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Now that all the major North American railroads have reported 2010 earnings, it's time to break out our Foolish brushes and paint a portrait of this bellwether industry with broader, more fluid strokes. First, let's peek at results from the self-described "thoroughbred of transportation."
Norfolk Southern (NYSE: NSC ) grew fourth-quarter net earnings by 31%, making the most of a 14% improvement in railway operating revenue over the prior-year period. The company correctly celebrated a solid year of recovering momentum for 2010, and confidently added, "We have every reason to believe that 2011 will be an even stronger year for us."
With attractive growth opportunities, including FedEx's (NYSE: FDX ) decision to utilize Norfolk Southern as its "primary Eastern rail carrier" to haul freight over its intermodal network, this thoroughbred is locking in new sources of baseline demand. Norfolk Southern observed "highway conversions" -- signifying railroads' continued advancement into the market share of the trucking industry at large -- accounting for most of its 22% increase in domestic intermodal traffic. The company closed out 2010 with a 16% increase in intermodal revenues for the fourth quarter.
Aside from intermodal, Norfolk Southern sees coal shipments providing further strength in the new year. Export coal volumes actually tumbled 18% in the fourth quarter, and the company referenced winter storms and strong prior-year volumes as potential culprits. I had been searching for insight into Massey Energy's (NYSE: MEE ) mention of "inconsistent rail service" within the miner's disappointing fourth-quarter production update, and I see these two puzzle pieces fitting together.
Zooming out to the bigger picture, I observe some sequential softness in fourth-quarter freight activity that warrants mentioning alongside the strongly encouraging outlooks for the major railroad operators. Merchandise shipments for Norfolk Southern rose by 3% in the fourth quarter, substantially beneath the 14% pace of improvement logged for the full-year 2010. Corroborating data that first caught my attention in Union Pacific's (NYSE: UNP ) results, and was later reinforced by CSX's (NYSE: CSX ) report, Norfolk Southern's 20% decline in fourth-quarter automotive volumes builds a compelling case for a troubling dip in automotive demand, during a quarter widely presumed to have been a bastion of domestic economic improvement.
Also, while Norfolk Southern's fourth-quarter railway operating revenue grew by 14% year over year, this $2.4 billion figure remains 4% lower than in 2008's comparable quarter. I share in the industry's enthusiasm regarding the substantial strides made to date in rebuilding a foundation of normalized freight demand in the wake of the financial crisis, and I'm encouraged by their expectations for further gains in 2011. I'd merely suggest that Fools remain watchful for signs of diminishing growth rates across any of the key pillars of the domestic economy.