The company was surprised by the extent of the drop - 28 percent - in the volume of coal it shipped for export in September. Chief Executive Wick Moorman told analysts on a conference call that the outlook is "guarded" for the next few quarters.
Demand sank for U.S. coal in Western Europe because of the debt crisis and economic recession, and in China because of its softening economy, chief marketing officer Don Seale said on the call.
The September slump in export coal followed a combined volume increase of five percent in the prior two months, and continued weakness would hurt fourth-quarter revenue, Seale said.
Pricing has also deteriorated, with metallurgical coal in the world market falling from a high last year of $335 per metric ton to a current range of $160 to $170, he noted.
On the plus side, domestic utility coal stockpiles have fallen to a current average of 34 days from 38 days in the second quarter. A cold winter could further reduce this excess of coal, and boost demand for more shipments, the company said.
Coal stockpiles grew because of the mild 2011 winter and low natural gas prices.
Coal represents about 26 percent of Norfolk Southern's total revenue.
The company saw a 1 percent drop in general merchandise shipping revenue and a 22 percent slump in coal revenue, tempered by a 3 percent rise in intermodal revenue.
General merchandise includes metals, chemicals and materials to support natural gas drilling.
Intermodal refers to the shipment of goods in containers that can be moved from one mode of transport to another, such as from ship to train or train to truck.
The Norfolk, Virginia-based company reported third-quarter net income of $402 million, or $1.24 per share, compared with $554 million, or $1.59 a share a year earlier.
The company had warned in September that lower shipping volume would drag third-quarter earnings to between $1.18 and $1.25 per share.
Railway operating revenue fell 7 percent to $2.7 billion, the company said. Lower fuel surcharges to customers contributed to weaker revenue.
The company will be looking at all aspects of its business, including staff levels and rail cars in use, to control costs, executives told analysts. (Reuters)
