THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Thursday, July 28, 1994 TAG: 9407280475
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
LENGTH: Medium: 85 lines
Bolstered partly by its increasing success in stealing freight away from trucks, Norfolk Southern Corp. said Wednesday that its second-quarter net profit jumped 15 percent to $178.5 million.
It was the most profitable quarter for the Norfolk-based company since 1988 and the second-best quarter in its 12-year history.
The transportation conglomerate said internal cost-cutting, an improving economy and a profit turnaround at its slimmed-down North American Van Lines subsidiary also helped strengthen its bottom line.
The second-quarter profit, equal to $1.30 a share, came despite a 1 percent decline in Norfolk Southern's total transportation revenues, to $1.16 billion. The revenue decline was due to the shedding late last year of North American's unprofitable units.
Norfolk Southern's latest results point to ``a basic shift by industries toward the rail mode,'' said D. Henry Watts, the company's executive vice president-marketing.
Norfolk Southern loaded 7 percent more rail cars in the second quarter than in the same period in 1993, while the economy grew at only about 4 percent, Watts noted. ``What this says is that we are finding ways to capture traffic which previously moved by truck.''
Much of the new traffic - such as ship containers, construction aggregates and trash - generates less revenue per rail car for Norfolk Southern than it has been accustomed to. It helped reduce the company's revenue per car to $882 in the 1994 second quarter from $906 a year earlier, Watts noted. But he said the new traffic is beneficial because it helps Norfolk Southern more fully use its locomotives and rail cars.
Indeed, the company said that during the latest quarter, its railroad expenses took an industry-low 72.7 percent bite of its rail revenues. That was the lowest-ever revenue-eating expense ratio for Norfolk Southern and was down 1.2 percentage points from the 1993 second quarter.
Employee reductions also helped contribute to the expense-vs.-revenue improvement. Largely because of early-retirement buyouts late in 1993, Norfolk Southern had 4 percent fewer rail employees in the latest quarter than a year earlier - 24,740 altogether.
``We are now seeing the fruit of some of the reductions we have made. . . ,'' said David R. Goode, Norfolk Southern's chairman, president and chief executive.
Though it is diversifying its rail traffic, Norfolk Southern's dominant commodity is still coal. The company said its coal revenues nudged up about 2 percent in the second quarter, to $322.5 million. Goode said that's not bad considering the sharp falloff in coal exports over the past few years.
In the recent quarter, Norfolk Southern dumped 6.1 million tons of export coal at its Lamberts Point terminal in Norfolk. That's down 10 percent from the year before and off 21 percent from the March-through-June period in 1992.
William B. Bales, vice president-coal marketing, said it's unlikely that coal exports will pick up before this year's fourth quarter. The hobbling economy in Europe, Norfolk Southern's main export-coal market, plus increasing competition from mines in Australia, Canada and South Africa, have pinched U.S. exporters, he said.
Norfolk Southern's other big headache - North American Van Lines - appears to be fading. The trucking subsidiary posted an operating profit of $5.7 million in the second quarter on a 17 percent increase in revenues from continuing operations. A year ago, North American lost about $10 million on operations.
Graeme Anne Lidgerwood, a rail analyst with CS First Boston in New York, said Norfolk Southern's results were among the strongest in the rail industry.
``They're really got their act together down there,'' she said. ``What impresses me about Norfolk is while all the other rails are complaining about capacity problems,'' because of increased traffic, ``they haven't.''
Goode told securities analysts at a meeting Wednesday in New York that Norfolk Southern ``can take a lot more business'' without adding costly new rail lines or yards. ILLUSTRATION: Color file photo
David R. Goode
Chart
Norfolk Southern Corp. second quarter 1994 revenues
by CNB