Please ensure Javascript is enabled for purposes of website accessibility

Why Norfolk Southern Stock Derailed and Shed 12.4% in February

By Neha Chamaria - Mar 8, 2020 at 11:24AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Two "Cs" raise questions about the railroad stock's near future: coal and coronavirus.

What happened

Shares of railroad Norfolk Southern (NSC 0.55%) shed 12.4% in value, according to data provided by S&P Global Market Intelligence, in the month of February. While the COVID-19 coronavirus outbreak triggered panic selling, Norfolk's already facing industry-specific concerns.

So what

Norfolk kicked off February on a strong note after announcing a relatively strong set of fourth-quarter numbers, compared to the info most peers released end-January: It reported 7% lower revenue and a 5% drop in net income year over year, despite macro-headwinds triggered partly by the trade war.

Management expected weak commodity markets and a slump in coal market activity to be offset by stronger merchandise (which includes chemicals, agriculture, automotive, among others) and intermodal volumes. That, however, may not be the case anymore, thanks to the coronavirus.

Derail sign on a rail track.

Image source: Getty Images.

With manufacturing activity in China taking a sharp hit following the COVID-19 coronavirus outbreak, the ripples are being felt through the transportation sector. After the shipping industry, railroads are feeling the pinch, as volumes at ports are drying up after a slump in imports from China. Lower port volumes directly affect intermodal volumes -- intermodal containers transfer goods between two or more modes of transportation, say from ships and trains to trucks.

In 2019, intermodal made up a quarter and coal 15% of Norfolk's revenue. No wonder investors are a worried lot. During Norfolk Southern's Q4 earnings conference call, management already expressed concerns about coal, with Chief Marketing Officer Alan H. Shaw even acknowledging how "additional gas and renewable generation capacity continues to erode coal share of electricity generation" during his overview of 2020. Mid-February, Norfolk even shut down a distribution center in Virginia as coal volumes continued to decline. The coronavirus epidemic has only made matters worse.

Now what

To understand how badly U.S. rail traffic is getting hit, all you have to do is take a look at the weekly data released by the Association of American Railroads. For the week ended Feb. 29, total carloads declined 6.5% and intermodal volume is down 12.5%, year over year. Intermodal had dropped only 6% in the week prior. Both weeks, coal traffic saw the biggest declines.

Given the backdrop, investors in Norfolk Southern aren't sure when the company's volumes and revenues will pick up.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Norfolk Southern Corporation Stock Quote
Norfolk Southern Corporation
NSC
$228.55 (0.55%) $1.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.