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Norfolk Southern Corp
Union Pacific Corp
Norfolk Southern Corp. (NSC), the railroad that cut its third-quarter forecast amid a decline in coal shipments, said the slump in those deliveries will persist through 2013’s first half.
The drop in coal, the carrier’s biggest cargo category, will run “largely unabated” into next year, Chief Executive Officer Charles “Wick” Moorman said on a conference call. The shares fell 2.3 percent to $64.50 at 5:58 p.m. after regular New York trading.
Coal volumes fell 14 percent last quarter at the Norfolk, Virginia-based railroad. Norfolk Southern garnered about 31 percent of 2011 revenue from those shipments, a business being squeezed at all the major carriers as electric utilities switch to burning cheaper natural gas instead of train-hauled coal.
“The tough time is more economically driven and commodity specific than anything else,” Jason Seidl, an analyst at Dahlman Rose & Co. in New York, said in an interview. “You’ve got to play the hand you’re dealt.”
Merchandise shipments fell 1 percent, part of a 1 percent decrease in third-quarter volumes, Norfolk Southern said. The second-largest U.S. eastern railroad pared its forecast on Sept. 19, helping trigger the biggest plunge in the stock in more than three years and dragging down the rest of the North American industry on concern that the economic recovery is losing steam.
Profit of $1.24 a share compared with the revised average estimate of $1.23 from 27 analysts surveyed by Bloomberg, and was within the range of $1.18 to $1.25 in last month’s forecast. Net income fell 27 percent to $402 million from $554 million, or $1.59 a share, a year earlier.
Revenue fell 6.8 percent to $2.69 billion, Norfolk Southern said. That trailed the average estimate from analysts of $2.73 billion. Norfolk Southern said agricultural carloads were unchanged from a year earlier after the drought that scorched U.S. crops.
Fourth-quarter coal shipments probably will be similar to September’s, Chief Marketing Officer Donald Seale said on the call. Coal deliveries fell 15 percent that month, the railroad said.
“Nothing is broken, but without a return to demand in coal and with the sluggish economic environment, there’s nothing to step up and fill the void that coal left,” said John Mims, an FBR Capital Markets analyst in Arlington, Virginia. He rates Norfolk Southern as market perform, while Seidl has an equivalent hold rating on the stock.
Norfolk Southern’s coal decline echoed the drop of 16 percent at CSX Corp. (CSX), the biggest railroad in the eastern U.S., and 12 percent at Union Pacific Corp. (UNP), the largest North American carrier. Freight volumes fell at all three companies.
Container shipments, the cargo category with the lowest revenue from each carload, rose 5 percent, Norfolk Southern said. Automotive shipments increased 7 percent.
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