UPDATE 3-Norfolk Southern unveils cost-cutting plan as profit slumps

Wed Jan 27, 2016 3:35pm EST
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(Adds statement from Canadian Pacific, updates stock price)

By Nick Carey

CHICAGO Jan 27 (Reuters) - No. 4 U.S. railroad Norfolk Southern Corp on Wednesday reported lower quarterly net income, as coal freight volumes in particular continued to slump, and announced a cost-cutting plan to boost profitability.

Norfolk Southern shares rose more than 1 percent after the news.

The Norfolk, Virginia-based company, which rejected a takeover bid from Canadian Pacific in a move that could lead to a lengthy proxy battle, hopes to persuade shareholders that it is a better prospect as a standalone entity.

Canadian Pacific in mid-November disclosed its $28 billion offer to buy Norfolk Southern, touting $1.8 billion in cost savings.

That bid comes as the rail industry faces a freight recession and falling commodity volumes, especially coal. Low fuel prices mean utilities are burning more natural gas, while the strong U.S. dollar hurts exports.

Railroad coal volumes fell nearly 12 percent in 2015 and the slide has continued, according to industry data reported to the Association of American Railroads. In the week ending Jan. 16, coal volumes tumbled 32.6 percent versus the year-ago week.

North American manufacturers may also face an industrial recession, which would further hurt railroads.   Continued...