Norfolk Southern’s 4Q’17 Earnings To Surge Backed By Coal Shipments And Cost Reduction Measures

Norfolk Southern Corp. (NYSE:NSC), the Virginia-based railroad company, is set to release its financial performance for the December quarter on 24th January 2018((Norfolk Southern To Hold Fourth Quarter 2017 Earnings Conference Call, Norfolk News Release)). The market expects the company to post a strong improvement in its revenues driven by the rebound in coal shipments due to favorable government policies and rising natural gas prices. This should also boost the company’s performance for the quarter. Further, the company’s efforts to reduce its operating costs is likely to bring down its operating ratio and thus, boost its earnings for the quarter as well as the full year 2017. We currently have a price estimate of $148 per share for the company, which is slightly lower than its market price.

See Our Complete Analysis For Norfolk Southern Corp. Here

Key Trends Witnessed During 4Q’17

• According to Norfolk’s weekly shipment data, its coal and coke shipments continued to grow at a high rate of 16% during the year, driven by the improving demand for coal due to the rising natural gas prices and favorable government policies. The company’s intermodal shipment volumes also rose about 5% for the year, while its agricultural, industrial, and construction shipments dropped sharply through the year, offsetting the impact of higher intermodal shipments.
• Yet, overall the company’s shipments grew by roughly 5% for the year, which is notably higher than its rival, CSX Corp., that experienced a decline in its shipments despite improving dynamics in the industry.

• Apart from this, the average Brent crude oil prices (calculated based on two-month lagged prices) for the December quarter increased almost 14% on a sequential basis, and 16.5% on an annual basis. On a full year basis, the oil prices improved over 25% on a y-o-y basis. As a result, the company is likely to experience a jump in its fuel surcharge revenue for the quarter as well as full year, which will boost its top-line performance.

• Similar to the last quarter, we expect Norfolk to rationalize its workforce and improve the productivity of its operations to bring down its operating ratio. Given the impressive results from its cost reduction initiatives so far, the company expects to achieve its targeted cost savings of $150 million for 2017 and gradually bring down its operating ratio below 65% over the next few years.

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