What Norfolk Southern (NSC) Said on Its Q3 Earnings Call

Key Points

• Strong third-quarter results: Revenue rose 14%, while operating income increased 7% and net income and adjusted EPS each climbed 10%. Revenue excluding fuel reached a record, supported by 3% volume growth across merchandise, intermodal and coal.
• Higher costs and investment outlook: Norfolk Southern expects full-year adjusted operating expenses to exceed $9 billion, including roughly $700 million in additional fuel costs, and raised its 2026 capital spending forecast to approximately $2.1 billion from $1.9 billion.
• Growth and merger opportunities: Tighter trucking capacity and elevated fuel prices are driving truck-to-rail conversions, particularly in intermodal. Management is advancing its proposed Union Pacific combination, which it says could create a unified transcontinental network and support further freight shifts from highways to rail.

Norfolk Southern NYSE: NSC reported higher third-quarter revenue, operating income and earnings as volume growth, pricing and a tighter truck market supported demand across its business groups. The railroad also raised its 2026 capital spending outlook to fund capacity, resiliency and growth initiatives, while updating its full-year operating expense outlook for elevated fuel costs.

Chief Executive Officer Mark George said the company produced “strong revenue and operating income growth” while advancing productivity initiatives and managing higher fuel costs. He said demand for rail service has increased in areas including domestic intermodal and chemicals, with tighter trucking capacity improving rail’s competitive position.

Financial Results and Updated Outlook

Chief Financial Officer Jason Zampi said third-quarter adjusted operating ratio was 65.4% and adjusted earnings per share was $3.62. The adjusted figures excluded $42 million of merger-related expenses and $28 million of net costs connected to the Eastern Ohio incident.

Revenue increased 14% from a year earlier, including fuel surcharge effects. Revenue excluding fuel increased 6% to an all-time record, according to Chief Commercial Officer Ed Elkins. Revenue per unit excluding fuel rose 3%.

Norfolk Southern said operating income increased 7%, while net income and earnings per share each rose 10%. Expenses increased 17%, with more than half of the increase attributed to fuel. Zampi said rising fuel prices negatively affected the operating ratio by about 250 basis points compared with the company’s earlier expectations.

For the full year, the company now expects adjusted operating expenses to be just above $9 billion. George said that forecast includes roughly $700 million in incremental fuel expense versus Norfolk Southern’s view at the start of the year. The company raised its 2026 capital expenditure outlook to about $2.1 billion from $1.9 billion, citing investments intended to accommodate growth and improve network resilience and efficiency.

Volume Growth Across Business Segments

Volumes increased 3% in each of Norfolk Southern’s major business verticals during the quarter. Merchandise volumes rose 3%, while merchandise revenue excluding fuel increased 5%, driven by metals and construction demand as well as energy-related demand in chemicals. Merchandise revenue per unit excluding fuel increased 2%, as core pricing was partly offset by mix.

Intermodal volumes also increased 3%, supported by domestic and premium business, though international volumes partially offset those gains. Intermodal revenue excluding fuel rose 7%, and revenue per unit excluding fuel increased 4%, reflecting favorable mix and pricing conditions.

Coal volumes grew 3%, primarily due to export traffic, including business from a customer announced earlier in the year. Utility coal volumes were relatively flat from 2025 because of plant outages and localized service constraints, Elkins said. Coal revenue per unit excluding fuel increased 2%, helped by seaborne pricing.

Looking ahead, Elkins said Norfolk Southern expects coal growth for the rest of 2026 to be led by exports, with support from utility market conditions. He said low natural-gas prices remain a competitive factor, though the company expects some utility inventory replenishment. The company also cited potential near-term opportunities in natural gas liquids, sand and crude oil if global energy prices remain elevated.

Operations, Productivity and Capacity

Chief Operating Officer Brian Barr said Norfolk Southern improved its network performance sequentially despite weather disruptions in August, including wind, rain, washouts, downed trees and power outages across portions of its network. The company reported a preliminary year-to-date Federal Railroad Administration personal injury index of 1.08 and a train accident rate of 1.74, which Barr described as a company record.

The railroad handled higher traffic largely through existing infrastructure. Gross ton miles were 5% higher than the comparable 2025 period, while average train length and weight each increased 4%. On-time origins improved by 12 percentage points from the prior quarter, and workforce productivity reached a third-quarter record, Barr said.

Norfolk Southern eliminated 95 crew starts per week and removed 200 cars per day through changes including redesigned terminal connections and fewer handling moves. Barr said those changes helped the network absorb 3% carload growth. The company is undertaking localized hiring, targeted train-plan consolidations and terminal investments to support volume growth.

Management said it has 420 locomotives in storage that could be deployed as demand increases. Barr added that Norfolk Southern has capacity in existing scheduled merchandise and intermodal operations, although more asset-intensive unit train traffic can place greater pressure on resources.

Truck-to-Rail Opportunity and Merger Discussion

George said elevated fuel prices and tighter trucking capacity have contributed to highway-to-rail conversions, particularly in intermodal. However, he cautioned that some freight could return to trucking if fuel costs decline and truck capacity expands. He said a proposed combination with Union Pacific is intended to create a more permanent opportunity for rail share gains by offering a unified transcontinental service rather than an interline product.

Elkins said Norfolk Southern sees continued potential to convert truckload freight in eastern markets, where rail penetration is lower than in transcontinental lanes. The company is also pursuing new service opportunities while demand and trucking conditions remain favorable.

George said the company has submitted its merger application and expects the evidentiary record before the Surface Transportation Board to further develop. He argued that a unified network could reduce handoffs, improve service consistency, reduce blocked crossings and shift freight from highways to rail. He said the company estimates that removing 3.6 billion truck miles could reduce accidents, injuries and fatalities, though those estimates were presented in the context of the proposed merger’s potential benefits.

About Norfolk Southern (NYSE:NSC)

Norfolk Southern Corporation NYSE: NSC is a transportation company that operates one of the largest freight railroad networks in the eastern United States. Through its Norfolk Southern Railway subsidiary, the company provides rail transportation and related services across a broad territory spanning portions of the Midwest, South and East Coast, including access to major industrial centers, ports and distribution markets.

Norfolk Southern transports a diverse range of commodities, including intermodal freight, merchandise, automotive products, coal and other energy-related materials.

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