Norfolk Southern (NSC) said second-quarter profit dropped 45%, missing analysts' estimates, as lower revenue couldn’t offset the company’s cost cutting. Revenue plunged 33% on a 26% drop in volume and much lower fuel surcharges during the quarter.
Volume declined more than 20% across all segments, except in agriculture which declined 14%. Automotive volume was the worst performing segment, down 48% versus the prior-year period. Volume in Norfolk’s coal segment – which accounts for 29% of revenue and is the company’s largest segment – dropped 26% due to lower electricity demand, high inventories at utilities, competition from cheap natural gas, and low global steel production. Both automotive and coal volumes stand to improve in the coming quarters.
Fuel expense decreased 69% due to 26% fewer gallons consumer and sharply lower prices for diesel - $1.55 per gallon versus $3.58 per gallon last year. Still, Norfolk’s gross profit margin shrank 370 basis points to 74.8%. More concerning was Norfolk’s significantly lower first-half free cash flow of $104 million, or 2.7% of sales, compared to last year’s solid $448 million, or 8.5% of sales.
NSC shares finished the day -1.90%
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Peter J. Lazaroff, Investment Analyst
Wednesday, July 29, 2009
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