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If stocks could reproduce, I'd place this thoroughbred out to pasture in the hopes that it might produce a stable of others just like it.
Of course, repeating the investment returns that railroad operator Norfolk Southern (NYSE: NSC ) has delivered reliably over the past few years is not such an easy task. But if it were just a simple matter of biological reproduction, I think Norfolk would make a great stud.
In the same manner as its eastern rival CSX (NYSE: CSX ) , Norfolk strutted its way through a weak patch in the domestic economy with an astonishing 42% increase in net profit. And like CSX, Norfolk also reduced its share count over the past year, such that the hauler's $557 million profit translated to a full 50% surge in earnings per share. The secret to Norfolk's studly result was a fortuitous bout of pricing strength that converted a modest freight volume increase of just 4% to an 18% increase in revenue to reach $2.87 billion.
Even amid declining coal shipments to domestic utilities, Norfolk Southern saw overall coal volumes expand thanks to a 23% increase in its export traffic. Appalachian coal miners -- as I've previously noted regarding Patriot Coal (NYSE: PCX ) and CONSOL Energy (NYSE: CNX ) -- are rapidly expanding their reach into a coal market that is brimming with the strength of a remarkable global supercycle. For Norfolk Southern, that underlying secular trend combined with phenomenal pricing power to yield a 28% increase in coal-generated revenue.
While Norfolk narrated a global story relating to coal, the company spun more of a domestic tale with respect to intermodal traffic. A 15% increase in domestic intermodal volume dominated the segment's 9% increase overall. The hauler cited increased tightness in truck hauling capacity as a contributing factor, though I suppose it doesn't hurt that FedEx (NYSE: FDX ) selected Norfolk as its "primary eastern rail carrier."
From time to time I find that some of what I needed to know in life, I learned when I was a young child. I recall, for example, that railroads offered steady rewards that were often overlooked as my board-game opponents laid their fiat fortunes on the line for Boardwalk or Park Place. And now all these years later, I'm discovering again that the industry offers some of the very best real estate in this game we call investing.