Railroads’ Earnings Recap: Norfolk Southern, CSX and Union Pacific

Major railroads in the U.S., including Union Pacific (NYSE:UNP), CSX Corporation (NYSE: CSX) and Norfolk Southern (NYSE:NSC), reported their third quarter earnings in the month of October. All the three railroads continued to flourish on growing shipment volumes of almost all commodities, except for coal, and rising demand for intermodal services, which were driven by the tightening trucking capacity.

Intermodal And General Merchandise Growth Drive Norfolk’s Earnings

Norfolk Southern reported its third quarter 2014 results on October 22. Its revenue increased 7% year-on-year, to reach $3.02 billion, driven by volume growth across all commodities except for coal, which continued to suffer due to the weak export coal environment in the U.S. ^[1] Norfolk Southern’s operating ratio (operating expense expressed as a percentage of revenues) improved approximately 2.4% year-on-year, to reach 67%, driving a 16% increase in net profits. (Click here to read our article)

Norfolk Southern’s stock gained 2.31% over the week through Thursday, November 13, 2014, to reach $115.45. On average, the stock traded on a volume 2.34 million shares. The stock has traded at a 52-week high of $117.26 and low of $85.77.

We currently have a price estimate of $95 for Norfolk Southern. We estimate revenues of $11.9 billion, compared to a consensus estimate of $11.85 billion and EPS of $6.57 for this year, in line with consensus estimates.

Click here to see our complete analysis of Norfolk Southern.

CSX’s Shipment Volumes Increase But Revenue Per Unit Remains Sluggish

CSX reported its third quarter earnings on October 15. The railroad operator’s revenue grew 7.9%, to reach $3.2 billion, on strong volume growth across all commodities. ^[2] However, revenue per unit remained sluggish due to export coal headwinds and an unfavorable domestic coal mix. CSX’s net profits improved 11.8% on account of an improvement in its operating ratio (operating expenses expressed as a percentage of revenue). CSX’s third quarter operating ratio improved 2.2%, to reach 69.7%, due to the higher growth in revenue compared to operating expenses. Overall operating expenses increased 4.6%, with only fuel expenses moving in a favorable direction. An increase in net profits and lower share count helped boost earnings per share for the quarter by 13.3%, to reach $0.51. (Click here to read our article)

CSX’s stock gained 3.31% over the week through Thursday, November 13, 2014, to reach $36.63. On average, the stock traded on a volume 10.62 million shares. The stock has traded at a 52-week high of $36.96 and low of $25.84.

We currently have a price estimate of $28.3 for CSX. We estimate revenues of $12.63 billion, compared to consensus estimate of $12.55 billion and EPS of $1.87 for this year, in line with consensus estimates.

Click here to see our complete analysis of CSX.

Union Pacific Shines On Industrial And Agricultural Shipments

Union Pacific’s third quarter revenue grew 11% year-on-year, to reach $5.8 billion, driven by double digit volume growth at its Industrial and Agricultural segments. ^[3] Union Pacific’s Coal shipments were flat and Chemicals were sluggish during the quarter. Despite the 7% increase in operating expenses, its operating ratio (operating expenses expressed as a percentage of revenue) improved 2.5%, to reach 62.3%. In the third quarter, Union Pacific’s net profits increased 19%. (Click here to read our article)

Union Pacific’s stock gained 1.26% over the week through Thursday, November 13, 2014, to reach $120.25. On average, the stock traded on a volume 4.75 million shares. The stock has traded at a 52-week high of $121.82 and low of $77.71.

We currently have a price estimate of $96.7 for Union Pacific. We estimate revenues of $23.8 billion, compared to consensus estimate of $23.7 billion and EPS of $5.51 for this year, in line with consensus estimates.

Click here to see our complete analysis of Union Pacific.

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1. Norfolk Southern’s Third Quarter 2014 Financial Review, October 22, 2014, www.nscorp.com [↩]
2. CSX’s Q3 2014 Financial Report, www.csx.com [↩]
3. Union Pacific 2014 Third Quarter News Release Financials, October 23 2014, www.up.com [↩]