Norfolk Southern profits fall along with freight volumes

The number four U.S. railway reported net income fell 29.4 percent as revenues dropped 12 percent from the prior year on lower coal, intermodal and general merchandise volumes in fourth quarter.    Norfolk Southern Corp. reported a profit of $361 million in the fourth quarter ending Dec. 31, down 29.4 percent from $561 million in the same 2014 period. Railway operating revenues stood at $2.5 billion as the company saw sales drop in all three lines of business:
     • Coal: $433 million in fourth quarter revenue compared with $543 million in the same period a year earlier;
     • General merchandise: $1.52 billion compared with $1.68 billion;
     • And Intermodal: $563 million compared with $649 million.
   For the full year, NS posted a profit of $1.6 billion in 2015 compared with $2 billion in 2014. Revenues fell 9.5 percent to $10.5 billion for the year.
   The railroad said in the fourth quarter “average revenue per unit decreased 6 percent as the effects of higher rates were more than offset by a $226 million, or 73 percent, decline in fuel surcharge revenues.”
   General merchandise volumes declined 4 percent, as a 9 percent gain in automotive traffic was more than offset by decreases in the other four commodity groups.
   Intermodal revenues were 13 percent below fourth quarter 2014 levels and the company said restructuring of its Triple Crown service and fewer domestic shipments combined to reduce intermodal traffic volume by 5 percent.
   The company blamed the decline in coal revenues on a weak global export market, record high temperatures in the Eastern U.S., and low natural gas prices that combined to dampen volumes.
   James A. Squires, Norfolk Southern’s chairman, president and chief executive said the company is “implementing a plan to reduce costs and enhance profitable growth. This plan will enable us to achieve significant annual expense savings beginning in 2016 without compromising the company’s ability to capitalize on volume and revenue growth opportunities.”
   The railroad expects to achieve annual productivity savings of more than $650 million per year by 2020, growing from an initial $130 million in 2016.
   “With this plan, Norfolk Southern expects to improve consistency, reliability, and availability, resulting in a faster, lower cost, and more profitable railroad,” it said. “The company has already begun implementing the plan and expects associated net benefits to begin appearing in Norfolk Southern’s financial results beginning in the first half of 2016.”
   Norfolk Southern has recently found itself the target of a takeover bid from fellow North American railway Canadian Pacific. Since November, NS has rejected three separate stock-and-cash offers from CP, deeming the estimated $30 billion acquisition offers “grossly inadequate” and unlikely to win regulatory approval from the Surface Transportation Board.
   CP has repeatedly argued it could manage the railway better than current NS executives, and has even said it would be willing to take its offer directly to shareholders and initial a proxy fight to install new leadership.
   Correction: A previous version of this story incorrectly said fourth quarter revenues fell 20 percent at NS.