Ohio train derailment costs double to $803 million, Norfolk Southern says
The costs associated with Norfolk Southern's fiery February derailment in Ohio have more than doubled to $803 million as the railroad works to clean up the mess and moves forward with all the related lawsuits.
Norfolk Southern recorded another $416 million charge related to the East Palestine derailment on Thursday as part of its second-quarter earnings after previously announcing a $387 million charge earlier this year. Most of the costs are related to the cleanup of the hazardous chemicals that were released, but $222 million is a combination of legal fees and the $63 million of assistance it has offered to the community. The company faces a number of class-action lawsuits as well as a suit filed by Ohio authorities and a federal civil suit brought by the Justice Department and the Environmental Protection Agency.
The derailment near the Ohio-Pennsylvania border prompted a national conversation about railroad safety after thousands of people had to evacuate when officials decided to blow open several tank cars filled with vinyl chloride, a gas used to make plastic, because they believed they might explode. The resulting fire sent a towering plume of black smoke over the town three days after the derailment spilled several other hazardous chemicals, including butyl acrylate, ethylene glycol monobutyl ether, ethylhexyl acrylate and isobutylene. The company said in February that the derailment contaminated at least 15,000 pounds of soil and 1.1 million gallons of water.
The $803 million cost estimate doesn't include funds to compensate the East Palestine community for any long-term health effects, drop in home values or drinking water issues because those are still being negotiated, so the total will grow. Since the derailment, residents have expressed fears about drinking tap water, even though state officials say municipal drinking water is safe to consume. But Norfolk Southern also expects to eventually recover some of those costs from its insurance and lawsuits against other companies involved in the derailment.
The additional charges related to the derailment, combined with a 6% drop in the number of shipments the railroad delivered, more than halved the Atlanta-based company's profit to $356 million, or $1.56 per share. That's down from $819 million, or $3.45 per share, a year ago.
Without the derailment costs, Norfolk Southern says it would have earned $2.95 per share in the quarter, still well below Wall Street expectations. The analysts surveyed by FactSet Research generally expected Norfolk Southern to report earnings per share of $3.11.
Norfolk Southern's revenue declined to $2.98 billion in the quarter, which also disappointed. Analysts were expecting $3.08 billion in revenue.
The railroad's traffic was hurt by the derailment because Norfolk Southern had to operate with only one of its two tracks by East Palestine running on a busy corridor. But consumer demand for imported goods has also weakened, and Norfolk Southern's main competitor in the east, CSX, has said it was able to pick up some of Norfolk Southern's business in the wake of the derailment.
CEO Alan Shaw, who testified about the derailment before Congress in March, said Norfolk Southern's service has improved to levels rivaling its 2019 performance before the deep cuts it made during the pandemic once it reopened both rail lines through East Palestine. The railroad has also been hiring aggressively over the past year to give it enough crews and other workers to handle all the freight.
The average speed of Norfolk Southern's trains reached 21.5 mph this month on average, coming close to the 21.8 mph it recorded before the derailment in January.
