Norfolk Southern Corp.
(
NSC
), one of the leading U.S. railroad companies reported second
quarter 2012 earnings of $1.60 per share that surpassed the Zacks
Consensus Estimate of $1.53 and rose 15.9% from $1.38 adjusted
earnings in the year-ago quarter. Despite the looming economic
outlook and softness in coal demand, the company's earnings were
driven by strong operating performance and cost control
measures.
Total operating revenue remained flat year over year at $2,874
million but came in below the Zacks Consensus Estimate of $2,939
million.
On a year-over-year basis,
Coal
revenues declined 15.5% while
General
Merchandise
and
Intermodal
revenues grew 8.6% and 4.3%, respectively.
In the second quarter, operating income was $934 million, up
6.7% year over year. Operating ratio improved 200 basis points to a
record high 67.5%. Fuel expenses dropped 5.3% year over year.
Cash Position
Norfolk exited the quarter with cash and cash equivalents of
$356 million compared with $276million at year-end 2011. Cash from
operations was $1,663 million compared with $1,700 million in the
year-ago quarter. Debt- to-equity ratio stood at 81.5% as of June
30, 2012 compared with 74.6% as of December 2011.
The company repurchased 12.3 million shares worth $850 million
in the first six months of 2012 compared with 11.6 million shares
worth $792 million bought back in the comparable year-ago
period.
Our Analysis
We remain encouraged by the company's commitment to improve its
operating results backed by increasing service abilities, railroad
safety and network efficiency that led to improve cost and
productivity. Further, heavy investments in key projects are also
expected to remain accretive to the company's long-term growth.
However, we remain concerned about factors such as the
prevailing market condition in the core segment like Coal and
uncertainties regarding the present economic environment that may
affect shipments. Further, tightened railroad regulation and
competitive pressure from other leading railroads such as
Union Pacific Corporation
(
UNP
) and
CSX Corp.
(
CSX
) also remain significant headwinds for the company's growth.
We are currently maintaining our long-term Neutral rating on the
stock. For the short term (1-3 months), the stock retains a Zacks #
2 Rank (Buy).
CSX CORP (CSX): Free Stock Analysis Report
NORFOLK SOUTHRN (NSC): Free Stock Analysis
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UNION PAC CORP (UNP): Free Stock Analysis
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