Norfolk Southern Corporation (NSC): Weak Quarter Owing to Revenue Fall

Norfolk Southern Corporation reported preliminary financial results for the quarter ended December 31, 2014. Earnings per share did not change in the fourth quarter from a year ago – largely because the railroad’s coal revenue fell 15 percent on weak demand from utilities and export markets. This quarter results were also helped by a lower tax rate and reduced interest expenses.

This earnings release follows the earnings announcements from the following peers of Norfolk Southern Corporation – Union Pacific Corporation, CSX Corporation, Canadian National Railway Company, Kansas City Southern and Canadian Pacific Railway (UNP-US, CSX-US, CNI-US, KSU-US and CP-US).

See related articles: Union Pacific Corporation (UNP): Strong Earnings but Cautious Outlook , CSX Corporation: Strong Earnings and Strong OutlookCanadian Pacific Railway (CP-CA): In-line Earnings Performance; No Change in DividendCanadian National Railway (CNR): Earnings Beat and a Dividend Positive SurpriseKansas City Southern (KSU): Earnings beat despite revenue shortfalls.


  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

  2013-12-31 2014-03-30 2014-06-29 2014-09-29 2014-12-31
Relevant Numbers (Quarterly)          
Revenues (mil) 2881 2689 3042 3023 2870
Revenue Growth (%YOY) 7.34 -1.79 8.565 7.047 -0.382
Earnings (mil) 511 366 562 558 511
Earnings Growth (%YOY) 24.331 -18.304 21.121 16.25 0
Net Margin (%) 17.737 13.611 18.475 18.458 17.805
EPS 1.64 1.17 1.79 1.79 1.64
Return on Equity (%) 18.941 12.74 18.847 18.209 16.453
Return on Assets (%) 6.361 4.463 6.839 6.739 6.152

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

NSC-US’s improvement in gross margins have been accompanied by a deterioration in the management of working capital. This leads Capital Cube to conclude that the improvements in gross margins are likely accounting trade-offs with the balance sheet and not strictly from operating decisions. Its working capital days have risen to 30.57 days from last year’s levels of 14.72 days.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

EBIT Margin Versus PreTax Margin


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 30.51% to 31.05% and (2) one-time items. The company’s pretax margins are now 27.53% compared to 27.18% for the same period last year.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Company Profile

Norfolk Southern Corp. transports coal and industrial products. It engages in the rail transportation of raw materials, intermediate products and finished goods. The company also transports overseas freight through several Atlantic and Gulf Coast ports. It operates an intermodal network through its subsidiary, Norfolk Southern Railway Co., which operates as a container port in the Eastern United States and provides connections to other rail carriers. The company was founded on July 23, 1980 and is headquartered in Norfolk, VA.

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