents a share and revenue of $2.47 billion.

Net income climbed 26 percent to $325 million, but the arbitration ruling reduced that sum by $36 million. Volume rose 8 percent year over year to 1.7 million units.

By revenue category, general merchandise revenue increased 10 percent to $1.3 billion, coal revenue jumped 30 percent to $816 million — the second-highest quarterly level ever, said Seale — and intermodal revenue climbed 18 percent to $485 million. Export volume that shot up 24 percent helped drive coal revenue while tightening truck capacity helped propel intermodal revenue, said Seale.

However, NS’ operating ratio increased 1.9 points to 77.1 and operating expenses soared 20 percent to $2 billion compared with first-quarter 2010. Excluding the arbitration ruling, operating expenses would have increased 17 percent and the operating ratio would have been 74.9, said EVP and Chief Financial Officer James Squires. And excluding the ruling and higher fuel costs — which ballooned 35 percent to $389 million — the operating ratio would have been 73.8, he said.

Despite the lagging effects from the ruling, high fuel costs and severe winter weather in February, NS senior executives were “very pleased with the excellent first quarter,” said Chairman, President and Chief Executive Officer Wick Moorman.

First-quarter results reflect “the strong market for freight rail transportation and the value of our service product," he said. “We see continuing opportunities for growth in almost every segment of our business, and we're optimistic about our prospects for the balance of 2011."

The best news senior execs could share about NS’ performance of late occurred only recently, when they received word that the Class I next month will receive the E.H. Harriman Group A gold medal safety award for the 22nd-straight year, said Moorman.

— Jeff Stagl