Yahoo Finance Norfolk Southern Corporation (NYSE:NSC) Reports Q2 In Line With Expectations, Stock Soars
Freight transportation company Norfolk Southern (NYSE:NSC) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 2.1% year on year to $3.04 billion. It made a GAAP profit of $3.25 per share, improving from its profit of $1.56 per share in the same quarter last year.
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Norfolk Southern Corporation (NSC) Q2 CY2024 Highlights:
Revenue: $3.04 billion vs analyst estimates of $3.04 billion (small beat)
EPS: $3.25 vs analyst estimates of $2.87 (13.1% beat)
Gross Margin (GAAP): 45.9%, up from 45% in the same quarter last year
Free Cash Flow of $468 million, up 66% from the previous quarter
Market Capitalization: $50 billion
Starting with a single route from Virginia to North Carolina, Norfolk Southern (NYSE:NSC) is a freight transportation company operating a major railroad network across the eastern United States.
Rail Transportation
The growth of e-commerce and global trade continues to drive demand for shipping services, presenting opportunities for rail transportation companies. While moving large volumes by rail can be highly cost-efficient for customers compared to air and ground transport, this mode of transportation results in slower delivery times, presenting a trade off. To improve transit times, the industry continues to invest in digitization to optimize fleets, loads, and even braking systems. However, rail transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Norfolk Southern Corporation's sales were flat. This shows demand was soft and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Just like its five-year trend, Norfolk Southern Corporation's revenue over the last two years was flat, suggesting it is in a slump.
This quarter, Norfolk Southern Corporation grew its revenue by 2.1% year on year, and its $3.04 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 4.5% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
Norfolk Southern Corporation has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 32.1%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Norfolk Southern Corporation's annual operating margin decreased by 6.6 percentage points over the last five years. Even though its margin is still high, shareholders will want to see Norfolk Southern Corporation become more profitable in the future.
In Q2, Norfolk Southern Corporation generated an operating profit margin of 37.2%, up 17.8 percentage points year on year. This increase was solid, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Norfolk Southern Corporation, its EPS declined by 5.1% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
We can take a deeper look into Norfolk Southern Corporation's earnings to better understand the drivers of its performance. As we mentioned earlier, Norfolk Southern Corporation's operating margin improved this quarter but declined by 6.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. Norfolk Southern Corporation's two-year annual EPS declines of 20.6% were bad and lower than its flat revenue.
In Q2, Norfolk Southern Corporation reported EPS at $3.25, up from $1.56 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Norfolk Southern Corporation to grow its earnings. Analysts are projecting its EPS of $7.92 in the last year to climb by 61.6% to $12.80.
Key Takeaways from Norfolk Southern Corporation's Q2 Results
We enjoyed seeing Norfolk Southern Corporation exceed analysts' revenue expectations by a small amount but exceed EPS expectations by a convincing amount. Overall, this quarter seemed strong and shareholders should feel optimistic. The stock traded up 7.7% to $240 immediately after reporting.
Norfolk Southern Corporation may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
