Norfolk Southern Corporation (NSC, Financial) reported some decent numbers for the third quarter, with year-over-year growth in both revenue and profits. This was driven by solid demand for its merchandise and intermodal business. The company had a strong performance to date, which led the stock to its 52-week high, and seems to be on the right track to deliver year over year growth in the coming days.
The way ahead
Looking to the fourth quarter, there is a lot of buzz around the company as it is undergoing various strategic changes to strengthen its business. Norfolk has a number of infrastructure projects and new locomotives coming online, which will add to its existing capacity. Moreover, in spite of a slowdown in its network the company is optimistic about its prospects in the days ahead.
During the quarter, Norfolk had to face a lot of headwinds with relation to coal supply and demand mainly on account of lower average temperatures. This was further backed by declining prices of natural gas and eventual loss of contract. It is a matter of concern for the company as a considerable amount of revenue could be eroded from its balance sheet if companies shift from coal to natural gas for their power needs. The management estimates that, as the nation enters into the winter period, the coal stock piles at its utilities remain 19% below December 2013 levels. But the demand will ultimately depend on the severity of winter ahead.
The intermodal opportunity
On the bright side Norfolk sees immense opportunities in its intermodal business driven by tightening capacity and rising cost in the trucking industry. This will continue to add volume growth in its domestic business. Even on the international front, the company is positive to do better through organic growth and new services.
In addition, the company expects its agriculture business to report record corn and soybean harvests in 2014, which will not only propel domestic growth but will also provide huge export opportunities in the coming months. With these growth prospects in sight, Norfolk will continue to invest in equipment, locomotives and its network to provide better service in the future.
Moreover, to support its growth prospects it is also increasing its employee base with the recruitment of new crew members. Not only this, but the company also plans to increase the working hours of its existing crew providing them with overtime hours. These are indeed encouraging facts that point to the improving fundamentals of its business and a solid outlook for the coming years. The stock had a strong performance in the past one year and considering its future prospects we could see more upside to this stock.
