September 17, 2008 - Norfolk Southern Corp. (NSC-NYSE) through its subsidiaries, engages in the rail transportation of raw materials, intermediate products, and finished goods primarily in theUnited States. Its operations consist of transportation of coal, coke, and iron ore products; general merchandise traffic, which consists of automotive products, chemicals, metals and construction products, agriculture and consumer products, and paper, clay, and forest products; and intermodal traffic.

Intermodal traffic includes shipments moving in trailers, domestic and international containers, and road-railer equipment. It handles these shipments on behalf of intermodal marketing companies, international steamship lines, truckers, and other shippers. The company also transports overseas freight through various Atlantic and Gulf Coast ports, as well as provides a range of logistics services.

It also operates and leases regularly scheduled passenger trains and commuter trains; acquires, leases, and manages coal, oil, gas, and minerals; develops commercial real estate; telecommunications; and leases or sells rail property and equipment. As of December 31, 2007, the company operated approximately 21,000 route miles in 22 states in the United States and the District of Columbia. Norfolk Southern Corporation was founded in 1830 and is based in Norfolk,Virginia.

A couple of things stand out: it serves the auto industry for finished vehicles as well as parts. Everyone knows how that sector is doing. Another industry spending and sending less: home construction, in particular lumber. But NSC also hauls coal. Several electric utilities report a depletion in their coal stockpiles. That means large orders to bring in more of the black stuff will fill a lot of trains. For Norfolk Southern, capacity has stayed at a relatively high level compared to many other railroads.

It recorded a 16% bump in second quarter revenues, reaching an all-time high of $2.76 billion. In spite of general economic weakness, its trains are still pulling out very full. Thanks to better operating efficiencies, margins remain strong. Earnings came in at $1.18 a share for the second three month period, up from 98 cents a share in the same quarter last year. For all of 2008, expect $4.32, well ahead of last year's $3.73. Next year, analysts predict $4.93 in earnings.

Total merchandise revenue was up 15% in the second quarter even though overall volume was down 5%. Agricultural and metal volumes were strong as well, thanks to high demand for resources. Coal volumes were shipped at record levels since stockpiles remain low on a worldwide basis, not just domestic utilities. With ever stronger demand from global energy markets, expect NSC to benefit from exports of coal.

While the U.S. automakers are closing plants and shipping fewer cars and trucks, Japanese manufacturers with plants in the U.S. are moving more cars and trucks onto lots. These aren't enough to make up the volume lost, but the shipments will fill some empty railcars.

More numbers: Market Cap is $25.35 billion with 375 million shares outstanding. Price to Book is 2.57. Profit margin for the last 12 months was 15.18% with Operating margin at 27.24%. Return on Equity was a respectable 15.36%. There's $454 million in cash sitting in the bank. Total debt is $6.49 billion. The annual dividend rate is $1.28, giving a yield of 2%.

Norfolk Southern is riding out the domestic economic storm thanks to its basic nature: it moves essentials efficiently, whether they're the latest fashions or the much needed coal to run utilities. Some sectors, such as autos and autoparts, have slowed considerably. But thanks to higher pricing and fuel surcharges, earnings should continue to grow. Here's a company that's worth more of any investor's time to determine how it might fit into a portfolio.

- Company Web site: www.nscorp.com

- Ted Allrich