Norfolk Southern Reports 6.5 Percent Drop in 2Q Profit

NORFOLK, Va. (The Virginian-Pilot/TNS) -

Weakness in its coal business continues to affect Norfolk Southern Corp., whose profit fell 6.5 percent in the second quarter from the same period a year ago, the company reported Wednesday.

Net income for the Norfolk-based railroad was $405 million, or $1.36 a share, for the quarter that ended June 30, down from $433 million, or $1.41 a share, in the second quarter of 2015.

The results beat Wall Street estimates by 2 cents a share.

The consensus earnings-per-share estimate of 23 analysts surveyed by Thomson Reuters was $1.34.

“Our second-quarter results reflect our unwavering focus on cost-control, steadfast commitment to customer service, and significant improvements in network performance,” said James A. Squires, chairman, president and CEO, in a statement. “We are on track to achieve productivity savings of at least $200 million for 2016, and our record first half operating ratio of 69.4 percent gives us confidence we’ll achieve a full-year operating ratio below 70 percent.”

The railroad’s operating ratio for the second quarter was 68.6 percent and 70.1 percent for the first quarter.

A core objective of the company’s strategic plan announced late last year revolves around the company’s “operating ratio,” a measure of profitability derived by dividing operating expenses by revenue. The smaller the ratio, the better.

The railroad’s operating revenues were $2.5 billion, down 10 percent from the second quarter of 2015. The drop was attributed to reduced volumes and lower fuel-surcharge revenues.

Like those charged by other freight transportation companies, the railroad’s fuel surcharge is a fee added to rates based on the price of fuel. As the cost of fuel goes up or down, so does the surcharge.

Coal revenues for the quarter fell 25 percent from the same quarter a year ago, to $339 million.

Coal accounted for about 17 percent of Norfolk Southern’s total railway operating revenues in 2015, and 21 percent in 2014, according to annual reports.

Quarterly revenue in the railroad’s other business segments in the second quarter also dropped: Intermodal — the handling of cargo containers that can move interchangeably by rail, truck or ship — fell 15 percent, to $538 million, and general merchandise fell 3 percent, to $1.6 billion.

Two of the nation’s other big Class 1 railroads also reported drops in profit for the second quarter: Union Pacific Corp. was down 19 percent year-over-year and CSX Corp., 20 percent.

Burlington Northern Santa Fe is a subsidiary of Berkshire Hathaway Inc., which hasn’t released its second-quarter earnings yet.