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Norfolk Southern Impresses in the Third Quarter, Stock Up 2.5%

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NSC’s Q3 2018 earnings

Norfolk Southern (NSC), a major Eastern United States rail freight operator, announced its third-quarter earnings today before the market opened. The railroad’s adjusted EPS of $2.52 exceeded the Thomson Reuters–surveyed analysts’ estimate of $2.44 by 3.1%. The railroad’s third-quarter adjusted EPS rose 44.0% YoY (year-over-year) from $1.75 in the third quarter of 2017.

After its third-quarter earnings announcement, Norfolk Southern stock opened at $160.37, up 2.4% from yesterday’s closing price of $156.61. In the first hour of trading, NSC stock peaked at $164.00. However, it declined from that level and continued its bumpy ride.

NSC stock was trading at ~$161.00 in the last hour of the session. The market was impressed with the company’s third-quarter performance, which rode on higher volumes and pricing gains.

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NSC’s Q3 2018 revenues and operating margins

Norfolk Southern’s (NSC) railway operating revenues reached $2.9 billion in the third quarter, up ~10.4% from $2.6 billion in the third quarter of 2017. The railroad surpassed analysts’ revenue estimates by a narrow margin of 1.2%.

The company’s revenue growth primarily came from a 5.0% YoY increase in total volumes and a 7.0% YoY increase in revenue per railcar. Excluding its fuel surcharge revenues, NSC’s revenue per railcar rose 5.0% YoY in the quarter.

NSC’s revenues by segment

Norfolk Southern’s General Merchandise segment is the company’s largest division with respect to revenues. The segment’s revenues rose 7.0% in the third quarter. The division reported 2.0% YoY volume growth and a 10.0% YoY rise in revenue per railcar.

NSC’s Intermodal segment’s revenues rose 8.0% in the third quarter. While its intermodal volumes rose 8.0%, its revenue per car rose 7.0%. Its coal revenues rose 7.0% on a 3.0% increase in revenue per railcar. However, its coal volumes remained unchanged YoY.

Norfolk Southern’s income from railway operations totaled $1.0 billion, up 14.0% YoY in the third quarter. The railroad’s (IYJ) operating expenses jumped $152.0 million to $1.9 billion, a 9.0% year-over-year increase.

Increased fuel prices, higher volume-related expenses, and overall cost escalation associated with lower network velocity pushed NSC’s third-quarter operating expenses. Its operating margin expanded 1.09% to 34.6% in the third quarter from 33.5% in the third quarter of 2017.

Peer group’s revenue growth

Union Pacific (UNP) plans to announce its third-quarter earnings on October 25. CSX (CSX), Canadian Pacific Railway (CP), and Canadian National Railway (CNI) reported remarkable revenue growth in the third quarter.

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