Norfolk Southern lowers third quarter earnings estimates

Class I railroad carrierNorfolk Southernannounced this week that it has lowered third quarter earnings estimates, due mainly to volume declines in certain markets and lower fuel surcharge revenue.

NS said it expects earnings to be in the $1.18-$1.25 range per diluted share, which is down sharply from previous Wall Street estimates of $1.63 per share, according to a Wall Street Journal report.

The company’s third quarter results will be released October 23.

“Decreased coal and merchandise shipments, offset in part by growth in intermodal volumes, are together expected to reduce revenues by approximately $120 million compared with third quarter 2011,” NS officials said in a statement.

And they added that fuel surcharge revenues are expected to be roughly $80 million below the same period last year. Third quarter 2011 fuel surcharge revenues, said NS, included a favorable lag-effect of $52 million, whereas results for the current quarter are expected to be impacted by an unfavorable lag-effect in the range of $25 to $30 million.

Dahlman Rose analyst Jason Seidl wrote in a research note that with sharp declines in export metallurgical coal prices, the Eastern Class Is (NS and CSX) could see coal declines, as producers could cut production and utility weakness continues.

The WSJ report noted that utility weakness is the result of low prices for natural gas—an alternative fuel—and high coal stockpiles.

In July’s second quarter earnings results, NS reported net income of $524 million, which was down 6 percent than $557 million for the second quarter 2011. And in 2011 the company had its highest recorded operating income, net income, and earnings per share and topped $11 billion in revenue for the first time, while coal, intermodal, and merchandise revenues all were up significantly.

“Looking at our business levels today, we obviously face some challenges in parts of our coal business, due primarily to the extremely mild winter that we experienced, coupled with the current abundance of very cheap natural gas,” said NS CEO Wick Moorman at the company’s annual meeting in May. ”However, we have a strong, balanced franchise, and we are seeing continued growth on other business segments, most noticeably automobiles, metals, and intermodal.”