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Norfolk Southern, one of the two main railroad operators in the eastern US, broke the industry's run of robust results when it announced third-quarter net income down 27 per cent as natural gas displaced its coal traffic.
NS, which handles coal moving from the Pennsylvania and Kentucky coalfields to power stations, steel mills and ports, also warned the fourth quarter was likely to reflect the weak trends of September.
The company, which more heavily depends on coal than any of the eight Class I North American railroads, said on September 19 that its third-quarter figures would be at least 25 per cent down year on year.
Wick Moorman, chief executive, said the figures reflected weak market conditions, which had led to falls in shipments of coal and general merchandise.
"We remain focused on controlling costs while continuing to provide high service levels for our customers and invest in projects that will support future growth," he said.
Net third-quarter income fell to $402m, from $554m last time, on revenues down 7 per cent to $2.7bn. Earnings per diluted share fell 27 per cent to $1.59.
Both CSX, NS's rival in the east, and Union Pacific, operator of the largest network, have reported significant falls in coal volumes in the third quarter as generators switch to cheap natural gas and Chinese coking coal demand falls. But both CSX and UP largely made up for this in other areas, particularly movements of crude oil from new shale oilfields .
However, as well as recording a 14 per cent year-on-year decline in coal volumes, NS suffered from the 27 per cent decline, brought on by low natural gas prices, in drilling activity in the Marcellus Shale area in Pennsylvania and New York. Drilling activity generates demand for fracking sand and pipeline parts.
Demand for utility coal fell 15 per cent to 225,100 carloads, while demand for export coal, which had been supporting NS's coal volumes, was down 7 per cent year-on-year and 28 per cent on the second quarter. Coal revenue fell 22 per cent to $701m.
Volumes in intermodal services - movements of containers and truck trailers by road - increased 5 per cent, while revenues grew 3 per cent to $567m. Revenue in general merchandise fell 1 per cent to $1.4bn, on traffic down the same amount.
The results emerged after close of trading. The shares fell 2.3 per cent in after-market trading to $64.50.
This article first appeared on www.ft.com
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