Norfolk Southern reported higher third-quarter earnings and record revenue Thursday as freight volume grew and fuel surcharges increased, although expenses consumed a larger share of revenue.
The railroad (NYSE: NSC) said revenue rose 14%, to $3.5 billion, on a 3% increase in volume. Higher fuel surcharges accounted for eight percentage points of revenue growth. Income from railway operations increased 5%, to approximately $1.2 billion, while diluted earnings per share rose 7%, to $3.37.
Adjusted earnings per share increased 10%, to $3.62, excluding merger-related expenses and effects of the East Palestine derailment, along with restructuring and other charges in the year-earlier comparison. Adjusted operating income rose 7%, to approximately $1.2 billion.
Despite the earnings growth, Norfolk Southern’s operating ratio, a key indicator of efficiency, worsened 2.8 percentage points, to 67.4%. Its adjusted operating ratio increased 2.1 points, to 65.4%, underscoring pressure on margins even as revenue reached a quarterly record.
Chief Executive Mark George said productivity improvements helped earnings, while tighter trucking capacity increased rail’s appeal to shippers.
“Demand for rail service increased during the quarter, as a tighter trucking market highlighted rail’s competitive advantages and underscored the opportunity for a more efficient, capacity-enhanced freight network,” George said in the earnings announcement.
“We remain focused on investing in a stronger, more resilient rail network that can support growth we see on the horizon,” he said.
Why it matters: Norfolk Southern is benefiting from a tighter trucking market, but stronger freight demand is not translating into better margins.
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Read more articles by Stuart Chirls here.
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