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How Norfolk Southern Is Running ahead of the 1Q17 Results

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Part 4
How Norfolk Southern Is Running ahead of the 1Q17 Results PART 4 OF 5

Norfolk Southern’s Earnings: Against the Estimates for 1Q17

Analysts’ earnings estimate for 1Q17

Now that we’ve taken stock of Norfolk Southern’s (NSC) projected operating margin according to Wall Street analysts, let’s go through the analysts’ estimates for NSC’s fiscal 2017 earnings. The analysts surveyed by Reuters are expecting Norfolk Southern to report an adjusted earnings per share of $1.35 in 1Q17. The company’s predicted first quarter 2017 earnings should surprise the markets by 1%.

We should note that in 1Q16, Norfolk Southern reported an adjusted earnings per share of $1.29. If NSC meets analysts’ estimate, the 1Q17 earnings should grow 4.7% on a YoY (year-over-year) basis. Norfolk Southern has targeted double-digit compound annual EPS (earnings per share) growth in its financial target for 2020.

Norfolk Southern&#8217;s Earnings: Against the Estimates for 1Q17

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Will Norfolk Southern surprise markets in 1Q17?

On March 23, 2017, Norfolk Southern saw derailment of two cars of its intermodal train on the westbound route to Chicago from Harrisburg. Although there weren’t any injuries or traffic chaos, the company will certainly have incurred expenses associated with it. This should result in incremental expenses in 1Q17 over the first quarter of 2016.

Meanwhile, fuel costs went up in the first quarter of 2017, as compared to 1Q16. This incremental cost will act as a deterrent to the company’s operating margin, which should trickle down to an impact on the net earnings of the company in 1Q17. Pricing may not help NSC boost its top line, however, though its increased volumes may jack up operating expenses.

With its incremental borrowing, Wall Street analysts are expecting Norfolk Southern to incur more interest expenses in 1Q17 as compared to 1Q16. The projected 3.1% rise in interest expenses could take a toll on the bottom line. In 2017, NSC announced ~$800 million in share buybacks, which should give a boost to EPS in fiscal 2017.

1Q17 earnings among peers

On a YoY basis, analysts are expecting slightly higher EPS for NSC’s arch rival, CSX, not to mention the major western US railroad Union Pacific (UNP) and heavy-hitter Canadian National Railway (CNI). Driven by acquisitions, major short line partner Genesee & Wyoming (GWR) might also see a substantial rise in its EPS in the first quarter of 2017.

Investors interested in indirect exposure to the transportation sector can always opt for ETFs like the Industrial Select Sector SPDR Fund (XLI). Major US railroads and airlines make up 9.1% and 12%, respectively, of the portfolio holdings of XLI.

Continue to the next and final part of this series for a look at what analysts are recommending for Norfolk Southern stock.

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