We Think You Can Look Beyond Norfolk Southern's (NYSE:NSC) Lackluster Earnings

Shareholders appeared unconcerned with Norfolk Southern Corporation's (NYSE:NSC) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for Norfolk Southern

The Impact Of Unusual Items On Profit

To properly understand Norfolk Southern's profit results, we need to consider the US$1.1b expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Norfolk Southern to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Norfolk Southern's Profit Performance

Unusual items (expenses) detracted from Norfolk Southern's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Norfolk Southern's statutory profit actually understates its earnings potential! And it's also good to see that its earnings per share have improved a bit over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Norfolk Southern at this point in time. Be aware that Norfolk Southern is showing 4 warning signs in our investment analysis and 1 of those is concerning...

Today we've zoomed in on a single data point to better understand the nature of Norfolk Southern's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.