UPDATE 3-Freight declines drive drop in Norfolk Southern profit

Wed Jul 27, 2016 9:39am EDT
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(Adds details on outlook, capital expenditure, stock price)

By Nick Carey

CHICAGO, July 27 (Reuters) - Norfolk Southern Corp, the No. 4 U.S. railroad, on Wednesday reported a lower quarterly net profit due to a 7 percent drop in freight volumes, but the results just exceeded market expectations because of cost cutting and efficiency measures.

The decline in freight at the Norfolk, Virginia-based company was led by a precipitous 25 percent drop in revenue from transporting coal.

The company's shares fell more than 2 percent after the announcement.

The railroad said it expects freight volumes to increase in the fourth quarter of 2016 versus 2015.

But the company said it expects high inventories of coal and retail goods to weigh on second-half results in 2016. Automotive shipments should also be down for the rest of 2016.

Norfolk Southern said a mild winter and above-average temperatures extending into the second quarter exacerbated an "inventory overhang" for coal should hurt volumes into 2017.

But, in a conference call with analysts, executives said recent hot weather and rising natural gas prices could boost coal burning by utilities.   Continued...