ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, July 25, 1996 TAG: 9607250027
SECTION: BUSINESS PAGE: C-9 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
Norfolk Southern Corp.'s profits jumped to nearly $200 million in the second quarter and set an all-time quarterly high, the transportation company said Wednesday.
Profits for the first six months of 1996 also set a record, up 4 percent over first half of 1995.
The results, said David Goode, NS's chairman, president and CEO, were because of a "combination of solid traffic growth and the continuing success of our rigorous cost control."
The company's earnings also benefitted from tax credits tied to its purchase of natural gas properties last year and from a drop in its effective tax rate from 37.8 percent to 34.9 percent related to favorable audit adjustments of its federal income taxes for 1990-1992.
"By virtually any measure, 1996 has so far been the best year in our history," Goode said, "and we fully expect it to end that way." The economy looks good, and NS's outlook for the rest of this year and next year looks good, he said.
"We see no serious near-term threats to continued growth," he said in a quarterly meeting with New York securities analysts.
One measure of the higher profits was a drop in NS's operating ratio - the percentage of sales revenues spent on running the railroad. That ratio dropped to record lows for both the quarter and first half of the year to 71.1 percent and 72.7 percent respectively.
The company's total take from its railroad services was a record $1.04 billion during the quarter, up 2 percent from the corresponding period last year. On the other hand, operating expenses increased 1 percent, even with a 21 percent - or $10 million - increase in diesel costs.
Loadings of new cars, up 13 percent, and coal, up 3 percent, led the growth in railway operating revenue, Goode said. Eight of the last 11 auto plants built in the United States are on NS lines.
North American Van Lines, NS's trucking subsidiary, turned its best second quarter in nine years, earning $10.5 million or 64 percent more than last year, Goode noted.
Agreements reached late Wednesday by the nation's major railroads, including Norfolk Southern, with the Transportation Communications Union is good news for labor, the rail industry, the economy and country, Goode said. TCU was the last major union to settle labor contracts with the railroads, and apparently a potential national strike or worker lockout has been avoided this year.
Contract talks show that collective bargaining works, Goode said. "It's been a good long time since the industry has been able to settle a labor contract without recourse to Congress," he said. Congress can avert a rail strike on the grounds that halting service would harm the nation's economy and security.
Goode said labor relations are improving. The industry is moving toward things that will help it grow, such as focusing on customer service, he said.
Across the rail industry, companies have been turning in good quarter-after-quarter results, said Renee Weaver, an analyst with Wheat First Butcher Singer, a Richmond securities firm. And the labor settlements are a real positive for the industry's future, she said.
Henry Wolf, NS's chief financial officer, told securities analysts that NS's earnings are the best in the railroad industry, when the percentage of earnings attributable to accounting changes and adjustments are considered. They account for less than 10 percent of NS's earnings over the past five years but for much more of the earnings of other railroads, he said.
NS has been returning more of its cash flow to stockholders in the form of dividends and share purchases than any other railroad, Wolf said. When NS buys back its own stock, it effectively increases the value of the stock that's left in investors' hands.
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