October 25, 2017 / 3:28 PM / a year ago

Norfolk Southern quarterly profit rises but shares fall

Oct 25 (Reuters) - Norfolk Southern Corp, the No. 4 U.S. railroad, reported higher quarterly profit on Wednesday but shares fell more than 4 percent in morning trading.

It was not immediately known why the shares declined.

Third-quarter net income rose to $506 million, or $1.75 per share, from $460 million, or $1.55 a share, a year earlier. Analysts looked for $1.64, according to Thomson Reuters I/B/E/S.

The Norfolk, Virginia, company also reported a record operating ratio for any third quarter. Operating ratio is a closely watched measure of operating expenses as a percentage of revenue. The metric declined to 65.9 percent in the most recent quarter, an improvement of 1.6 percentage points over the year-ago period. The lower the operating ratio, the more efficiently the railroad is running.

Operating expenses rose by 3 percent from a year ago to $1.8 billion, which the company blamed on higher compensation costs and inflation-related expenses. Those increases were offset by cost-cutting initiatives and the sale of property, the company said.

Norfolk Southern last year unveiled a strategic plan that aims to increase cost savings to more than $650 million by 2020 from $130 million in 2016.

“Our continual focus on delivering results through cost savings efforts, efficiencies and asset utilization, have us on track to deliver productivity savings up over $100 million in 2017,” Norfolk Southern CEO Jim Squires told analysts on a conference call.

The railroad moved 4 percent more volume in the quarter with 4 percent fewer employees, it said.

Coal volumes were up 12 percent and intermodal freight - containers that can be transferred from ship, to rail, to trucks - rose 4 percent to a record quarterly volume, Norfolk said in a presentation after it reported results.

Coal freight volumes have recovered slightly this year after two years of precipitous declines where utilities switched to burning cheaper natural gas in power plants and unseasonable weather added greatly to already large coal inventories.

Industry executives had predicted that coal volumes would recover slightly and stabilize in 2017 as inventories are burned down.

Norfolk Southern shares were down 4.2 percent at $126.75 on Wednesday morning. (Reporting by Eric M. Johnson in Seattle; Editing by Matthew Lewis)

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