NS, which will report earnings and “other detailed results” at its quarterly earnings call, scheduled for April 29, 2015, said that the expected reduction in earnings “is primarily due to lower than expected revenues, although certain expense items also affected the comparison. Revenue decreases reflect reductions in fuel surcharge revenue in each of NS’ three commodity groups, continued reductions in coal volumes, and a lower average revenue per unit related to the mix of business. Lower overall expenses were aided by declining fuel expense but hurt by weather and service recovery costs.”
“First-quarter revenues are expected to be approximately $2.6 billion, a 5% decrease compared with the same period last year,” NS said. “Coal shipments continue to experience downward pressure, weighted by a significant decline in export coal volume. Merchandise saw growth in volumes, though revenues declined due to unfavorable revenue per unit brought on by reduced fuel [surcharges] and changes in the mix of traffic.”
On a more positive note, NS said that increased intermodal volumes and core pricing gains “roughly offset the impact of lower average revenue per unit due to fuel [surcharges] reductions.”
NS said its first quarter expenses will be approximately $2.0 billion, a decrease of 3% vs. 2014. “This improvement was led by significantly reduced fuel expenses. Remaining costs were adversely affected by weather and service-recovery costs, and also by increased hiring and training costs, and a labor agreement signing bonus. The benefits of the increased hiring have begun and will be even more apparent in future quarters as the new employees complete training and enter regular service.”
Following what it calls “the weather related challenges of the first quarter,” NS said volumes are expected to rebound in the second quarter, with the exception of coal, “which will continue to be pressured given current market dynamics. In the current energy environment, revenues for the year are expected to be less than revenues for 2014, and [we continue] to focus on improving core pricing as service levels improve.”
NS said “continuing actions to restore service levels should result in gradual improvement during the second quarter and a return to normalized levels during the third and fourth quarters of the year. Second quarter expenses will continue to reflect service recovery costs, currently estimated at $25 million, which is commensurate with the second quarter of 2014. As new employees and additional locomotives are deployed and new infrastructure projects become fully operational during the second quarter, [we] will be well-positioned to capitalize on market opportunities and unwind excess service-related costs.”
“Our goal remains the same: to operate an efficient, high velocity railroad, which enables us to offer the best possible customer service and retain and grow our business at rates that provide a superior return for our owners,” said CEO Wick Moorman. “I am confident in our ability to reach high performance levels this year. With operations showing sustained improvements, and with better weather and enhanced infrastructure and personnel, we look forward to stronger results in the second quarter and the second half of the year.”
Though “there will not be a question and answer session,” NS will “discuss” its expected first quarter performance during a conference call on a Tuesday, April 14, 8:45 a.m. EDT teleconference and live Internet webcast. The teleconference can be accessed at 877-869-3847 “several minutes prior to the call.” An audio replay will be available until April 21, 2015, following the live broadcast, by dialing 877-660-6853 and access number 13607081. The replay also will be available as an MP3 downloadable podcast in the Investors section of the company’s website.