Norfolk Southern's Q2 2026 revenue rose 11% to a record $3.47B on 4% volume growth and doubled fuel surcharges, but EPS fell 4% to $3.26 on merger costs and the absence of last year's East Palestine insurance recoveries; adjusted EPS rose 7% to $3.52.
Revenue
$3.5B
+11.4% YoY
Net income
$734M
-4.4% YoY
Diluted EPS
$3.26
-4.4% YoY
Operating margin
32.4%
Record revenue, lower profit: fuel pass-through and one-off swings mask a better underlying quarter
Norfolk Southern's second-quarter 2026 revenue rose 11% to a record $3,465 million, but reported net income fell 4% to $734 million and diluted EPS dropped from $3.41 to $3.26. The two headlines point in opposite directions for three reasons, all spelled out in the 10-Q:
Most of the revenue growth came from fuel surcharges, and fuel surcharges don't add much profit. Railroads bill most customers a surcharge that rises and falls with diesel prices; about 95% of Norfolk Southern's revenue is under contracts with one. Surcharge revenue roughly doubled to $415 million from $203 million, which is $212 million of the $355 million revenue increase. Fuel expense rose by a similar $186 million (to $405 million from $219 million, +85%) "due to higher locomotive fuel prices." That money mostly passes straight through.
Last year's quarter included an insurance windfall. In Q2 2025, insurance recoveries tied to the February 2023 East Palestine, Ohio derailment (the "Eastern Ohio incident") exceeded new incident costs by $47 million, which lowered expenses. This quarter the incident was a $15 million cost. That is a $62 million swing against this year's result.
Costs of the pending Union Pacific deal. $51 million of merger-related expenses (employee retention agreements, advisor and legal fees) had no prior-year equivalent.
Strip out the merger costs, restructuring charges and the incident, as management does in its non-GAAP figures, and adjusted EPS rose 7% to $3.52 from $3.29, while adjusted income from railway operations rose 5% to $1,196 million.
Key metrics
Metric
Q2 2026
Q2 2025
YoY Change
Railway operating revenues
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What the operating ratio means: it is operating expenses divided by revenue, the rail industry's main efficiency yardstick. A 67.6% operating ratio means that of every $1 of freight revenue, 67.6 cents went to running the railroad, leaving 32.4 cents of operating profit. Lower is better. It is simply the flip side of an operating margin.
Why the operating ratio got worse even on an adjusted basis
The adjusted operating ratio worsened 2.1 points to 65.5%, and the earnings release attributes 1.1 points of that to fuel alone. That is arithmetic, not a real efficiency loss: when a similar dollar amount is added to both revenue and expenses, the expense share rises. The remaining point or so reflects real cost pressure:
Compensation and benefits +$52M (+8%): higher pay rates (+$22M), incentive and stock-based compensation (+$20M), overtime (+$6M) and health and welfare benefits (+$5M). Average rail headcount was about 320 lower than a year earlier, so the increase came from pay per employee rather than more employees.
Purchased services +$26M (+6%): higher technology costs, intermodal and automotive operations, and Conrail expenses.
Claims +$10M (+17%): higher accident-related costs and the absence of a prior-year cost-recovery settlement.
Fewer property-sale gains: gains from selling operating property were $1 million versus $34 million a year earlier. These gains are not removed in the adjusted figures, so they also weigh on the adjusted comparison.
Below the operating line, interest expense edged down to $197 million from $201 million, and the tax rate rose to 23.5% from 23.0% "primarily due to non-deductible merger-related expenses."
Revenue by business: volume and pricing were real, not just fuel
The company breaks the $355 million revenue increase into three parts: volume +$84M, fuel surcharge +$212M, and rate, mix and other +$59M. Setting fuel aside, revenue grew about 5%. That is the underlying demand-and-pricing picture.
Commodity group
Q2 2026 revenue
YoY
Units YoY
Revenue per unit YoY
Merchandise (total)
$2,133M
+8%
+2%
+6%
— Chemicals
$646M
+18%
+10%
+7%
— Agriculture, forest & consumer
$673M
+4%
-1%
+6%
— Metals & construction
$480M
+5%
-1%
+6%
— Automotive
$334M
+3%
0%
+4%
Intermodal
$908M
+22%
+5%
+16%
Coal
$424M
+7%
+3%
+4%
Chemicals was the standout merchandise business: volume rose 10% on natural gas liquids and petroleum products (higher domestic and export demand) and on sand for natural gas drilling. Merchandise (carload freight other than containers and coal) gained $52 million from "rate, mix and other", the clearest sign of pricing.
Intermodal (shipping containers and trailers moved between trucks, ships and trains) grew revenue 22%, but $123 million of the $165 million increase was fuel surcharge. Rate and mix added only $3 million. Domestic intermodal units rose 11% "as a result of an increase in freight demand and constrained truck capacity". International units fell 3% against a prior-year quarter boosted by shipments pulled forward ahead of anticipated tariff changes.
Coal: export tonnage jumped 25% on global demand for thermal (power-plant) coal. Utility tonnage fell 8% as natural gas and renewables displaced coal power, and domestic metallurgical (steelmaking) coal fell 15% on idled customer facilities.
Soft spots: fewer corn shipments to the Southeast, and fewer aggregates shipments because customer facilities were idled.
First half: the reported decline is larger because of the one-offs
For the six months, revenue rose 6% to $6,463 million, but net income fell 16% to $1,281 million and diluted EPS fell 15% to $5.69, with an operating ratio of 69.0% versus 62.0%. Most of the gap is the Eastern Ohio line: first-half 2025 benefited from $232 million of net insurance recoveries, against $25 million of incident costs this year. Merger costs added $103 million. On an adjusted basis, first-half EPS rose 3% to $6.17.
Cash, balance sheet and the East Palestine payout
Operating cash flow fell to $1.4 billion in the first half from $2.0 billion, "driven by higher cash payments related to the Incident." Those payments totaled $322 million and included the final $285 million payment on the $600 million Ohio class-action settlement, made in March after the U.S. Supreme Court declined to hear objectors' appeal. Accrued incident liabilities fell to $186 million from $474 million at year-end. Capital spending (property additions) was $821 million versus $924 million. No shares were bought back (versus $456 million a year earlier), and debt-to-total-capitalization improved to 50.6% from 52.4% at December 31.
Union Pacific merger: status per the filing
Norfolk Southern signed a merger agreement on July 28, 2025, under which Union Pacific will acquire the company in a stock-and-cash transaction. Closing still requires approval from the U.S. Surface Transportation Board (STB), the federal regulator for railroad mergers, among other conditions. The 10-Q gives no expected closing date.
If the agreement is terminated under specified circumstances, either company could owe a $2.5 billion termination fee.
Share repurchases are suspended because the merger agreement bars buybacks without Union Pacific's consent. $6.3 billion remains under the existing authorization. The agreement also restricts taking on additional debt.
Shareholders have sent demand letters alleging deficiencies in Union Pacific's merger registration statement. Norfolk Southern added disclosures in November 2025 and says it believes the allegations are without merit.
Merger costs so far this year are $103 million, and they are excluded from the adjusted figures.
Takeaway: The 4% drop in reported EPS is almost entirely accounting noise: last year's East Palestine insurance recoveries, this year's merger costs, and fuel surcharges that raise revenue and expenses alike. Underneath, volume rose 4%, revenue excluding fuel surcharges rose about 5%, and adjusted EPS rose 7%. Pricing held up best in merchandise, while intermodal's 22% revenue jump was mostly fuel.
Outlook
Management gave no numeric guidance in the filing. It says fuel surcharge revenue and fuel expense will both be higher than last year for the rest of 2026 "based on current fuel commodity prices." The main effect will be to keep pushing the operating ratio up without changing profit dollars much. CEO Mark George described the quarter as "exceeding our expectations as demand improved across key markets" and pointed to "encouraging demand trends" for the second half.
Our read: The volume recovery looks broad enough to last into Q3. Chemicals, domestic intermodal and export coal are all growing for specific reasons (energy-sector demand, tight trucking capacity, seaborne coal pricing), and the soft spots (steelmaking coal, aggregates, grain) come from idled customer plants rather than lost business. The risk is cost: pay-driven compensation growth of 8% against 4% volume growth needs pricing to keep outpacing wage inflation. Merger costs and incident litigation will keep GAAP and adjusted results apart until the STB decides. For shareholders, the STB outcome on the Union Pacific deal matters far more than any single quarter's operating ratio.
Source: Norfolk Southern Form 10-Q for the quarter ended June 30, 2026 (filed July 23, 2026) and the Q2 2026 earnings release (Form 8-K, Exhibit 99.1). Adjusted figures are the company's non-GAAP measures excluding merger-related expenses, restructuring and other charges, and Eastern Ohio incident effects.