Norfolk Southern Q3 2025: Core Strength Amid Merger Uncertainty

Norfolk Southern Corp. (NSC), one of the largest freight railroad operators in North America, provides a crucial barometer for the health of the U.S. economy. By examining its performance, we can gain insights into industrial production, consumer spending, and international trade. Let's delve into the company's recently published third-quarter 2025 10-Q filing to understand its financial trajectory.

Unpacking the Bottom Line

A quick glance at Norfolk Southern's Q3 2025 results might cause concern. The company reported a net income of $711 million, a steep 35% decline from the $1.1 billion earned in the same period last year. However, this figure is distorted by several significant, non-recurring items. The quarter included costs related to a potential merger and charges from an incident in Eastern Ohio, while the prior-year period benefited from large gains on asset sales.

To see through this noise, we can look at the company's adjusted (non-GAAP) figures, which exclude these unusual events. On an adjusted basis, net income was $741 million, a slight 1% increase from the prior year. More importantly, the adjusted railway operating ratio—a key efficiency metric that measures operating expenses as a percentage of revenue—was 63.3%, holding steady compared to 63.4% in 2024. This stability points to a resilient core business despite the turbulent headline numbers.

The flow diagram below visualizes the company's third-quarter results, showing how over $3.1 billion in revenue was converted into $711 million in net income.

A Mixed Performance Across Freight Segments

Total railway operating revenues grew by a modest 2% in the third quarter to $3.1 billion. However, this overall figure masks varying fortunes across the company's primary freight categories.

• Merchandise: This was the standout performer, with revenues increasing 6% to nearly $2.0 billion. The segment, which includes goods like chemicals, construction materials, and automobiles, saw a significant boost from its automotive business. Automotive revenues and volumes both surged 18%, reflecting continued strength in vehicle manufacturing and sales.
• Intermodal: Revenue in this segment, which involves transporting shipping containers and truck trailers, was nearly flat, dipping 1% to $759 million. Performance was weighed down by a 3% decline in domestic volumes, while international volumes remained unchanged from the previous year.
• Coal: This segment continued to face challenges, with revenue falling 12% to $375 million. The decline was largely driven by a 16% drop in export tonnage, which more than offset a 6% increase in shipments to domestic utility companies.

Cost Management and the Looming Merger

While revenues saw modest growth, reported operating expenses jumped 38% to $2.0 billion. This increase is primarily due to the comparison against the third quarter of 2024, which included a $380 million gain from railway line sales that reduced expenses.

Excluding these one-off items, core expenses were managed effectively. Compensation and benefits rose 7% to $738 million due to higher incentive pay and wage rates, while fuel costs increased 10% to $237 million. Notably, a new line item appeared this quarter: $15 million in "Merger-related expenses," signaling the significant financial and strategic focus on the company's proposed merger with Union Pacific.

The pending merger is a dominant theme in the filing. The company has introduced a new "Risks Related to the Mergers" section, cautioning investors about potential obstacles. These risks include the possibility of the deal not closing, which could trigger substantial termination fees, as well as the diversion of management's attention and potential negative reactions from customers and financial markets.

In summary, Norfolk Southern's third-quarter results reveal a company demonstrating operational resilience. Strong performance in its diverse merchandise segment helped balance weakness in coal, and core costs remain under control. Looking forward, the railroad's path will be significantly shaped by the execution and regulatory hurdles of its transformative merger with Union Pacific—a deal poised to redefine the landscape of North American rail transport.