Norfolk Southern Corp faced a difficult first quarter of 2015, trading below the forecasts of analysts,as evident in preliminary first-quarter earnings, particularly due to the drop in coal carloads and fuel surcharges. The American railroad giant has already given pessimistic comments about railroad profits.
The U.S carrier’s first quarter earnings results showed no growth, cited by the Association of American Railroads. The instability in growth is caused by cheaper natural gas rates compared to coal, cheaper oil prices dragged down the oil train traffic and workers strikes at U.S. West Coast ports hurt the shipments of containers.
In late trading hours on Monday, Norfolk Southern saw a decline in its shares value, after illustrating that preliminary earnings will drop about 15 percent to $1 share, compared to a year ago. According to analystsforecasts polled by Bloomberg, Norfolk earns $1.26 a share.
“It’s a pretty big miss,” said Lee Klaskow, a Bloomberg Intelligence analyst. “There will be an overhang until they begin to improve their execution.”
Norfolk Southern posted revenue of $2.6 billion,a decline of 5%, noted from a year earlier and also below the $2.67 billion mark estimated by analysts.
Norfolk shares fell 4.7 percent to $99.90 at 6:39 p.m. Monday in the New York stock market and later on dipped as much as 5.6 percent. Norfolk Southern shares fell 4.3 percent in the current year on the New York stock exchange,but boosted 1.6 percent in Standard & Poor’s 500 Index.
The cheap diesel prices are one of the main causes of the lowering of the railroads’ revenue, because Norfolk charges tax to consumers based on the price of the fuel.
An analyst with Robert W. Baird & Co., said in a research note, Norfolk Southern’s “unique fuel surcharge headwind” is possibly a sign of slower growth than at CSX, the largest railroad in the Eastern U.S., in 2015 and 2016, Benjamin Hartford.
According to Klaskow, when oil is less than $50 dollar a barrel, Norfolk Southern accepts no surcharges from customers. The oil price was around $48.57 during the quarter, Bloomberg data showed.
CSX also faced a similar kind of decline in coal deliveries, but CSK adjusted the fuel surcharges to the price of diesel,which lessens the damage imposed by cheap diesel prices.
Based on the average estimations of analysts, CSK first quarter earnings will hike 44 cent a share. Expected revenue for CSK suggested by analysts to be $3.02 billion.
Lower coal shipments than expected had forced most analysts to rethink about the profit forecasts, consequently estimated a drop of 3 cents since last month, Bloomberg report said.
Due to oil barriers and lower coal shipments, Kansas City Southern also changed its 2015 revenue forecast to “low single-digit” growth last month, from “mid-single-digit”. The strong dollar value also hurt the earnings of the railroad, reducing its sales to half for Mexico.
On average, analysts have cut profit forecasts for Union Pacific as much as 7 cents since the last month in this sector.
