Norfolk Southern (NSC) jumped 3.5% today as CSX, the third-largest U.S. railroad, beat analysts’ profit estimates due primarily to cost cutting.
As expected among all of the railroads, CSX said the slump in coal shipments widened significantly, falling by 21% in the second quarter from 7% in the first quarter.
Coal is the biggest product category by volume at the four biggest U.S. railroads, which probably were hurt in the second quarter when tumbling natural-gas prices spurred electric utilities to switch fuels. Also impacting coal volumes is reduced coal exports due to lower steel production Europe. Coal volumes have a significant impact since haling coal is a very profitable business for the rails.
CSX expects the coal volume to moderate a bit in the third quarter, but would not predict the trend will improve. Also interesting was that CSX said it has seen “some compression” in prices on new business where the railroad competes with truck and barge transport.
Norfolk Southern is expected to see a 47% drop in earnings from a year ago, according to a Bloomberg analyst survey. I would expect Norfolk to cite similar coal volume declines and it will be interesting to see if they needed to make any price concessions on new business.
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Peter J. Lazaroff
Tuesday, July 14, 2009
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