(Adds market reaction, comments, CSX details and updates share movement)
Jan 22 Norfolk Southern Corp on Wednesday reported a 24 percent increase in fourth-quarter earnings, beating Wall Street's expectations, as strong chemicals, construction materials and auto shipments more than offset a dip in coal volumes.
Shares of the railroad company rose as much as 7 percent in morning trading in New York.
The railroad, which said it is planning to increase investments in its business by 12 percent this year, said shipments of crude and higher automotive production helped boost traffic volume by 8 percent in the quarter. Revenue from coal fell 2 percent.
Norfolk Southern said it worked on reigning in costs throughout the year. In the quarter, its operating ratio, or operating expenses as a percentage of revenue, was 69.4 percent, a 5 percent improvement over the same quarter in 2012, the company said. The ratio is considered an important measure of a railroad's health.
For the year, the ratio improved 1 percent to 71.0 percent. At rival CSX Corp, by comparison, the ratio increased slightly to 71.1 percent.
"That tells me that Norfolk Southern basically took the same operating environment and did a better job of reining in expenses," said Houston-based individual investor Ray Merola.
Merola said the market reaction to Norfolk Southern's results was more a result of the better operating ratio than revenue and profit gains, because an improvement in costs is an indication of a well run company.
For the fourth quarter, Norfolk Southern earned $513 million or $1.64 a share, up from the $413 million, or $1.30 a share, in the year-earlier quarter.
Revenue totaled $2.9 billion, an increase of 7 percent.
Analysts, on average, expected earnings of $1.50 a share on revenue of $2.85 billion, according to Thomson Reuters I/B/E/S.
Norfolk Southern operates 20,000 route miles in 22 states and the District of Columbia.
Weak coal shipment volumes have been a problem for Norfolk Southern and CSX, as the shift to natural gas has caused utility coal stockpiles to surge as demand for coal from power producers declined. Both railroads have been looking at rising demand for shipments of chemicals, autos and agricultural products to make up for the weakness in coal.
Earlier in the month, CSX posted a fourth-quarter profit that fell short of Wall Street's estimates. CSX is also more exposed to coal than is Norfolk Southern. Coal shipments make up 25 percent of CSX's overall shipments. At Norfolk Southern, they account for around 20 percent.
Shares of the company were up 5 percent at $93.15 on Wednesday at mid-day. (Reporting by Nivedita Bhattacharjee in Chicago; Editing by Stephen Powell)