Norfolk Southern profit beats, cost cuts offset falling freight

CHICAGO (Reuters) - Norfolk Southern Corp on Thursday reported a quarterly profit that was lifted by cost cutting and measures taken to streamline operations, shaking off a 6 percent freight decline and sending the railroad's stock up more than 3 percent.

The No. 4 U.S. railroad's earnings beat comes just over a week after Canadian Pacific abandoned a hostile bid for the company under pressure from customers, elected officials and government agencies opposed to a deal.

Norfolk Southern itself was under pressure from investors during Canadian Pacific's five-month bid to show a marked improvement in profitability and prove that it could perform well as a standalone entity.

Like all the other major U.S. railroads, the Norfolk, Virginia-based company has had to do that while weathering what the industry has described as a "freight recession."

Falling freight volumes in the industry have been lead by coal, as utilities have switched to burning cheaper natural gas amid low energy prices and exports have been hurt by the strong U.S. dollar.

Norfolk Southern's coal revenue fell 23 percent in the first quarter to $349 million.

"Our focus on strengthening Norfolk Southern is yielding results," Chief Executive James Squires said in a statement.

The company is on track to achieve productivity savings of $200 million this year and an operating ratio below 70 percent.

A railroad's operating ratio is a key metric for Wall Street analysts and investors. During the first quarter, Norfolk Southern's operating ratio improved 8 percentage points to 70.1 percent.

The company reported first-quarter net income of $387 million or $1.29 per share, up 25 percent from $310 million or $1.00 per share a year earlier.

Analysts had on average expected earnings per share of 97 cents.

Revenue in the quarter totalled $2.42 billion, above market expectations of $2.39 billion.

In after-hours trading on Thursday, Norfolk Southern shares were up 3.5 percent at $85.50.

The company will cut capital expenditures in 2016 to $2 billion from $2.1 billion, it told analysts on a conference call.

(Reporting by Nick Carey; Editing by Matthew Lewis)