Railroads Predict Muted Earnings Growth as Demand Slows for Some Shipments

“Our outlook for 2023 reflects the uncertainty of a challenging landscape in which the path of the demand environment and inflation remain unclear,”  Norfolk Southern Chief Executive

Alan Shaw

said Wednesday on an earnings conference call. “We see full year revenue level with 2022 performance.”

He said boosting operating income will be challenging with revenue-per-railcar expected to be flat or to fall slightly on softening coal and manufacturing cargoes.

Union Pacific executives presented a mixed outlook for this year as the company projected improvement in its operating ratio—or expenses as a percentage of revenue—while shipments of grain and forest products are slated to slow down. 

The company said Tuesday that it is focused on improving service levels from last year’s challenges that included weather events, staffing shortages and higher costs from working with contractors to handle customer demand.  

“There is a lot of uncertainty as we enter 2023,” CEO

Lance Fritz

said Tuesday in an earnings call. “You can hear it and see it across the board in many markets right now.” 

Shares in Norfolk Southern fell nearly 5% in Wednesday trading, as the company’s earnings for the most recent quarter fell short of analysts’ estimates. Union Pacific fell about 1.5%.

CSX Corp.

CSX -2.54%

releases its quarterly report later Wednesday.

Major freight railroads are projecting wage costs to increase in 2023 following a new labor agreement that required intervention from Congress and the Biden administration. Union Pacific projected cost per employee this year will increase by a mid-single-digit percentage.

Norfolk Southern said its fourth-quarter profit rose 5% from a year earlier to $1.2 billion, helped by stronger pricing for its cargo loads. Pricing for moving cargoes such as sand, soybeans, corn and coal helped offset a 1% decline in volumes. Revenue rose 13% to $3.2 billion.

Claude Elkins,

the company’s marketing chief, said coal revenue was up 28% on strong demand for energy use, but there were less cargoes of steel and automotives. 

He said that although pricing remains strong for now, the rest of the year will be challenged by falling demand for manufacturing amid high prices and bloated inventories. 

Railway operating expenses were $2.1 billion in the fourth quarter, up 19% from the same period last year due to higher fuel prices and claims costs, and higher staff compensation and benefits. 

Compensation costs rose $55 million, or 9%, driven by elevated wages from the new labor contracts as well as higher employment levels.

Union Pacific said Tuesday its results were lower than expected on the back of extreme weather, hiring challenges and inflation.

Net income fell to $1.64 billion from $1.71 billion last year while revenue grew 7.8% to $6.18 billion.

Write to Costas Paris at [email protected]

“Our outlook for 2023 reflects the uncertainty of a challenging landscape in which the path of the demand environment and inflation remain unclear,”  Norfolk Southern Chief Executive

Alan Shaw

said Wednesday on an earnings conference call. “We see full year revenue level with 2022 performance.”

He said boosting operating income will be challenging with revenue-per-railcar expected to be flat or to fall slightly on softening coal and manufacturing cargoes.

Union Pacific executives presented a mixed outlook for this year as the company projected improvement in its operating ratio—or expenses as a percentage of revenue—while shipments of grain and forest products are slated to slow down. 

The company said Tuesday that it is focused on improving service levels from last year’s challenges that included weather events, staffing shortages and higher costs from working with contractors to handle customer demand.  

“There is a lot of uncertainty as we enter 2023,” CEO

Lance Fritz

said Tuesday in an earnings call. “You can hear it and see it across the board in many markets right now.” 

Shares in Norfolk Southern fell nearly 5% in Wednesday trading, as the company’s earnings for the most recent quarter fell short of analysts’ estimates. Union Pacific fell about 1.5%.

CSX Corp.

CSX -2.54%

releases its quarterly report later Wednesday.

Major freight railroads are projecting wage costs to increase in 2023 following a new labor agreement that required intervention from Congress and the Biden administration. Union Pacific projected cost per employee this year will increase by a mid-single-digit percentage.

Norfolk Southern said its fourth-quarter profit rose 5% from a year earlier to $1.2 billion, helped by stronger pricing for its cargo loads. Pricing for moving cargoes such as sand, soybeans, corn and coal helped offset a 1% decline in volumes. Revenue rose 13% to $3.2 billion.

Claude Elkins,

the company’s marketing chief, said coal revenue was up 28% on strong demand for energy use, but there were less cargoes of steel and automotives. 

He said that although pricing remains strong for now, the rest of the year will be challenged by falling demand for manufacturing amid high prices and bloated inventories. 

Railway operating expenses were $2.1 billion in the fourth quarter, up 19% from the same period last year due to higher fuel prices and claims costs, and higher staff compensation and benefits. 

Compensation costs rose $55 million, or 9%, driven by elevated wages from the new labor contracts as well as higher employment levels.

Union Pacific said Tuesday its results were lower than expected on the back of extreme weather, hiring challenges and inflation.

Net income fell to $1.64 billion from $1.71 billion last year while revenue grew 7.8% to $6.18 billion.

Write to Costas Paris at [email protected]