UPDATE 4-U.S. railroad earnings top Wall Street forecasts

Tue Jul 27, 2010 4:45pm EDT

* Norfolk Southern EPS $1.04 v. $0.99 Street forecast

* Norfolk Southern revenue up 30.9 percent

* Kansas City adj Q2 EPS $0.55 tops analysts' $0.46 view

* Kansas City sees Q3 costs of about $0.05/shr for storm

* Shares fall after pre-earnings rally (Adds Norfolk Southern)

By Scott Malone

BOSTON, July 27 (Reuters) - U.S. railroads Norfolk Southern Corp (NSC.N) and Kansas City Southern (KSU.N) posted results that topped Wall Street's forecasts, as recovering businesses needed to ship more products and commodities.

The results continued a trend of strong reports from the transportation sector over the past week, which has been seen demand rebound as factories kick into operation and distributors restock warehouses.

But shares of both railroads fell after rallying strongly for the past week, after better-than-expected results last week from No. 1 U.S. railroad Union Pacific Corp (UNP.N) and forecast hikes from package-delivery giants United Parcel Service Inc (UPS.N) and FedEx Corp (FDX.N) and Canadian National Railway Co (CNR.TO).

Kansas City shares closed down 6 percent at $37.15. Norfolk Southern, which had already given up 1 percent to close at $56.52 on the New York Stock Exchange, declined another 12 cents from the close.

The Dow Jones transportation average .DJT has run up some 8.5 percent over the past five days.

"Given the magnitude of the big earnings surprises at Union Pacific and Canadian National, investors may have raised their expectations of what these companies might report," said Jeff Kauffman, managing director for transportation research at Sterne, Agee & Leach in New York.

Still, solid demand for the industrial and agricultural commodities railroads haul will help them boost volume and prices over the rest of 2010, executives said.

"We should be strong for the rest of the year," said Kansas City Chairman Mike Haverty. "We don't see any indicators at this point that show that we are getting ready to take a dive."

NORFOLK TOPS STREET VIEW

Norfolk Southern posted 58.7 percent profit growth, topping analysts' forecasts, on revenue that met Wall Street's expectations.

Net income was $392 million, or $1.04 per share, compared with profit of $247 million, or 66 cents per share, a year earlier. Analysts, on average, had looked for profit of 99 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 30.9 percent to $2.4 billion.

"This is our fourth straight quarter of volume growth, and we are optimistic about continued year-over-year increases in rail traffic," said Chief Executive Wick Moorman. [ID:nN27114063]

KANSAS CITY FACES STORM HEADWIND

Kansas City reported a profit of $34.6 million, or 34 cents per share, available to common shareholders, up from $6.5 million, or 7 cents per share, a year earlier.

Revenue rose 35.2 percent to $461.6 million.

Excluding one-time items, it reported profit of 55 cents per share, topping the analysts' average estimate of 46 cents, according to Thomson Reuters I/B/E/S.

But gains from tax recoveries and an insurance benefit somewhat inflated the magnitude of the beat, Kauffman said.

The railroad experienced three weeks of service disruptions in Mexico this month -- following the quarter's end -- after flooding from Hurricane Alex damaged some of its tracks around Monterrey.

It said the effects of that incident would reduce third-quarter profit by about 5 cents per share, although insurance would cover most of the cost of the disruptions. It expects to book insurance recoveries in the third and fourth quarters. [ID:nN27258398]

The most prominent prediction of this year's railroad rebound came from famed investor Warren Buffett, whose Berkshire Hathaway Inc (BRKa.N) in February bought No. 2 U.S. railroad Burlington Northern Santa Fe in a move the billionaire described as an "all-in wager" on the future of the U.S. economy. (Reporting by Scott Malone, editing by Gerald E. McCormick,Lisa Von Ahn, Leslie Gevirtz)

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