(Reuters) -U.S. railroad operator Norfolk Southern Corp said on Wednesday it expected inventory and economic headwinds would pressure its volume and revenue throughout the second quarter, even as demand for freight remained strong.
Shares of Norfolk slipped 1.01% to $205.03 in morning trade, after the company said it took a $387 million charge in the first quarter in relation to a freight train derailment in Eastern Ohio.
“(The charges) do not reflect any amounts potentially recoverable under the company’s insurance policies,” the company said, after reporting adjusted quarterly profit above analysts’ estimates on the back of robust pricing and demand for freight.
Norfolk came under heavy fire after one of its freight trains carrying hazardous materials derailed in East Palestine, Ohio in early February.
The state of Ohio sued the railroad operator in March, seeking compensation for damages to the state’s environment, economy and residents.
“Within our Intermodal markets, volume in 2023 will be largely dependent on economic conditions, particularly the health of the American consumer” Norfolk’s marketing head, Claude Elkins, said on a post earnings call with analysts.
American consumers are cutting back on their discretionary spending as prices of everything from fuel to daily essentials have risen sharply in an uncertain economy.
“Looking at the back half of ’23, clearly, the economic conditions remain uncertain,” Elkins said.
However, automotive shipments have boosted freight demand as car makers are ramping up production.
Separately, Norfolk said supply chain fluidity returned faster than expected, serving as a tailwind to volumes.
Norfolk posted an adjusted profit of $3.32 per share for the first quarter, compared with analysts’ average estimate of $3.12 per share, according to Refinitiv data.
Overall quarterly operating revenue rose 7.4% to $3.13 billion, compared with analysts’ estimates of $3.11 billion.
(Reporting by Amna Karimi and Nathan Gomes in Bengaluru; Editing by Subhranshu Sahu)
