AP News

Norfolk Southern shares fall on lower outlook

NEW YORK (AP) — Shares of Norfolk Southern Corp. slid in morning trading Thursday after the railroad said its third-quarter earnings will fall well below expectations due to a drop in coal demand and fuel charges.

The Norfolk, Va., company said late Wednesday it expects earnings of between $1.18 and $1.25 per share for the quarter that ends this month. That's well below the $1.63 per share that analysts surveyed by FactSet were expecting, and below the $1.59 per share in last year's quarter.

Norfolk Southern said it's being hurt by lower shipments of coal, which is used both to make steel and produce electricity. Demand for the commodity tends to wane when economies around the world are weak, as businesses shutter and construction activity slows. Coal comprises about one-third of Norfolk's total shipments.

The railroad also said merchandise shipments will drag on results. Merchandise includes just about every shipment except coal — from vehicles and chemicals to paper products.

And fuel surcharges, which railroads charge customers to recoup their fuel costs, are also expected to hurt results. Fuel surcharges, which lag the actual price of fuel by two months, hurt railroads when prices accelerate quickly.

September is one of the most critical months of the year for freight companies because it marks the end of the back to school rush and the start of the holiday season. This year, the normal peak shipping season has been soft as retailers carry less inventory and freight prices fall because of waning demand. And this week, FedEx said trade around the globe is mimicking the last two recessions.

Norfolk Southern is expected to give more details on its third-quarter outlook at a conference Thursday morning. It will release results on Oct. 23.

Several analysts lowered earnings estimates on the lowered outlook, but at least two suggested investors should take advantage of the beat-up shares which are down about 7 percent in the year to date. Sterne Agee analyst Jeff Kaufmann said investors should take advantage of the lower stock price because fuel surcharges will eventually level off and coal demand is expected to pick up next year.

Shares lost $4.79, or 6.6 percent, to $67.90 in morning trading. The stock has traded between $57.57 and $78.50 in the last year.

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