ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, April 25, 1996 TAG: 9604250026
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
Despite severe winter weather and rising fuel prices, Norfolk Southern Corp. on Wednesday reported record first-quarter earnings on a per-share of common stock basis.
"The lesson we take from this," Chairman, President and CEO David Goode said, "is that our investments in the best infrastructure and quality training in the business and culture of Norfolk Southern all pay off particularly well in adversity."
A 5 percent increase in revenues from NS' coal business, attributable to an improved export market for coal, and improved cost control helped the company post the record results, Goode said.
NS reported earnings per share of $1.31 for the quarter, an increase of 2 percent over the first quarter a year ago. The company's net income of $168.1 million was 2 percent lower than last year's first quarter, but last year's results included a $18.8 million or 14 cents-per-share, after-tax gain from the sale the company's interest in One First Union Center, a Charlotte, N.C. office building.
The company also turned in a record operating ratio - the portion of the railroad's expenses vs. its revenues - of 74.2 percent for the quarter, compared to last year's 75 percent.
Norfolk Southern has been performing better than the rail industry as a whole, Goode said. NS, he said, expects moderate economic growth and remains optimistic about the remainder of 1996, Goode told a gathering of securities analysts in New York.
"The economy appears to have rebounded from earlier weaknesses," he said. "We remain optimistic that the election year will encourage moderate growth and we will strive to get more than our share."
After reviewing Wednesday's results, Renee Weaver, an analyst for Wheat First Butcher Singer in Richmond, said she upgraded her rating of NS stock from "hold" to "outperform." The upgrade is based on an expected increase in the return on an investment in the company's stock from 10 percent to 15 percent or more over 12 months when both dividends and appreciation of the stock's price are taken into account.
Weaver said she based that decision on the improvements in NS' coal business, which should continue to improve as utilities restock after the harsh winter, and on the railroad's continuing ability to cut its costs. NS and other railroads should pick up more freight business as they continue to cut their costs, she said.
James Higgins, an analyst with Donaldson, Lufkin & Jenrette of New York, said he was impressed with NS' quarter - including its performance compared with other railroads - considering the difficult conditions the company faced. The only weakness he saw at Norfolk Southern was in the company's metallurgical coal business, which could be hurt by changing technologies within the steel industry, Higgins said.
The recent strike against General Motors Corp. cost NS $3 million in lost revenues, Goode said. On the expense-side of the ledger, Henry Wolf, NS executive vice president for finance, told the analysts that the winter weather cost NS an additional $9 million and that the company's diesel-fuel costs were up $6.7 million, almost entirely because of price increases.
However, the company's employee compensation and benefits costs increased by $2 million or only 1 percent, reflecting last fall's early-retirement program and the closing of two repair shops, Wolf said. The company's personal injury claims declined slightly as the result of improved safety and fewer injuries, he said.
NS continued to lead the rail industry in employee safety last year, Goode said, and expects to receive its seventh straight Harriman Award recognizing that fact.
Goode said he was concerned that recent accidents have increased public attention on rail safety and may overshadow progress railroads have made in improving safety. The industry must work to make sure that the accidents don't lead to new legislation and regulations that might burden the industry and make it harder for it to improve, he said.
NS stock closed at $84.625 Wednesday, up $1.625.
LENGTH: Medium: 76 lines ILLUSTRATION: GRAPHIC: Chart by staff: 1st quarter. color.by CNB