How Will Norfolk Southern’s Revenue Move In The Next Three Years?

Norfolk Southern Corp. (NYSE:NSC) is a Virginia-based company primarily engaged in the rail transportation of raw materials, intermediate products, and finished goods, along with overseas freight through several Atlantic and Gulf Coast ports. The company also offers the most extensive intermodal network in the eastern half of the US, and generates 23% its revenue from this division. Below, we present the breakdown of NSC’s divisional revenue for 2017 and forecast for 2018 and beyond using our interactive platform.

With the growing preference for cleaner and safer sources of energy, the demand for coal has dropped significantly over the last few years. However, with the Trump administration’s plans to pull back from the Paris Agreement, the coal shipments in the US have gone up drastically. The US coal shipments stood at 4.42 million carloads at the beginning of 2018, almost 8% higher compared to the same period of last year ((Weekly US Rail Traffic, Association of American Railroads)). Now, assuming that the government’s current stance on the climate change issue remains unchanged, we expect US coal shipments to continue to rise in the coming quarters, boosting Norfolk’s top-line growth in the coming years.

According to the Federal Motor Carrier Safety Administration’s (FMCSA) directive, all trucking companies were mandated to be equipped with Electronic Logging Devices (ELDs) by the end of December 2017. The ELDs are synchronized with a vehicle engine to automatically record accurate driving time and hours of service to ensure safety on roads and preventing drivers from logging in incorrect hours. However, this new rule is likely to result in a lower capacity of trucks available for transportation. While the trucking industry is expected to be hit by this law, other modes of transportation, particularly railroads, are expected to benefit from this. In light of this enactment, we expect Norfolk’s intermodal shipments to grow strongly in the coming years. Also, due to the tightness in the trucking market, the rates for intermodal shipments are anticipated to rise sharply in the near term.

With the extension of the production cuts by OPEC and its allied Non-OPEC members until the end of 2018, the outlook for commodity prices has improved significantly. As a result, the metals and commodity shipments are expected to improve over the next few quarters, which will boost Norfolk’s metals and commodities revenue. However, this rise is likely to be partially offset by the weakness in automotive shipments driven by lower anticipated sales of US light vehicles over the next couple of years.

Do not agree with our forecast? Create your own forecasts for Norfolk Southern and its revenue streams using our interactive platform.

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