ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Friday, April 11, 1997 TAG: 9704110048
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: JEFF STURGEON THE ROANOKE TIMES
Acquiring part of the biggest rail system in the Northeast eventually will fire up the financial boilers nicely, NS says. It plans to provide a more detailed look at the financial picture April 23.
Norfolk Southern Corp. predicts that buying half of Conrail will put a drag on its earnings through 1998. After that, its chief financial officer said this week, the benefits of owning more than half of the railroad that dominates Northeast markets will kick in.
By 2001, Norfolk Southern will post profits that are 15 percent higher as a result of the Conrail purchase on an earnings-per-share basis, NS vice president Henry Wolf told financial analysts.
His comments followed Tuesday's announcement that Norfolk Southern and CSX Corp. of Richmond had agreed on a plan to buy Philadelphia-based Conrail Inc. and split its assets. Regulators have said they expect to need until March 1998 to approve or reject the plan.
Meanwhile, shareholders have wondered if the news is good for them.
Norfolk Southern executives summarized the likely impact of the purchase of 58 percent of Conrail, which would require the company to shell out $5.9 billion, a large part of it borrowed using bonds. The executives' brief forecast - given in a short conference call this week with securities analysts- will be followed by a more detailed, face-to-face briefing, scheduled April 23 in New York.
Wolf said the company expects the Conrail deal will cut 6 percent per year from the per-share earnings Norfolk Southern will record for 1997 and 1998. In other words, earnings will come in 6 percent lower than they would have if Norfolk Southern had not bought part of Conrail. Wolf did not predict whether the company will make a profit or lose money.
The per-share estimate states the company's total profits divided by the number of shares of common stock held. In 1996, the company posted earnings per share of $6.09, up from $5.44 in 1995.
After 1998, Wolf projected, the Conrail purchase will add to the company's profitability - 5 percent in 1999, 10 percent in 2000 and 15 percent in 2001 and beyond.
In addition, joining part of Conrail to the Norfolk Southern system is expected to boost Norfolk Southern's sales by 50 percent within five years. Its sales last year were $4.77 billion, up from $4.66 billion in 1995.
Until the briefing scheduled in about two weeks, analysts are saying little about the few numbers put out by the company
"Those numbers appear believable. Are they better than that, maybe? That's what I wonder," said Anthony Hatch, a railroad analyst with NatWest Securities Corp., a New York brokerage firm. "They appear to pass the smell test. But you wonder how conservative they are. Is Norfolk [Southern] being overly conservative just to make sure they are numbers they can get?"
Hatch said he wants the numbers behind the numbers and said analysts will ask for them on April 23.
Now, said railroad analyst Cornelius Sewell, about all observers have are the figures Wolf provided and a brief statement in support of the purchase by David Goode, NS chief executive officer.
"I at least don't really have any way of checking it or second guessing it," said Sewell, a rail analyst with Argus Research Corp. in New York. "Dave knows more about trains than I do. I haven't taken a train in 20 years. They know more about Conrail and what the opportunities are."
Hatch noted that CSX predicted Wednesday only a 1 percent drag on its earnings in 1997 from buying 42 percent of Conrail, no effect in 1998 and, by 2000, a boost of 12 percent.
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