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Norfolk Southern sales fall on weak coal demand

Norfolk Southern Corp. said Wednesday that profit for its latest quarter dropped 19% as weak demand for coal--a key commodity for the rail sector--weighed on the railway's results.

However, shares of Norfolk Southern, down 30% over the past year, rose 2.8% to $79.60 in premarket trading as results exceeded Wall Street expectations.

The railroad operator also blamed the restructuring of the company's Triple Crown Services unit and the closing of offices in Roanoke, Va., for denting earnings by $23 million.

But coal, as it has all year, continues to be a drag on the railroad sector's results.

In the latest quarter, coal revenue for Norfolk plunged 23% to $482 million when compared with the same period a year ago. Coal volumes fell 16%. Across the sector, for the week ending Oct. 17, coal carloads tumbled 13.4% to 95,822, according to the latest data from the Association of American Railroads.

Chief Executive James A. Squires said third-quarter results reflected commodities markets that continued to soften as well as costs associated with the company's restructuring initiatives.

"These pressures will linger in the fourth quarter, while traffic volume to date continues to lag last year." Mr. Squires said.

There has been less demand for coal as natural-gas prices have fallen, making the alternative attractive. And slowing economic growth in China and the strengthening of U.S. dollar--which makes most American products and services more expensive overseas--also has dented coal exports. Sliding fuel prices have also pinched fuel-surcharge fees, a key revenue stream for railways.

Intermodal revenue fell 7% to $621 million, as lower fuel surcharges and fewer domestic shipments combined to reduce revenues. Volume declined 1%.

Overall, the company posted a profit of $452 million, or $1.49 a share, down from $559 million, or $1.79 a share, a year earlier.

Revenue dropped 10.3% to $2.71 billion.

Analysts surveyed by Thomson Reuters forecast per-share earnings of $1.41 a share on revenue of $2.7 billion.

Across the industry, total carloads for the week ended Oct. 17 were 279,547, down 5.9% compared with the same week in 2014, according to the Association of American Railroads. For the week, metallic ores and metals dropped 20.9%, while petroleum and petroleum products fell 14%.

In September, Norfolk Southern said that it would cut about 200 jobs as part of the restructuring of its Triple Crown Services subsidiary, which hauls shipments over roads and rails.

source: http://www.marketwatch.com