Norfolk Southern saw a significant boost in its second-quarter earnings due to insurance payments linked to last year’s catastrophic East Palestine derailment. The Atlanta-based railroad reported a net income of $737 million, or $3.25 per share, influenced by several unusual factors. In contrast, the previous year’s profit of $356 million, or $1.56 per share, was heavily impacted by derailment-related costs near the Ohio-Pennsylvania border.
CEO Alan Shaw highlighted the $250 million in productivity and safety improvements achieved this year, noting a 5% increase in freight hauled due to enhanced efficiency and new business acquisitions. “I’m really encouraged by our progress and I’m really confident in our future,” Shaw said. “We did everything we said we were going to do.”
The railroad received $156 million in insurance payments, offsetting $91 million in derailment-related expenses this quarter, leading to a $65 million net boost to earnings. Norfolk Southern has spent over $1.7 billion in response to the February 2023 derailment in eastern Ohio, with much of the cost, including a $600 million class action settlement, expected to be covered by insurance.
Adding to the financial complexity, Norfolk Southern spent $22 million in the quarter to counter investor Ancora Holdings’ campaign to overhaul the board and dismiss management. Although Ancora’s nominees secured three board seats, they did not gain control.
Excluding these unusual factors, Norfolk Southern estimated its earnings at $694 million, or $3.06 per share, surpassing analysts’ expectations of $2.86 per share according to FactSet Research. Following the earnings report, the company’s stock rose nearly 7% in after-hours trading.
Norfolk Southern has endorsed all recommendations from the National Transportation Safety Board’s final report on the East Palestine incident and addressed safety concerns raised by the Federal Railroad Administration. However, the rail industry is lobbying against several proposed regulations in Congress.
During the proxy fight, Shaw appointed a new operations chief and committed to improving efficiency without compromising the railroad’s capacity to handle additional freight when the economy improves. Norfolk Southern has already parked over 320 locomotives and removed around 7,000 cars from its network, opting for fewer but longer trains to maintain freight capacity with fewer resources.
Over the next two years, Norfolk Southern aims to enhance productivity by approximately $550 million and increase its profit margin. The company reported improvements in all performance metrics this quarter, including average car velocity and train dwell time in railyards.
Edward Jones analyst Jeff Windau acknowledged Norfolk Southern’s steady efficiency gains and solid quarterly performance. The railroad’s revenue grew 2% to $3.04 billion, aligning with Wall Street forecasts.
Norfolk Southern, one of the nation’s largest railroads, operates trains across the eastern United States.