Norfolk Southern Expects a Rebound in 2016 after a Tough 2015
Agriculture revenues rise
Norfolk’s agriculture revenues showed some spark in 2015. Agriculture, consumer products, and government merchandise include soybeans, wheat, livestock ethanol, fertilizers, and items for the US military.
Prominent agriculture customers include DuPont, Conagra, American Italian Pasta Company, and Archer Daniels Midland. For more information on Norfolk Southern’s freight business, you can visit Market Realist’s Norfolk Southern Corporation overview.
Norfolk Southern reported agriculture, consumer products, and government merchandise revenues of $380 million in year-to-date 2015, up from 2014. Non-conventional energy sources such as bio-diesel and ethanol are fueling higher gasoline consumption, resulting in greater shipments.
US demand for cattle feed–related commodities has contributed to higher soybean shipments. However, these ups were outweighed by fewer revenue shipments of empty hoppers. Overall agriculture volumes rose by 2% in 2015.
Future outlook
For 2016, Norfolk expects volume growth in shipments of soybeans, a normal crop cycle, more carloads of ethanol, and more agriculture export opportunities. The overall consumer goods market is expected to grow in 2016.
The company’s management expects flat agriculture freight and consumer products revenues for the remainder of 2015. It anticipates that greater volumes will be outweighed by reduced average revenue per unit. However, lower fuel surcharge revenues are expected to overshadow pricing gains.
Peer group agri-business
Norfolk’s closest competitor CSX’s (CSX) agriculture division’s mix and Union Pacific Railway’s (UNP) mix are comparable with NSC’s agriculture revenues. Both companies reported falls of 4% and 3%, respectively, in 2015 compared with 2014.
Note that Canadian National Railway’s (CNI) grain and fertilizer revenues reported a surprise rise of 5% in 2015. Along with Canadian Pacific (CP) and Kansas City Southern (KSU), these companies form US Class I railroads.
Investors wishing for indirect exposure to major US railroads can invest in the iShares U.S. Industrials ETF (IYJ), which holds 2.3% in the group.
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