Freight transportation company Norfolk Southern (NYSE:NSC) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 1.6% year on year to $3.02 billion. Its GAAP profit of $3.23 per share was 8.4% above analysts’ consensus estimates.

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Company Overview

Starting with a single route from Virginia to North Carolina, Norfolk Southern (NYSE:NSC) is a freight transportation company operating a major railroad network across the eastern United States.

Rail Transportation

The growth of e-commerce and global trade continues to drive demand for shipping services, presenting opportunities for rail transportation companies. While moving large volumes by rail can be highly cost-efficient for customers compared to air and ground transport, this mode of transportation results in slower delivery times, presenting a trade off. To improve transit times, the industry continues to invest in digitization to optimize fleets, loads, and even braking systems. However, rail transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Norfolk Southern Corporation grew its sales at a weak 1.4% compounded annual growth rate. This fell short of our benchmarks and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Norfolk Southern Corporation’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.5% annually. Norfolk Southern Corporation isn’t alone in its struggles as the Rail Transportation industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Norfolk Southern Corporation reported a rather uninspiring 1.6% year-on-year revenue decline to $3.02 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.4% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

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Operating Margin

Norfolk Southern Corporation has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 33.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Norfolk Southern Corporation’s operating margin rose by 2.9 percentage points over the last five years, showing its efficiency has improved.

In Q4, Norfolk Southern Corporation generated an operating profit margin of 37.4%, up 11.1 percentage points year on year. The increase was solid, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Norfolk Southern Corporation’s EPS grew at a weak 2.5% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.4% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Norfolk Southern Corporation’s earnings can give us a better understanding of its performance. As we mentioned earlier, Norfolk Southern Corporation’s operating margin expanded by 2.9 percentage points over the last five years. On top of that, its share count shrank by 13.3%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Norfolk Southern Corporation, its two-year annual EPS declines of 8.7% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q4, Norfolk Southern Corporation reported EPS at $3.23, up from $2.33 in the same quarter last year. This print beat analysts’ estimates by 8.4%. Over the next 12 months, Wall Street expects Norfolk Southern Corporation’s full-year EPS of $11.57 to grow 13.2%.

Key Takeaways from Norfolk Southern Corporation’s Q4 Results

We enjoyed seeing Norfolk Southern Corporation exceed analysts’ EPS and EBITDA expectations this quarter. Its revenue also met Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $251.50 immediately after reporting.

Is Norfolk Southern Corporation an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.