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Norfolk Southern's Q3 Earnings: Must-Knows

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Part 5
Norfolk Southern's Q3 Earnings: Must-Knows PART 5 OF 7

Why Norfolk Southern’s Intermodal Revenues Declined in 3Q16

Norfolk Southern’s Intermodal revenues

In this part, we’ll discuss the revenues for Norfolk Southern’s (NSC) Intermodal segment. In 3Q16, Norfolk Southern’s Intermodal revenues fell 7.4% to $575.0 million from $621.0 million in 3Q15.

Norfolk’s Intermodal business consists of freight transportation in an intermodal container using various modes like rail, ship, and truck. This segment competes with trucking companies (SWFT) operating in the Eastern US. For more information on NSC’s Intermodal segment, please read Market Realist’s Norfolk Southern overview.

Why Norfolk Southern&#8217;s Intermodal Revenues Declined in 3Q16

Why Norfolk Southern&#8217;s Intermodal Revenues Declined in 3Q16

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Intermodal volumes in 3Q16

NSC’s overall Intermodal volumes fell 1% in 3Q16. NSC’s Domestic Intermodal volumes, excluding Triple Crown Services (or TCS), rose 8% in 3Q16. However, TCS’s volumes fell 80%. The International Intermodal volumes surprised the industry with a 1% increase in 3Q16.

The domestic volumes seemed to return to normal, significantly impacted by the restructuring of its underperforming subsidiary, Triple Crown Services. TCS operates within NSC’s Intermodal segment.

Management outlook

Norfolk Southern (NSC) expects strong Intermodal revenues in 4Q16 because the company will clear the Triple Crown Services comparison. However, the domestic truck rates are lower, so intermodal pricing would be strained going forward. NSC hopes that improved services will drive the Domestic Intermodal business in the coming quarters.

The trucking industry’s implementation of the electronic logging device (or ELD) will most likely create service issues, thereby tightening trucking capacity (KNX). With the tightening of the trucking market in 2017, Norfolk Southern believes that its Intermodal segment will benefit.

Investors interested in the transportation (UNP) space can consider the iShares US Industrials ETF (IYJ). This ETF holds just over 5.5% in Class I railroads.

In the next article, we’ll look at Norfolk Southern’s high operating margin in 3Q16.

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