Norfolk Southern Q3 Freight Volume Growth Drives 14% Revenue Rise
Norfolk Southern's third-quarter revenue grew 14% to $3.52 billion, fueled by a 3% increase in freight volumes and higher fuel surcharges.
Norfolk Southern's third-quarter revenue grew 14% to $3.52 billion, driven by a 3% increase in freight volumes. The railroad's performance was supported by higher fuel surcharges and gains across its merchandise, intermodal, and coal segments.
Merchandise, intermodal, and coal volume each increased by 3% for the quarter. This growth contributed to a record quarterly railway operating revenue of $3.5 billion. Diluted earnings per share rose 7% year over year to $3.37, while operating income increased 5% to $1.15 billion.
Fuel Cost Impact and Efficiency Gains
Fuel surcharge revenue was responsible for eight of the fourteen percentage points of total revenue growth. While higher fuel costs pressured margins, the company implemented operational changes that improved network fluidity. Redesigning car connections at terminals eliminated 95 crew starts per week and removed 200 cars per day from the system.
Further efficiencies came from consolidating smaller trains between Birmingham, Alabama, and Macon, Georgia, saving 14 crew starts weekly. Shifting 50 daily switch cars from Enola, Pennsylvania, to Allentown Yard freed crews for other duties. These actions helped terminal dwell time improve by 3% and train speed increase by 5% compared to the prior quarter.
Operating Performance and Ratios
The company's operating ratio rose to 67.4%, an increase of 2.8 points from a year ago, primarily due to higher fuel costs. After adjusting for costs related to the East Palestine derailment and the proposed Union Pacific merger, the ratio was 65.4%. These merger and incident-related expenses totaled $70 million.
Adjusted financial metrics showed a stronger underlying performance. Adjusted railway operating income increased 7% to $1.22 billion, and adjusted earnings per share reached $3.62, exceeding analysts' estimate of $3.47.
| Metric | Q3 Performance |
|---|---|
| Diluted EPS | $3.37 |
| Adjusted EPS | $3.62 |
| Operating Ratio | 67.4% |
| Adjusted Operating Ratio | 65.4% |
Network Improvements and Market Outlook
The railroad successfully absorbed the 3% carload growth through network improvements. A tight truck market and high fuel prices are creating opportunities for highway-to-rail conversions in forest products, consumer goods, and domestic intermodal. Chief Commercial Officer Ed Elkins said NS is broadly optimistic for the rest of 2026, with high fuel prices boosting energy-related traffic.
Industrial demand appears robust, with manufacturing activity expanding for nine consecutive months and industrial development ahead of last year's pace. Vehicle production is viewed as modestly positive. Coal volume is expected to grow, led by exports and utilities replenishing stockpiles. However, international intermodal remains weighed down by trade uncertainty.
Service metrics showed a mixed picture. The intermodal service composite was 84%, down from 92% a year ago, and merchandise trip plan compliance was 74%, down from 80%. On-time train originations improved by 18% compared to the second quarter. Safety performance continued to improve, with the train accident rate reaching a record low.
Chief Executive Mark George stated, "Our third quarter was strong with steady execution, making notable improvements to our network while delivering solid results." The company has invested in capacity and reliability projects across its 22-state network, including an inland port in Gainesville, Georgia, and terminal expansions in several major cities. New bidirectional services were also launched between key corridors. The company's optimism for 2026 is fueled by high fuel prices boosting energy-related traffic.
