October 22, 2014 / 12:42 PM / 4 years ago

UPDATE 2-Norfolk Southern CEO: rail mergers now "don't make sense"

(Recasts lead, adds CEO comments on possible rail mergers)

By Nick Carey

CHICAGO, Oct 22 (Reuters) - No. 4 U.S. railroad Norfolk Southern Corp’s chief executive said on Wednesday that mergers between major railroads in the United States face too many regulatory hurdles and cause too many problems to be worthwhile at this point.

“Historically they (large mergers) have led to service problems for some period of time,” Wick Moorman told analysts in a conference call after the company reported quarterly results. “I just don’t think they make sense at this particular time.”

Moorman also said the Surface Transportation Board (STB), the top U.S. rail regulator, would “not be too receptive” to any proposed merger.

A recent bid by No. 2 Canadian railroad Canadian Pacific Railway for No. 3 U.S. railroad CSX Corp had fueled speculation that Norfolk Southern could be next on the block if a deal went through. Canadian Pacific announced this week that talks with CSX had failed.

Analysts had predicted that getting a merger approved between the railroads, as Canadian Pacific has a large U.S. rail network already, would face tough scrutiny by the STB.

Norfolk Southern reported a higher quarterly profit on Wednesday as the growing economy boosted freight volumes on its network, but it fell short of Wall Street analyst forecasts.

Rail customers have complained this year of delays and service problems. The delays prompted the STB to issue a requirement earlier this month that all major railroads provide more detailed weekly reports on their performance.

Norfolk Southern posted strong revenue growth of 12 percent in its automotive business and 10 percent in its intermodal freight, which reflect rising demand for cars and consumer goods.

The company’s operating ratio, or operating revenues as a percentage of revenue, improved nearly 3 percentage points to 67 percent from 69.9 percent last year. A railroad’s operating ratio is seen as a key measure of performance by analysts.

Norfolk, Virginia-based Norfolk Southern reported earnings per share on Wednesday of $1.79, up 17 percent from the $1.53 it reported for the same quarter in 2013. Analysts had on average expected earnings per share for the third quarter of $1.83.

The company reported revenue for the quarter of $3.02 billion, up 7 percent from same period the previous year. That was slightly below analyst expectations of $3.07 billion.

Norfolk Southern shares were down nearly 0.9 percent at $108.92 in morning trading. (Reporting By Nick Carey; Editing by W Simon, Chizu Nomiyama and Meredith Mazzilli)

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