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What to Expect from Norfolk Southern’s Q4 Results

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Fourth-quarter expectations

Norfolk Southern (NSC) is scheduled to report its fourth-quarter results on January 24. The US railroad company has an impressive earnings surprise history. The company has beat analysts’ consensus estimates in all of the past eight quarters.

Norfolk Southern will likely continue its trend of reporting better-than-expected bottom-line results and witness strong double-digit quarterly earnings growth during the fourth quarter. The US railroad company registered double-digit earnings growth in the first three quarters. For the fourth quarter, analysts expect an adjusted EPS of $2.30 for Norfolk Southern, which implies a YoY (year-over-year) rise of over 36%.

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What’s driving the optimism?

Analysts expect higher revenues and cost-saving initiatives to drive Norfolk Southern’s fourth-quarter earnings. A lower tax rate and fewer outstanding shares could help the bottom-line results.

For the fourth quarter, the company expects to report revenues of $2.9 billion—7.6% higher than the fourth quarter of 2017. Higher volumes and increased pricing will likely support the revenue growth. According to rail traffic data released by the company on January 2, Norfolk Southern carried ~3% higher railcars during the fourth quarter—compared to the same quarter the previous year.

Norfolk Southern’s cost-cutting efforts will likely drive its fourth-quarter bottom-line results. In 2016, the company announced its cost-cutting plan. Norfolk Southern intends to save $650 million in annual costs by 2020. The initiative has helped the company improve its operating ratio (operating expenses as a percentage of revenues). During the third quarter, the company’s operating ratio improved by 90 basis points YoY to 65.4% from 66.5% in the same quarter the previous year.

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In the fourth quarter, the tax rate is expected to fall to 24.1% from 34.5% in the fourth-quarter of 2017 due to the Tax Cuts and Jobs Act. Analysts expect the company’s continuous share buyback programs to bring down the number of outstanding shares to ~274 million from ~288 million in the same quarter the previous year.

Fiscal 2018 expectations

For fiscal 2018, analysts expect the EPS to grow 40% YoY to $9.26 due to higher revenues, improved operating efficiency, lower taxes, and reduced share counts. For fiscal 2018, the revenues will likely increase 8.3% YoY to $11.4 billion.

Major railroad companies (IYT) including Union Pacific (UNP), Canadian Pacific Railway (CP) and Canadian National Railway’s (CNI) EPS will likely increase 35.6%, 30%, 9.6%, respectively, on a YoY basis.

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