Norfolk Southern And CSX May See Higher Growth In The Future Than Union Pacific
Norfolk Southern (NYSE: NSC) and CSX (NYSE: CSX) are railroads operating in the eastern part of the U.S. while Union Pacific operates in the mid and western part of the U.S. Of the three railroad companies, Union Pacific is the largest with revenue of $21.96 billion in 2013 [1] while Norfolk Southern and CSX posted revenues of $11.24 billion and $12.03 billion respectively. [2] From 2010 to 2013, Union Pacific’s revenue grew 29.5%, Norfolk Southern’s revenue grew 18.2% and CSX’s revenue grew 13.1%. However, we feel that in the future, Norfolk Southern and CSX may grow at higher rates than Union Pacific. Declining reliance on coal and the expansion of Panama Canal will help drive this growth.
See our complete analysis of Norfolk Southern here
Uncertainty in the coal market may not hamper Norfolk Southern and CSX
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Since the time the U.S. domestic and export coal markets began to weaken, Norfolk Southern and CSX’s coal businesses have declined heavily. This led to a greater reduction in coal’s contribution to their revenues. With reduced reliance on coal for revenue growth, Norfolk Southern and CSX will not be hampered much by the uncertainties surrounding the U.S. coal market. U.S. export coal is facing the pressure due to lower global prices and renewed competition from Australian coal. Additionally, domestic coal, which is already suffering from the impact of lower priced natural gas might see a decline in demand due to plant shut downs driven by the Obama administration’s proposed plan to reduce emissions from power plants by 30% by 2030. [3]
The table below depicts contribution of coal revenues to overall railroad’s revenues and the growth in revenue for the three railroads.
| Railroad | Coal’s contribution to overall revenue | Growth in revenue | ||||
| 2011 | 2012 | 2013 | 2011 | 2012 | 2013 | |
| Norfolk Southern | 31.0% | 26.1% | 22.6% | 17.4% | (1.2)% | 1.9% |
| CSX | 31.6% | 27.1% | 24.1% | 10.4% | 0.1% | 2.3% |
| Union Pacific | 20.9% | 18.7% | 18.1% | 15.3% | 7.0% | 5% |
From the table, we notice that after declining in 2012, Norfolk Southern and CSX’s revenues have shown positive growth in 2013 driven by its reduced reliance on revenue from coal and strong growth in shipments of other commodities. However, Union Pacific’s revenue growth has slowed down, though it is still higher than its competitors.
Expansion of the Panama Canal shall increase shipments entering the eastern coast
The Panama Canal is currently undergoing expansion that will double its capacity and allow more and larger ships through. [4] The expansion will be completed by 2015. Given their geographic location, Norfolk Southern and CSX will directly benefit from the increase in shipments coming in from the Panama Canal. Union Pacific, which operates in the mid and western U.S., will benefit from the expansion only if the commodities being shipped move further middle into the country.
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Notes:- Union Pacific 10K filed 02/07/2014, February 7 2014, www.up.com [↩]
- CSX 2014 SEC 10K Filing, www.csx.com)) ((Norfolk Southern 2014 SEC 10K Filing, www.nscorp.com [↩]
- EPA seeks 30% cut in power plant carbon emissions by 2030, June 3 2014, www.usatoday.com [↩]
- Panama Canal Expansion Program, www.pancanal.com [↩]