NSC Q3 Deep Dive: Productivity Offsets Volume Headwinds Amid Merger Uncertainty

Freight transportation company Norfolk Southern (NYSE:NSC) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 1.7% year on year to $3.10 billion. Its GAAP profit of $3.16 per share was 2.5% below analysts’ consensus estimates.

Is now the time to buy NSC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Norfolk Southern’s third quarter results met revenue expectations but came in below analyst consensus on GAAP profit, reflecting a mixed operating environment. Management credited improvements in safety, operational efficiency, and productivity initiatives as key drivers, while also acknowledging flat overall volumes and competitive pressures stemming from the pending Union Pacific merger. CEO Mark George highlighted that, "the third quarter volume surges forecasted by partners didn’t materialize as expected, and the truck market remains oversupplied," suggesting that external factors weighed on the company’s performance despite internal progress.

Looking forward, Norfolk Southern’s outlook is shaped by the evolving competitive landscape and continued focus on efficiency. Management expressed caution regarding unpredictable demand and anticipated further volume pressure, particularly in intermodal, due to industry reactions to the merger announcement. According to Chief Commercial Officer Ed Elkins, “We anticipate volume pressure, particularly in our Intermodal segment,” and the company plans to reinforce its network reliability and pursue efficiency gains to offset these headwinds. The team also highlighted ongoing investments in safety technology and operational discipline as priorities to support long-term performance.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to disciplined cost control, safety improvements, and ongoing productivity initiatives, while flagging competitive and macroeconomic headwinds that impacted revenue and profitability.

• Operational efficiency gains: Norfolk Southern’s PSR 2.0 transformation delivered measurable improvements in train speed and fuel efficiency, allowing the company to move more gross ton-miles with fewer resources and reducing intermodal train starts by 12% year to date.
• Safety progress: Management emphasized a 7.8% improvement in personal injury ratios and a 27.7% reduction in train accident ratios compared to last year, citing enhanced training and field technology deployments as contributors.
• Intermodal headwinds: The company noted that intermodal volumes declined due to abundant truck capacity, tariff-related trade uncertainty, and increased competitive aggression after the merger announcement, with management warning that these pressures are likely to persist.
• Merchandise segment resilience: Merchandise volumes grew 6% year over year, driven by automotive, chemical, and construction markets, though gains were offset by mix headwinds from lower-yield commodities such as natural gas liquids and scrap metals.
• Coal market weakness: Export coal volumes and revenues declined due to lower seaborne coal prices, which management identified as the most significant revenue headwind in the quarter and a trend expected to continue into the near future.

Drivers of Future Performance

Management expects continued volume pressure and revenue challenges, with efficiency improvements and merger-related developments as key themes shaping guidance.

• Competitive and merger-related headwinds: Management expects further volume erosion in intermodal, especially in the Southeast, as competitors react aggressively to the pending merger. This is anticipated to be a meaningful headwind through upcoming bid cycles.
• Productivity and cost discipline: The company is raising its efficiency target for 2025 to $200 million and plans to maintain strict control over employment levels, fuel efficiency, and discretionary spending. Management aims for these efforts to sustain operating margins despite revenue uncertainty.
• Macro and industry uncertainty: The outlook reflects caution around unpredictable demand, persistent overcapacity in the truck market, and ongoing tariff volatility. Management is focused on “controlling the controllables,” while keeping service and safety as top priorities.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the pace and extent of intermodal volume recovery or further erosion as competitive responses to the merger play out, (2) the realization of targeted cost and productivity improvements, and (3) progress in safety metrics and the adoption of new technology for inspection and network reliability. Developments in the regulatory review and any milestones toward the Union Pacific merger will also be important signposts.

Norfolk Southern currently trades at $283.13, in line with $283.78 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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