Analyst Note| Matthew Young, CFA |
Norfolk Southern’s second-quarter revenue jumped 34% year over year (it was flat last quarter) driven by an easy comparison (initial pandemic headwinds), solid underlying demand recovery across most carload groups, and healthy revenue-per-carload gains. Carload volume expanded 26% (3% last quarter, which faced weather headwinds). Despite unfavorable mix among chemicals and automotive end markets, average revenue per carload rose 7% on solid contract rate gains, higher fuel surcharges, and elevated intermodal accessorial revenue. Core pricing is benefiting from constrained capacity across most transportation modes, which is lifting railroads’ pricing power. Importantly, management now expects full-year revenue growth of 12% (previously 9%), with high-single-digit volume gains. Strength is expected to persist in steel, paper board and plastics, and intermodal. Automotive is up, but OEMs continue to grapple with the chip shortage. Coal should be a near-term positive on recovering industrial activity and higher exports but will remain pressured long term.