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Can Norfolk Southern Beat Analysts’ 4Q17 Revenue Estimates?

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Analysts’ revenue estimates for NSC

Analysts polled by Thomson Reuters expect Norfolk Southern (NSC) to report revenues of ~$2.7 billion in 4Q17. The company’s revenues in 4Q16 totaled ~$2.5 billion. This indicates an expected rise of 6.4% YoY (year-over-year).

For the next four quarters, analysts anticipate revenues of $10.9 billion for 5.0% growth over the last four quarters’ revenues of $10.3 billion.

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Could Norfolk Southern’s revenues rise?

The Merchandise segment contributes ~60.0% of Norfolk Southern’s total revenues. The company expects low single-digit growth in that segment in 4Q17. 

US industrial production (IYJ) should drive steel demand, which is expected to fuel the metallurgical coal volumes going forward. The US construction sector has witnessed recent momentum, which is expected to fuel the demand for aggregates in the coming quarters. Overall, Norfolk Southern should meet its Merchandise vertical’s revenue growth target in 4Q17.

In fiscal 2018, we should see restricted truck capacity and higher fuel prices. Higher fuel prices should shift shippers from trucks to rail. Note that 65% of all freight shipped 500 miles and beyond starts or ends in NSC’s region, which could benefit the company’s intermodal business. The rise in export coal tonnage should benefit Norfolk Southern on the pricing and volume fronts.

Peer group’s revenue estimates for 2018

US rail traffic including intermodal expanded ~3.0% in 2017. Despite a slowdown in energy-related commodities and grain, rail traffic was up. 

The Conference Board estimates that the US corporates’ capex could grow at an annualized rate of 6.4% in 2018 from 4.9% in 2017.

The newly passed tax reform bill should improve the free cash flows and result in higher capital expenditure. This could strongly support top-line growth for US railroads in the coming quarters. 

Below is a summary of how analysts estimate major US railroads’ revenue growth in 2018 versus 2017:

  • Norfolk Southern (NSC) – 4.5%
  • CSX (CSX) – 3.2%
  • Union Pacific (UNP) – 4.5%
  • Kansas City Southern (KSU) – 6.1%
  • Canadian National Railway (CNI) – 5.2%
  • Canadian Pacific Railway (CP) – 4.8%
  • Genesee & Wyoming (GWR) – 5.6%

After looking at analysts’ revenue estimates for Norfolk Southern and its peers, we’ll examine their margin estimates for the company and other railroads.

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