Raiders of the Lost Stock

Railroad Weekly February 5, 2024

Inside This Issue  

·   Raiders of the Lost Stock: NS Stock Slump Triggers Investor Revolt

·   Grief for the Chief: Can Alan Shaw Survive an Attempted Coup?

·   On the Opposite Track: Unlike NS, CPKC Stock on the Rise

·   Calgary Vitality: CPKC Posts Industry-Best Q4 OR; Revenue Growth Too   

·   Still No Bill: One Year Post East Palestine, Congress Has Yet to Act

·   Fed Holds Still, Employers Thrill: Again, Evidence of a Hot U.S. Job Market

·   Highway Wobbly: Truckers Still Unclear About When IM Funk Will Lift

Track Talk

“We’ve connected a continent in a way that’s never been done before.”

- CPKC CEO Keith Creel  

Barbarians at the Gate

·   On December 6^th, 2022, the future seemed bright for Norfolk Southern. On that day, its new chief executive Alan Shaw presented a bold new vision for the railroad, one that would break with the relentless cost-cutting and downsizing of the PSR era. But then came February 2^nd, 2023. On that day, now one year ago, an NS train moving between Illinois and Pennsylvania derailed in East Palestine, Ohio, spilling large quantities of hazardous chemicals. Shaw was compelled to spend much of his ensuing next few months managing the fallout, which would cost the company $1.1b in 2023, mostly tied to the environmental cleanup and legal proceedings. It didn’t help when none other than Warren Buffett publicly blasted Shaw’s handling of the affair. In the meantime, NS saw its profit margins tumble, even excluding the impact of the derailment. Its operating ratio for the year swelled to 67%, from 62% a year earlier. One reason was its outsized exposure to the embattled intermodal market, a lower-margin business by nature that faced severe headwinds in 2023. While rival CSX saw its stock price increase by about 7% during the year, NS grumbled as its stock price decreased 7%. With its market value sinking and its profit margins lagging the industry average, Wall Street analysts let loose a barrage of fiery questions for Shaw as he presented the company’s fourth quarter earnings late last month. Did he have a credible plan to close the margin gap? Is there something structurally wrong? Would 2024 be another bad year?

·   In the eyes of at least one group of activist investors, NS needs new management. Urgently. Last week, the Wall Street Journal, citing “people familiar with the matter,” reported that a group led by Cleveland-based Ancora Holdings is buying up Norfolk Southern shares. The group has amassed a roughly $1b stake, in fact. And more importantly, it’s nominated an alternative board of directors with the intent of ousting Alan Shaw. The nominees, the report said, include former Ohio governor and 2016 presidential candidate John Kasich, as well as former CN, CSX, and KCS executive Sameh Fahmy, yet another Hunter Harrison disciple and a key figure in the industry’s