Norfolk Southern's income grows 13 percent in fourth quarter

NORFOLK

Despite the sluggish global economy, Norfolk Southern Corp. rolled to a strong finish in 2008 as its income grew 13 percent to $452 million in the fourth quarter compared with 2007, the Norfolk-based railroad announced Tuesday.

Per-share earnings rose to $1.21 in the quarter ended Dec. 31, from $1.02 a year earlier when it reported income of $399 million.

"Norfolk Southern delivered strong financial results in the fourth quarter despite economic conditions that reduced freight volumes," Wick Moorman, Norfolk Southern's chief executive officer, said in a release. "While it is unclear how long the downturn will last, long-term trends point to freight railroads as the preferred way to move goods and relieve highway congestion."

The results exceeded the mean estimate of analysts, who had been expecting Norfolk Southern to report per-share earnings of $1.18 for the quarter, according to Zacks Investment Research.

The railroad's stock jumped $2.35, or 6.7 percent, to $37.65 a share in trading Tuesday. The gain came after it announced it was raising its quarterly dividend by 2 cents to 34 cents a share and before earnings were released after the market closed.

Tuesday's close is still half it peak price of $75.53 on July 30. The quarter caps off a year of growth fueled by price increases in the face of declining rail volumes.

In the quarter, Norfolk Southern's railway operating revenue grew 2 percent to $2.5 billion despite an 8 percent decline in traffic volume.

For the full year, its revenue jumped 13 percent to $10.7 billion, even as volume declined 3 percent. It reported net annual income of $1.7 billion, or $4.52 a share, for 2008, up 17 percent from 2007.

Revenue from shipments of general merchandise, such as automobiles and construction materials, and intermodal loads, such as shipping containers, both suffered during the fourth quarter but were up for the year. Coal-shipment revenue posted the strongest growth, increasing 34 percent to $3.1 billion in 2008.

Railroads nationwide, including Norfolk Southern, its chief competitor, CSX Corp., and Burlington Northern Santa Fe Railway Co., have relied on pricing power to compensate for declining rail volumes.

But analysts have warned that their ability to raise rates because of demand for rail shipping might slip if the recession continues.

In an effort to cut costs, Norfolk Southern announced last month that it would lay off an undisclosed number of employees, reduce the number of trains in operation and park some rail cars. Executives plan to discuss the company's reductions and plans for 2009 during a conference call this morning.

"We will continue to make investments in our company," Moorman said, "and, in 2009, plan to invest $1.4 billion in capital improvements to maintain the safety and quality of our franchise, improve operational efficiency and service, and support the business growth we expect in future years."

Kathy Adams, (757) 446-2583, kathy.adams@pilotonline.com