What To Expect From Norfolk Southern’s Q4

by Trefis Team
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Norfolk Southern (NYSE:NSC) is set to report its Q4 2018 earnings on January 24, and we expect the company to post steady growth, primarily led by intermodal freight, which jumped 20% (y-o-y) for the nine month period ending September 2018. We expect the growth to continue in the near term, as the company benefits from capacity constraints in the trucking industry. We also forecast mid-single digit growth in coal and agriculture freight, led by higher exports. Norfolk Southern saw an operating ratio of 65.4% in the previous quarter, which was lower as compared to the prior year quarter, as the company effectively managed its costs. We expect this trend to continue in Q4 as well, and aid the bottom line. Overall, we estimate the company to post $9.40 EPS for the full year 2018. We have created an interactive dashboard ~ What Is The 4Q 2018 Outlook For Norfolk Southern ~ on the company’s expected performance in 2018. You can adjust various drivers to see the impact on the company’s overall earnings and price estimate.

Expect Full Year Revenues To Grow In High Single Digits

We forecast the company’s overall revenues to grow in high single digits for the full year 2018, primarily led by the Intermodal segment, which has seen strong growth in the recent quarters. This can be attributed to volume and pricing gains, benefiting from continued capacity constraints in the trucking industry. This trend will likely continue in Q4 and in 2019, in our view. Even if the trucking industry were to add capacity in the near term, there is a shortage of drivers since the full implementation of the ELD mandate. As such, railroad companies should continue to benefit from this in the near term. Apart from Intermodal, the company’s Agricultural Goods segment should also do well. The U.S. government announced the increased use of ethanol in gasoline in Q3, and this should result in higher shipments for the railroad industry. In fact, Norfolk Southern saw high single digit segment revenue growth for the nine month period ending September 2018, as the declines in corn and soybean shipments were more than offset by higher ethanol and fertilizer shipments. This trend will likely continue in Q4 as well.

Looking at coal freight, we forecast the revenues to grow in mid-single digits led by both volume and price gains for the full year 2018. The company’s coal freight revenues grew 4% for the nine month period ending September 2018, led by higher exports. In terms of tonnage, the exports were up 13% while utility coal was down 7% during the same period. The company in its Q3 earnings conference call stated that it expects Q4 to see growth in both utility as well as the export market. We also forecast margins to increase slightly for the full year, as the company remains focused on reducing its operating ratio. In fact, Norfolk Southern has been able to improve its operating ratio (y-o-y) for 11 consecutive quarters. Higher revenues and improved margins should bolster the company’s bottom line in 2018.

 

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