Norfolk Southern profit up 4% as rates, performance improve

Freight train cars sit in a Norfolk Southern rail yard on Sept. 14, 2022, in Atlanta. Norfolk Southern railroad delivered 4% more fourth-quarter profit even though the number of shipments it hauled dipped slightly because it collected more surcharges for higher fuel prices and raised the rates it charges. The Atlanta-based railroad said it earned $790 million, or $3.42 per share. That beat what Wall Street expected. Norfolk Southern CEO Alan Shaw said the railroad's operating performance improved throughout 2022 ever since the worst of the delayed deliveries that shippers complained about last spring. (AP Photo/Danny Karnik)

OMAHA, Neb. (AP) — Norfolk Southern railroad delivered 4% more fourth-quarter profit even though the number of shipments it hauled dipped slightly because it collected more surcharges for higher fuel prices and raised the rates it charges.

The Atlanta-based railroad reported fourth-quarter profit of $790 million, or $3.42 per share even though volume was down 1%. That’s up from $760 million, or $3.12 per share, a year earlier.

The results came in ahead of Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $3.41 per share.

Norfolk Southern CEO Alan Shaw said the railroad's operating performance improved throughout 2022 ever since the worst of the delayed deliveries that shippers complained about last spring, and that continued during the fourth quarter.

“Now our job is to prove it consistently with performance,” Shaw said.

The railroad said the average speed of its trains improved from 17.5 mph in the second quarter to 20.7 mph in the fourth quarter, and that continued to improve this month to 22.2 mph now. Its locomotives also hauled freight an average of 202 miles per day in the fourth quarter, up from 191 a year earlier.

Norfolk Southern has been helped by hiring hundreds of new employees over the past year. It now has 7,529 train crew staffers, up from 6,937 in last year's first quarter, and it has another 882 conductors in training. The railroad plans to keep hiring even though the economy is slowing because it is still short on workers in about one-quarter of its locations.

The railroad's expenses were up 19% to $2.06 billion during the quarter as fuel costs jumped 83% and compensation costs grew after the industry agreed to new contracts with employees that include 24% raises over the five-year deal.

The railroad said it expects its total revenue this year to be similar to 2022 when it delivered $12.75 billion revenue, but there will be recessionary pressure on volumes and the outlook for the economy remains uncertain.

Edward Jones analyst Jeff Windau said it's encouraging to see Norfolk Southern's service getting better, but the railroad still has more room to improve, and it will need to keep getting more efficient this year if it wants to grow profits while revenue stays flat.

“It’s definitely an environment where they need to have a good service product and need to improve their efficiencies to offset the headwinds they’re going to be facing,” Windau said.

Through all of last year, Norfolk Southern said profit was up 9% to $3.27 billion, or $13.88 per share.

In afternoon trading, shares of the company slid 5.5% to $241.77.