Norfolk Southern Profit Falls

Norfolk Southern Corp. said Monday that profit for its latest quarter dropped 23% as declining demand for coal—a key commodity for the rail sector—weighed on the railway's results.

Revenue linked to the transport of coal was $453 million for the three-month period ended in June, Norfolk Southern reported on Monday, some 33% lower compared with the same time frame last year. Volume of the commodity dipped 21%, driven by a nearly quarter less demand from domestic utilities and 38% less demand in exports.

There has been less demand for coal from U.S. electricity utilities as natural-gas prices have fallen, making the alternative attractive. And slowing economic growth in China and the strengthening of U.S. dollar—which makes most American products and services more expensive overseas—has also dented coal exports. Sliding fuel prices have also pinched fuel-surcharge fees, a key revenue stream for railways.

Previously, Norfolk had reported that coal carloads for the year through June 27 had declined some 21% compared with the same period a year before. Dropping fuel prices have also cut into fuel-surcharge revenue. Also this month, Jacksonville, Fla.-based railroad company CSX Corp. reported that sagging coal shipments had contracted its revenue. Overall, Norfolk Southern reported a profit of $433 million, or $1.41 a share, down from $562 million, or $1.79 a share, a year earlier. Revenue decreased 11% to $2.71 billion, with total volume dipping 2% as gains in intermodal and merchandise traffic were offset by the drop in coal.

Intermodal revenues, or sales from freight movement by two or more kinds of transportations, were $633 million, 3% lower compared with the same period a year before as higher volume was offset by lower fuel surcharges.

Analysts surveyed by Thomson Reuters predicted revenue would slide some 8% to $2.8 billion with earnings down almost a quarter compared with the previous year, at $1.42 a share.

Shares of the company's stock fell 1.1% in light premarket trading.

According to data from the Association of American Railroads, across the industry coal carloads are down 9.4% for the year to date through July 4 compared with the same period in 2014, while metallic ores and metals carloads dipped 5.9%. Total carloads are down 3.9%, offset slightly by a rise of 2.7% in total intermodal units, or shipments that use an additional means of transport like ship or truck along with rail.

Write to Ezequiel Minaya at [e-mail]

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