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NS Q2 coal revenues, volumes jump on year, high expectations for H2: earnings

Highlights

Coal volumes jump 55% on year

Long-term coal market remains challenged

Norfolk Southern's coal revenues and volumes jumped during the second quarter, and railroad executives remain positive about its coal segment through the second half of the year given increased demand, they said on the railroad's earnings call.

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"Our coal segment experienced some bright spots in the second quarter due to higher demand levels, driven by global economic recovery and weather events," Alan Shaw, executive VP and chief marketing officer, said on the call July 28.

NS shipped 19.3 million st during the second quarter, up 55% from the year-ago quarter. Utility coal shipments totaled nearly 8.6 million st, up 50%, while export was 6.6 million st, up 79% from Q2 2020. Domestic met and industrial shipments were 3.3 million st and 871,000 st, respectively. Domestic met rose 42% year on year, while industrial rose 17%.

Revenues in NS's coal segment totaled $318 million in Q2, up 52.2% from the year-ago period. Coal carloads were about 173,200 during the quarter, up 55% from Q2 2020, while the revenue per unit was $1,837, down from $1,864 year on year.

According to Shaw, the decline in revenue per unit was due to a negative mix in its export markets because the segment's growth was driven by strength in lower RPU markets.

"Our coal franchise will continue to capitalize on near-term opportunities to support global energy demand and steel production," Shaw said.

He added that H2 volumes will increase due to export markets benefitting from high seaborne coal prices, which will make US coal more competitive in the global market.

"Demand for domestic met to support growing steel production activity is also likely to produce year-over-year growth," Shaw said. "Gains in these markets will be partially offset by expected year-over-year declines in utility volume as this market deals with unit retirements, coal supply and planned maintenance outages."

Total NS revenues were $2.8 billion in the second quarter, up 34.2% year on year, while net income was $819 million, up 109%.

Looking ahead for NS's coal segment, "the near-term upside in coal markets will provide more of a lift this year than previously expected, though the market remains challenged in the long term," James Squires, chairman, president, and CEO, said on the call.

As Shaw said on the call, "volatility is an ever-present risk in the coal market. So we are closely monitoring geopolitical trade tensions and coal production, both of which have a potential to influence results."