Norfolk Southern on right track

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Norfolk Southern Corp. is chugging along with steady stock value gains and plans for a $2 billion upgrade to its railroad tracks that run through the outskirts of Washington.

The Norfolk-based company operates the nation's fourth-largest freight railroad, with more than 21,000 miles of track in 22 states, the District and Ontario, Canada.

Its stock value rose in April after billionaire investor Warren Buffett reported in Securities and Exchange Commission filings that his company, Berkshire Hathaway Inc., bought stakes in Norfolk Southern and two other major railroads. The reports brought in a wave of new investors to shares of the railroads.

The investment also offset a disappointing first quarter of 2007 for Norfolk Southern.

Declines in the housing and domestic automotive industry have resulted in fewer shipments for Norfolk Southern and other railroads.

Norfolk Southern's first quarter profit fell 6.6 percent. It reported net income of $285 million, or 71 cents per diluted share in the first three months of 2007, down from $305 million, or 72 cents per diluted share, one year earlier. Revenue fell 2 percent to $2.25 billion from $2.3 billion in the first quarter of 2006.

"We are encouraged with our performance in the first quarter, especially in light of the softness in the economy," said Wick Moorman, Norfolk Southern's chief executive officer.

Stock analysts say despite any weakening in the railroad industry, the long-term outlook for Norfolk Southern looks good.

"Soft transport demand and increased competition from [the trucking industry] are near term pressures that are likely to continue," said Thomas R. Wadewitz, a research analyst for the financial firm JP Morgan Securities.

However, long-term prospects for the company are much better, particularly for its intermodal transport, he said. Intermodal normally refers to hauling containers that can be switched quickly among rail cars, trucks and ships.

Rick Paterson, an analyst for financial firm UBS, said Norfolk Southern is benefiting from its investments to expand track and other infrastructure to handle more freight while making its operations more efficient by computerizing its rail network.

"While it's benefiting from the same strong pricing trends as the rest of the [railroad industry] sector, what sets it apart is its superior operations," Mr. Paterson said.

Among its infrastructure investments are the Crescent Corridor, a project announced this month to upgrade its rail lines that run from Louisiana through New Jersey. In the Washington area, the tracks would run through Front Royal and Winchester in Virginia and Hagerstown, Md.

The rail line would roughly parallel Interstate 81 in an attempt to compete more directly with truck traffic. Norfolk Southern officials said the Crescent Corridor would eliminate the need for about one million truck trips per year.

"It's certainly designed to add more volumes on the intermodal side," said Rudy Husband, Norfolk Southern spokesman. Work on the project is scheduled to begin next year and be completed by 2013.

Edward M. Wolfe, analyst for financial firm Bear Stearns, said "volumes could remain negative for the full year" for Norfolk Southern but that its stock offered "arguably the lowest valuation and the best returns and cash flow" among major railroads.