Norfolk Southern (NYSE: NSC), one of the largest freight railroads in the eastern United States, reported stronger second-quarter profits on Thursday, driven by volume gains across all three of its business segments.

"A lot's changed since our last call. Most importantly the sharp inflection in volumes, initially catalyzed by the Iran conflict that bolstered our energy markets. And that strength has now spread into other markets, including domestic intermodal and industrial products," Chief Executive Mark George said on the railroad's earnings call. "With that backdrop, we delivered a strong second quarter with results that exceeded our own expectations."

Adjusted for one-time items — including expenses tied to the February 2023 East Palestine, Ohio, derailment and hazardous materials release that drew national scrutiny and regulatory pressure on freight rail safety, as well as the proposed merger with Union Pacific (NYSE: UNP) — operating income rose 5% to $1.19 billion. Revenue climbed 11% to a record $3.46 billion, and earnings per share increased 7% to $3.52.

The railroad's adjusted operating ratio was 65.5%, up 2.1 points from a year earlier, as expenses grew 15%, largely due to higher fuel costs and inflation. Operating ratio — a closely watched efficiency metric in the rail industry where lower percentages signal stronger cost control — deteriorated as cost growth outpaced revenue gains.

Total volume increased 4%, with growth in every business line. Intermodal volume rose 5%, fueled by domestic loads. Coal carloads gained 3%, supported by a 25% surge in export volume. Merchandise traffic edged up 2%.

"Overall, we're positive on the growth potential across the markets that we serve," Chief Commercial Officer Ed Elkins said. "Now as you would expect, however, energy prices, the consumer, and interest rates all remain wildcards and factors that we will be monitoring."

Elkins noted that tighter trucking capacity would support highway-to-rail freight conversions, especially for domestic intermodal. That dynamic reflects a broader competitive interplay between railroads and trucking companies, where driver shortages and rising trucking costs can shift freight to rails.

The Atlanta-based railroad has been working to accelerate its network, which had not fully recovered from harsh winter weather earlier in the year. Terminal dwell was up 5.7% year over year in the second quarter, while average train speed declined 7.8%. The railroad also faces localized shortages of train crews.

"Successful railroading demands doing the simple things exceptionally well," said Brian Barr, who was promoted to chief operating officer on June 1. "I have learned that throughout my career, including my time working directly for Hunter Harrison. Planning and execution are built on discipline, accountability, and staying relentlessly focused on the operating plan. The reality is railroading is a grind. Doing the small things over and over again very well. That is what delivers results."

Barr's reference to Harrison invokes the late railroad executive widely credited with pioneering Precision Scheduled Railroading, an operating philosophy adopted across much of the North American freight rail industry that emphasizes running fewer, longer trains on fixed schedules.

Operational metrics have shown recent improvement. Average train speeds have increased for four consecutive weeks, while terminal dwell has fallen for four straight weeks. Merchandise and intermodal trip-plan compliance have also improved over the past month.

"We're feeling very encouraged about where we are operationally," George said.

"This is not about changing our operating strategy. It's about continuously improving our results," Barr said. "The primary levers for improving service and productivity across the network are running the plan, aligning the resources with demand, improving terminal performance, and eliminating unnecessary variability. We've got more work to do, and we know it."

Norfolk Southern said it remains on track to exceed its target of $150 million in cost reductions this year, as well as its three-year goal of $650 million in savings. The railroad's personal injury rate improved 16% during the quarter, while its train accident rate improved 25%.