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Norfolk Southern CEO reveals the secret to making money with cargoes down

Norfolk Southern delivered a third-quarter surprise on Wednesday when it managed to report an earnings beat, even with major cargoes like coal in a secular decline.

Jim Cramer spoke with Norfolk Southern's chairman and CEO Jim Squires, who revealed how the company continues to improve amid a difficult environment.

"There is always opportunity through business process improvements and through working our assets ever harder. We are very focused on productivity. That has been the source of a lot of our improvements this year," Squires told the "Mad Money" host.





On the right track?

Norfolk Southern railroad cars sit after being loaded with corn at a Kokomo Grain Co. transloading facility in Edinburgh, Indiana.
Luke Sharrett | Bloomberg | Getty Images
Norfolk Southern railroad cars sit after being loaded with corn at a Kokomo Grain Co. transloading facility in Edinburgh, Indiana.
"Longer term we think there is a permanent place in the energy franchise in this country for coal." -Jim Squires, Chairman and CEO of Norfolk Southern

Norfolk Southern has worked hard on cutting costs this year by focusing on both cost efficiency and productivity whereever possible, Squires added. Just when Cramer thought it had no more fat to trim, somehow Squires figures out how to do it.

Squires also said the pricing model for the company has held up. He felt confident that services are at a level that generates new business in the future and supports the current model. Compared to shipping cargo by truck, rail has a better proposition, he said.

"Rail has its own special value proposition in the transport arena. It is cost effective, it is environmentally friendly, and the service has just gotten to the point where we are competitive in many markets with trucks," Squires said.

One concern that Cramer had was with the rapid decline in the use of coal. While coal plants are being retired and some have been refurbished, he noted the relationship between the price of coal and natural gas. As natural gas prices rise, coal could become more attractive.

"Longer term we think there is a permanent place in the energy franchise in this country for coal. It's an essential part of the energy franchise, and we think we'll be hauling coal at some level for years to come," Squires said.

Railroad stocks have made a comeback this year after being troubled by cargoes that were in a secular decline. However, the rails managed to bounce back in late January and early February after being beat down. The entire cohort has spent the rest of the year flying high.

Norfolk Southern's stock is up 6 percent this year after the company delivered a 10-cent earnings beat from a $1.45 per share basis and in line revenue. Overall volumes were down 4 percent, though management said next quarter should be flat or up slightly.


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