Norfolk Southern Shares Rise on Surprise Profit Jump

By Laura Stevens 

Shares of Norfolk Southern Corp. rose 10% Friday after the railroad reported strong first quarter results a week after Canadian Pacific Railway Ltd. called off a proposed merger.

North America's No. 4 railroad by revenues reported a surprise 25% rise in profit Thursday to $387 million. Driving first-quarter results were savings due to the company's profit-improvement plan, better weather and cost savings on labor and materials, specifically the company's locomotive repair program.

Shares were trading up at $91.04 Friday midday, their highest level since December.

On April 11, Canadian Pacific Railway called off its nearly $30 billion pursuit of Norfolk Southern after it was unable to overcome a wall of opposition from rival railroads, shippers and U.S. politicians. Canadian Pacific said it didn't plan to initiate further merger talks with other railroads in this climate.

Both BNSF Railway Co. and Union Pacific Corp. warned after the bid surfaced that a major merger would likely trigger a final round of industry consolidation, reducing the number of major freight rails from seven to a handful.

"I wouldn't want to speculate on what the future may hold in terms of other ideas of consolidation," Chief Executive Jim Squires said in an interview. Canadian Pacific's proposal was inadequate in value and wouldn't have received regulatory approvals, he added.

"We certainly remain open to any and all alternatives that would create value for our shareholders," Mr. Squires said.

Mr. Squires, who took over in June, however warned that the second quarter will be tougher than the first as weak commodity prices continue to take a toll.

"We'll be working hard to leverage our service to produce growth, but against a pretty difficult backdrop overall," he said.

There are opportunities to grow, particularly in intermodal -- the transportation of containers and trailers also moved by truck -- and some consumer goods, Mr. Squires said. But volatile pricing and weakness in commodities are driving volume decreases. In the first quarter, coal volumes declined 23% and comprised less than 15% of total revenues, down from 29% in 2010.

In a bright spot, the company was able to charge more this year for moving cargo as more of its trains run on time, spend less time stuck in rail yards, and service levels improve.

"It really comes back to service," said Mr. Squires. "We're able to deliver customers' goods in a more reliable and in a timely way, so that they're willing to pay more."

Write to Laura Stevens at [e-mail]

(END) Dow Jones Newswires

April 22, 2016 14:01 ET (18:01 GMT)

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