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Can Volume Growth Aid Norfolk Southern's (NSC) Q2 Earnings?

Norfolk Southern CorporationNSC is slated to release second-quarter earnings numbers on Jul 25, before the market opens.

In the first quarter of 2018, the company delivered a positive earnings surprise of 9%, reporting better-than-expected earnings and revenues. Moreover, both the top and the bottom line improved substantially on a year-over year basis. Results were aided by the intermodal segment's impressive performance. Norfolk Southern also boasts an encouraging earnings history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters with an average beat of 7.1%.

Things look rosy for the company in the soon-to-be-reported quarter as well. The positive sentiment surrounding the stock can be gauged from the Zacks Consensus Estimate for second-quarter earnings being revised 3.1% upward over the last 60 days.

Let's delve into the details.

Norfolk Southern is expected to perform well in the second quarter on the back of volume growth. At the Deutsche Bank 9th Annual Global Industrials & Materials Summit, the company stated that overall volumes for the to-be-reported quarter have expanded 6% year over year as of Jun 2.

Impressive performances at the chemicals (up 10%), agriculture (up 9%), intermodal (up 8%) and coal (up 4%) segments led to this bullish scenario. Notably, the Zacks Consensus Estimate for carload volumes in the second quarter is up approximately 5% year over year.

The company's cost-cutting efforts are also anticipated to drive the bottom line in the quarter. This in turn, is likely to improve the operating ratio (operating expenses as a percentage of revenues).

Further, strong intermodal revenues are anticipated to boost the company's results in the second quarter as well. The Zacks Consensus Estimate for second-quarter intermodal revenues stands at $703 million, higher than $678 million reported in the first quarter.

However, Norfolk Southern's automotive division has been performing disappointingly for quite some time as automotive volumes are suffering due to sluggish vehicle production in the United States. This adversity might affect automotive revenues and the top line in turn in the impending results. At the above-mentioned event, the company revealed that automotive volumes decreased 5% year over year as of Jun 2.

Additionally, high fuel prices and costs related to overall lower network velocity could push up operating expenses and thus hurt the bottom line.

Norfolk Southern Corporation Price and EPS Surprise

Norfolk Southern Corporation Price and EPS Surprise | Norfolk Southern Corporation Quote

What Does the Model Say?

Our proven model shows that Norfolk Southern is likely to beat on earnings this to-be-reported quarter because it has the perfect combination of the following two key ingredients:

Earnings ESP : Norfolk Southern has an Earnings ESP of +0.36% as the Most Accurate Estimate is pegged higher at $2.32 per share than the Zacks Consensus Estimate of $2.31. A positive Zacks ESP serves as an important indicator for a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Norfolk Southern carries a Zacks Rank #2 (Buy). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have significantly higher chances of beating estimates.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider stocks like United Parcel Service, Inc. UPS , Expeditors International of Washington, Inc. EXPD and Canadian National Railway Company CNI as these too possess the right combination of elements to come up with an earnings beat in their next releases.

UPS has an Earnings ESP of +0.62% and a Zacks Rank #3. The company will report second-quarter earnings on Jul 25.

Expeditors has an Earnings ESP of +1.54% and a Zacks Rank of 1. The company will report second-quarter earnings on Aug 7. You can see the complete list of today's Zacks #1 Rank stocks here .

Canadian National has an Earnings ESP of +1.83% and a Zacks Rank of 3. The company will report second-quarter earnings on Jul 24.

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Canadian National Railway Company (CNI): Free Stock Analysis Report

Norfolk Southern Corporation (NSC): Free Stock Analysis Report

Expeditors International of Washington, Inc. (EXPD): Free Stock Analysis Report

United Parcel Service, Inc. (UPS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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