Norfolk Southern profit up 4% but expenses jump higher

Jan 25, 2023, 7:24 AM | Updated: 11:27 am

OMAHA, Neb. (AP) — Norfolk Southern delivered 4% more fourth-quarter profit but higher expenses driven by soaring fuel costs hurt the bottom line even as service improved across the railroad.

The Atlanta-based railroad reported fourth-quarter profit of $790 million, or $3.42 per share, as volume slipped 1%. That’s up from $760 million, or $3.12 per share, a year earlier.

The results fell just short of Wall Street expectations because the railroad’s expenses were up significantly. The average estimate of 27 analysts surveyed by FactSet was for earnings of $3.44 per share.

The railroad’s expenses were up 19% to $2.06 billion during the quarter as fuel costs jumped 62% and compensation costs grew 9% after the industry agreed to new contracts with employees that include 24% raises over the five-year deal.

Norfolk Southern’s revenue did grow 13% to $3.24 billion as it collected more surcharges for the higher fuel prices and raised the rates it charges. That came in ahead of the $3.21 billion FactSet said analysts were expecting, and the $385 million increase in revenue was enough to offset the $333 million growth in expenses, but investors were still disappointed in the result.

The railroad’s shares were down nearly 5% at $244.15 in afternoon trading.

Norfolk Southern CEO Alan Shaw said the railroad’s operating performance improved throughout 2022 ever since the worst of the delayed deliveries that shippers complained about last spring, and that continued during the fourth quarter.

“Now our job is to prove it consistently with performance,” Shaw said.

The railroad said the average speed of its trains improved from 17.5 mph in the second quarter to 20.7 mph in the fourth quarter, and that continued to improve this month to 22.2 mph now. Its locomotives also hauled freight an average of 202 miles per day in the fourth quarter, up from 191 a year earlier.

Norfolk Southern has been helped by hiring hundreds of new employees over the past year. It now has 7,529 train crew staffers, up from 6,937 in last year’s first quarter, and it has another 882 conductors in training. The railroad plans to keep hiring even though the economy is slowing because it is still short on workers in about one-quarter of its locations.

The railroad said it expects its total revenue this year to be similar to 2022 when it delivered $12.75 billion revenue, but there will be recessionary pressure on volumes and the outlook for the economy remains uncertain.

Edward Jones analyst Jeff Windau said it’s encouraging to see Norfolk Southern’s service getting better, but the railroad still has more room to improve, and it will need to keep getting more efficient this year if it wants to grow profits while revenue stays flat.

“It’s definitely an environment where they need to have a good service product and need to improve their efficiencies to offset the headwinds they’re going to be facing,” Windau said.

Through all of last year, Norfolk Southern said profit was up 9% to $3.27 billion, or $13.88 per share.

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Norfolk Southern profit up 4% but expenses jump higher