Norfolk Southern Corp. on Wednesday reported a 24-per-cent increase in fourth-quarter earnings, beating Wall Street’s expectations, as strong chemicals, construction materials and auto shipments more than offset a dip in coal volumes.
Shares of the railway company rose as much as 7 per cent in morning trading in New York.
The railway, which said it is planning to increase investments in its business by 12 per cent this year, said shipments of crude and higher automotive production helped boost traffic volume by 8 per cent in the quarter. Revenue from coal fell 2 per cent.
Norfolk Southern said it worked on reigning in costs throughout the year. In the quarter, its operating ratio, or operating expenses as a percentage of revenue, was 69.4 per cent, a 5-per-cent improvement over the same quarter in 2012, the company said. The ratio is considered an important measure of a railroad’s health.
For the year, the ratio improved 1 per cent to 71.0 per cent. At rival CSX Corp., by comparison, the ratio increased slightly to 71.1 per cent.
“That tells me that Norfolk Southern basically took the same operating environment and did a better job of reining in expenses,” said Houston-based individual investor Ray Merola.
Merola said the market reaction to Norfolk Southern’s results was more a result of the better operating ratio than revenue and profit gains, because an improvement in costs is an indication of a well-run company.
For the fourth quarter, Norfolk Southern earned $513-million (U.S.) or $1.64 a share, up from $413-million or $1.30 in the year-earlier quarter.
Revenue totalled $2.9-billion, an increase of 7 per cent.
Analysts, on average, expected earnings of $1.50 a share on revenue of $2.85-billion, according to Thomson Reuters I/B/E/S.
Norfolk Southern operates 20,000 route miles in 22 states and the District of Columbia.
Weak coal shipment volumes have been a problem for Norfolk Southern and CSX, as the shift to natural gas has caused utility coal stockpiles to surge as demand for coal from power producers declined. Both railways have been looking at rising demand for shipments of chemicals, autos and agricultural products to make up for the weakness in coal.
Earlier in the month, CSX posted a fourth-quarter profit that fell short of Wall Street’s estimates. CSX is also more exposed to coal than is Norfolk Southern. Coal shipments make up 25 per cent of CSX’s overall shipments. At Norfolk Southern, they account for around 20 per cent.