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Higher Volumes and Pricing Drove Norfolk Southern’s Q4 Earnings

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Earnings beat expectations

On January 24, Norfolk Southern (NSC) reported better-than-expected results for the fourth quarter. The company’s quarterly revenues and EPS improved significantly on a YoY basis. The company’s fourth-quarter EPS of $2.57 came in ahead of analysts’ estimate of $2.29 and grew ~52% as well. Higher revenues and lower costs mainly drove the company’s fourth-quarter bottom-line results. The company witnessed strong double-digit earnings growth in all four quarters of 2018.

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Fourth-quarter revenues came in at $2.90 billion, higher than Wall Street analysts’ estimate of $2.85 billion. Quarterly revenues also grew 8.5% YoY mainly driven by a 3% rise in volumes, higher fuel recoveries, and increased rates. Norfolk Southern’s cost-cutting efforts also drove its fourth-quarter bottom-line results. In 2016, the company announced its cost-cutting plan. The company intends to save $650 million in annual costs by 2020.

The ongoing initiative has helped the company minimize its operating expenses and improve its operating ratio (operating expenses as a percentage of revenues). Operating expenses for the quarter fell by $4 million to $1.82 billion. As a result, the company’s operating ratio improved by 550 basis points YoY to 62.8% from 68.3% in the same quarter the previous year.

For the full year, Norfolk Southern reported revenues of $11.46 billion, which surpassed analysts’ expectations of $11.41 billion and grew 8.6% YoY as well. EPS of $9.51 beat the consensus estimate of $9.25 and improved ~44% YoY.

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Management commentary

In the earnings release, the company’s chair, president, and CEO, James Squires, said, “Norfolk Southern’s financial results in 2018 clearly demonstrate improved financial performance and our commitment to delivering shareholder value.” He added, “Our confidence to deliver improved value to our shareholders – as underscored by our recently announced dividend increase – is heightened by NS’ momentum heading into 2019 and by an array of initiatives to serve customers better and operate more efficiently.”

On January 23, the company raised its quarterly dividend rate by 7.5% to $0.86 per share. In 2018, Norfolk Southern returned $3.63 billion to its shareholders through dividend payments and share repurchases.

All the major US railroad companies (IYT) have released their fourth-quarter results. CSX’s (CSX) fourth-quarter adjusted EPS of $1.01 grew ~58% YoY on 10% higher revenues and lower costs. Kansas City Southern (KSU) reported adjusted EPS of $1.56, ~13% higher than the year-ago quarter. Union Pacific’s (UNP) adjusted EPS of $2.12, was ~39% higher than the year-ago quarter.

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