“We once again delivered strong financial results,” CEO Jim Squires told investors and analysts on the railroad’s earnings call.
Quarterly operating income, adjusted for one-time items, rose 27 percent to a record $1 billion as revenue grew 9 percent, to a record $2.9 billion. Earnings per share, also adjusted for one-time items, was up 52 percent, to $2.57, easily topping analyst estimates.
The NS operating ratio improved 5.5 points to 62.8 percent for the quarter. For the year, the key measure of railroad efficiency was a record 65.4 percent, down from an adjusted 68.1 percent a year ago.
For 2018 and adjusted for one-time items, NS reported that operating income increased 12 percent, to $4 billion, on revenue of $11.5 billion, a 9-percent increase. Earnings per share, adjusted for one-time items, was up 44 percent, to $9.51, a figure that also beat analyst estimates.
Overall traffic volume was up 3 percent for the quarter and 4 percent for the year, led by intermodal.
For the fourth quarter, intermodal volume, revenue, and revenue per unit all set records as volume was up 5 percent. Merchandise volume was flat, but revenue was up 7 percent and revenue per unit set a record. Coal revenue was up 7 percent on a 1-percent increase in volume.
With its Feb. 11 investor day a little more than two weeks away, NS did not provide an outlook for 2019.
But Chief Marketing Alan Shaw says demand for domestic and export coal is outstripping mine production. NS-served power plants have reduced their coal stockpiles by about 17 days and, amid a cold winter, are aiming to rebuild their supplies.
NS would be able to haul more domestic and export coal, Shaw says, if mines were able to boost production to meet demand. This is a short-term phenomenon not likely to last more than a couple of months, he says.
Although NS set an operating ratio record for the third straight year, some Wall Street analysts questioned the pace of improvement. They also zeroed in on higher-than-usual gains from real estate sales in the fourth quarter, which helped nudge the operating ratio downward.
Chief Financial Officer Cynthia Earhart said real estate sales would always be unpredictable.
“We started out three years ago with the goal of the sub-65 operating ratio by 2020, and here we are with the 65.4 operating ratio in 2018,” Squires says. “So that represents excellent progress under our prior strategic plan and we made many other financial improvements along the way. So we are pleased with our performance up to this point. We recognize that we have much more to do and that we are intent on continuing to drive financial results and shareholder value in the future. And we have a lot, lot more to say about that at investor day.”
While I look forward to the dividend check, I am disappointed more and more when I go track-side to observe as the number of trains continues a downward spiral.