Norfolk Southern seeks to soothe investors amid freight woes

Tue Jan 26, 2016 3:39pm EST
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By Nick Carey

CHICAGO (Reuters) - Facing a possible proxy battle over a hostile bid from Canadian Pacific (CP.TO: Quote), Norfolk Southern Corp (NSC.N: Quote) must persuade shareholders of its viability when it reports quarterly results on Wednesday.

The No. 4 U.S. railroad must accomplish this while navigating a freight recession that is pummeling the rail industry.

"This is a very important time for NS to prove to the Street that it can post significant improvements, but it must do that in a very tough environment," said Mark Levin, a managing director at BB&T Capital Markets. "It looks like 2016 will be a brutally tough year for the entire industry, but the onus will be on NS management to prove investors wrong."

Canadian Pacific in mid-November disclosed its $28 billion offer to buy Norfolk Southern, touting major savings from synergies.

Norfolk Southern has rejected the advances, saying it can offer solid returns as a standalone entity. Last month it said it aims for compound earnings per share growth in the double digits this year, though that forecast assumes stabilizing commodity volumes.

But commodities continue to slide, especially coal, which affects Norfolk Southern in particular. Low fuel prices have encouraged utilities to burn cheaper natural gas, and the strong U.S. dollar hurts exports.

Railroad coal volumes fell nearly 12 percent in 2015 and the slide has continued. In the week ending Jan. 16, coal volumes were down 32.6 percent versus the year-ago week.

"Coal is like catching a falling knife" in 2016, Matt Rose, chairman of No. 2 U.S. railroad BNSF, which is owned by Berkshire Hathaway Inc (BRKa.N: Quote), told Reuters earlier this month.   Continued...

Coal trains approach Norfolk Southern's Williamson rail yard in Williamson, West Virginia at the border of Pike County, Kentucky May 13, 2015. REUTERS/Valerie Volcovici