Railroad giant Norfolk Southern Corporation (NYSE: NSC) was up 10% in just the last week, based in large measure on super 4Q and FY2007 earnings released a week ago, January 22. Fourth quarter operating revenue increased 6% to $2.5 billion, and net income increased 4% to $399 million. What makes these numbers even more impressive is that Norfolk Southern posted revenue increases at the same time it faced significantly higher fuel costs and a measurable reduction in shipments by volume. Coal shipments dropped 2% by volume, while general merchandise shipments dropped a hefty 10% by volume.
The story is the same for FY2007 results. Revenue increased while shipments by volume decreased. And the railroad still made money. The stock closed at $45.07 on January 21, but closed at $52.00 on January 28. Very nice capital appreciation for a week. The company increased its dividend payout by 12% to $0.29 per share, a 32% increase over the last year, and the 102nd consecutive quarter of dividend payout. Clearly, Norfolk Southern is a stock for the very long haul.
Compare Noroflk Southern's results to those posted by Canadian National Railway (NYSE: CNI) on the same day. Faced with a similar drop in shipments by volume, CN suffered a 3% drop in revenue (pdf), adjusted EPS were flat, and half of the earnings reported derived not from operating profits but from favorable tax adjustments and the sale of assets.
CN got hit with a triple whammy in 4Q2007. Bad weather and a strike earlier in the year forced CN to play catch-up all year. The weak U.S. housing construction market meant far fewer lumber shipments from western Canada. A weak U.S. dollar relative to the Canadian dollar cost CN $25 million in U.S. denominated contracts, with no end in sight to both of these last two problems.
CN is trying to help itself. While the U.S. market cools, CN is investing in its Prince Rupert port facilities to handle much more intermodal traffic from Asia. The company forecasts FY2008 revenue growth at 6-8% with FY2008 EPS in the high single digits. Investors seem to believe the company's optimistic forecast. They have bid the stock up over 10% in the last week, from a 21 January close of $43.76 to a 28 January close at $49.08.
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