Norfolk Southern’s Q4 2016 Earnings Preview: Recovering Shipment Volumes And Productivity Improvement Initiatives To Boost Earnings

by Trefis Team
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NSC
Norfolk Southern
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We expect Norfolk Southern to report improved Q4 2016 earnings as a result of recovering shipment volumes and the impact of the company’s productivity improvement initiatives. Norfolk Southern’s shipment volumes reported a year-over-year increase in Q4, after several successive quarters of subdued shipment volumes driven by declines in coal shipments. In contrast to previous quarters characterized by sharp declines in coal shipments, Norfolk Southern’s combined coal and coke shipments stood only 2% lower in Q4 2016 as compared to the corresponding period of last year. [1] Rising natural gas prices have led to a revival in the demand for coal from utilities. As per EIA estimates, benchmark Henry Hub natural gas prices are expected to average $3.55 per MMBTU in 2017, around 41% higher than in 2016. [2] In addition to recovering coal shipments, Norfolk Southern’s intermodal shipments stood around 9% higher year-over-year in Q4 2016, with an improved service offering driving growth in domestic volumes. [3] However, subdued pricing as a result of weaker fuel surcharge revenue (as illustrated by the fuel price index in the tables shown below) is likely to offset the impact of higher shipments on overall revenue. Whereas Q4 2016 is expected to witness a stabilization in revenue, savings from Norfolk Southern’s productivity improvement initiatives are likely to boost the company’s bottom line. The following tables summarize our expectations for Norfolk Southern’s Q4 results.

NSC Q4 2016 Pre-Earnings

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Norfolk Southern

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Notes:
  1. Norfolk Southern’s Week 52 2016 Carloadings Report, Norfolk Southern Website []
  2. Short Term Energy Outlook, EIA []
  3. Norfolk Southern’s Q3 2016 Earnings Call Transcript, Seeking Alpha []
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