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Resilient Coal Lifts Norfolk Southern’s 2Q17 Results

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Resilient Coal Lifts Norfolk Southern’s 2Q17 Results PART 1 OF 7

Norfolk Southern Beats 2Q17 Earnings, Increases Share Repurchases

NSC’s 2Q17 earnings

Norfolk Southern (NSC), an Eastern US freight rail carrier, announced its 2Q17 earnings on July 25, 2017. As surveyed by Reuters, the company surpassed the analysts’ earnings estimate of $1.64 per share by 4.1% during the quarter.

On a year-over-year basis, Norfolk Southern reported earnings of $1.71 per share in 2Q17, up 26% from $1.26 per share in 2Q16.

Norfolk Southern Beats 2Q17 Earnings, Increases Share Repurchases

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Did NSC diminish CSX’s volumes?

On July 26, 2017, the Wall Street Journal reported, “Norfolk Southern Corp. says it is starting to win over customers to its railway amid disruptions at rival CSX Corp., whose network is undergoing an extensive overhaul under a new chief executive.” A lot of operational reshuffles have resulted in service disruptions for CSX.

Market Realist publishes its weekly freight rail series, which covers the weekly change in freight volumes of major US railroads. While NSC’s carloads rose 6% in the first half of 2017, CSX (CSX) registered a rise of only 0.6%. This shows NSC’s carload rise, in percent terms, was ten times greater than CSX’s carload increase in 1H17.

Why NSC stock fell after its 2Q17 results

After NSC’s 2Q17 results, the stock declined 2.9% to close at $113.00 on July 27, 2017, from the previous close of $116.4 per share. What bothered the investor community was a 25% rise in its 2017 share repurchases guidance to $1.0 billion. Norfolk Southern gave guidance of lower merchandise volumes in 2H17.

In the last one-year period, Norfolk Southern returned 25.4% to its shareowners. Let’s see the stock returns of its peer group fared during the same period.

  • CSX (CSX): 77.4%
  • Canadian National Railway (CNI): 23.8%
  • Canadian Pacific (CP): 7.3%
  • Union Pacific (UNP): 10.7%
  • Kansas City Southern (KSU): 6.4%
  • Genesee & Wyoming (GWR): 2%

The Industrial Select Sector SPDR ETF (XLI), a representative of the broad market, returned 17.2% during the same period. Major US railroads make up ~8.9% of XLI’s portfolio holdings.

Let’s start with Norfolk Southern’s 2Q17 revenues.

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