Norfolk Southern (NYSE: NYSE:NSC), a major railroad operator in the Eastern United States, reported a significant drop in its third-quarter profits, which fell to $478 million from $958 million in Q3 2022. This 50% decrease is largely attributed to a $163 million charge related to a train derailment in East Palestine, Ohio involving hazardous materials. The derailment has raised concerns among local and surrounding communities in Ohio and Pennsylvania over potential long-term health effects.
The incident, which occurred in February, necessitated the evacuation of thousands and required the venting of rail cars carrying vinyl chloride to prevent explosions. Cleanup operations continue, with the company having received its first insurance payment of $25 million. Despite the significant costs associated with the incident, most are anticipated to be covered by insurers.
In addition to the derailment-related charges, Norfolk Southern also experienced a $254 million drop in fuel surcharge revenue. This further impacted earnings, which amounted to $2.10 per diluted share, down from $4.10 per diluted share in Q3 2022. However, excluding the accident's charge, diluted earnings per share stood at $2.65, slightly above FactSet Research analysts' average expectation of $2.64.
Operating revenue for the quarter fell by 11% to $2.97 billion, narrowly beating Wall Street estimates. However, an additional 4% decline is expected this year. Operating expenses rose 7% to $2.2 billion due to higher material costs and the incident charge, resulting in railway operations income of $756 million compared to $1.3 billion in Q3 2022.
Despite these challenges, Norfolk Southern reported improvements in service with train speeds increasing to 20.5 mph and railyard time falling to 23.2 hours during the quarter. The company's President and CEO, Alan Shaw, reaffirmed his commitment to "building solid operational disciplines" for "productivity enhancements and growth," as reported in FreightWaves articles by Joanna Marsh.
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