Norfolk Southern reported slightly lower first-quarter earnings on Friday morning as harsh winter weather took a toll on volume in February and fuel prices jumped in March.
“Working together, we successfully navigated another challenging winter with weather events that affected most of our territory, putting real pressure on the network and our volumes in the month of February,” Chief Executive Mark George said on the railroad’s earnings call Friday. “But as conditions normalized and our network recovered, we were able to capture the available volume in March and exited the quarter with solid momentum, all while staying focused on what matters most, operating the railroad safely.”
Adjusted for the ongoing financial impact of the February 2023 derailment in East Palestine, Ohio, and merger-related costs, Norfolk Southern’s operating income declined 2%, to $939 million, on flat revenue of $2.99 billion. Earnings per share declined 1%, to $2.65.
The railroad’s adjusted operating ratio was 68.7%, an increase of 0.8 points from a year ago.
“On costs, we remained disciplined,” George said. “Total adjusted expenses were up just 1% year-over-year despite inflationary pressures, storm costs, and sharply higher fuel prices.”
Overall volume declined 1% for the quarter due to a 4% drop in intermodal volume. Coal traffic was up 9%, while merchandise posted a 1% gain.
The intermodal decline was primarily due to a 9% drop in international traffic compared to last year’s tariff-related volume spike, but merger-related domestic intermodal business losses also contributed, Chief Commercial Officer Ed Elkins said. Some of NS’ domestic traffic has migrated to CSX (NASDAQ: CSX) thanks to its intermodal alliance with BNSF Railway (NYSE: BRK-B).
The jump in coal volume was due to a 27% increase in domestic utility shipments as natural gas prices rose and utilities sought to rebuild depleted coal stockpiles.
“Within merchandise, volume and revenue increased 1% from a year ago, and this was driven by continued share gains in our chemicals and our automotive markets,” said Elkins.
NS (NYSE: NSC) and UP (NYSE: UNP) plan to submit their revised merger application to federal regulators as planned on April 30. The original application was rejected as incomplete in January.
“The new application is going to confirm what we said in the original application on the logic of doing this deal and the benefits that a single-line transcontinental railroad will bring to the country and to our shippers,” George said. “In fact, we’re going to have a much stronger set of data that actually makes the case stronger.”
