'Mad Money' Spotlight: Cramer Rides the Rails

Click here for an archive of Jim Cramer's Mad Money recaps. Click here to get Jim Cramer's Mad Money Post Game video exclusively on TheStreet.com.

---

During last Friday's "Mad Money," Jim Cramer gave a quick assessment of Norfolk Southern(NSC Quote).

The verdict? A thumbs-down because of its exposure to "bad traffic." Specifically, the railroader's traffic in coal has Cramer raising doubts.

Instead of the Norfolk, Va.-based concern, Cramer dialed up Union Pacific(UNP Quote) as the better railroad play. He said its ability to cut costs and grow revenue and income make it a more attractive bid.

Still, any discussion of railroad companies begins and ends with freight volumes -- and a quick read of those shows an industry ailing with sharp declines in carloads, a result of fewer industrial shipments. This drop in volume has sent most railroad companies scrambling to post a profit -- using cost-cutting, slashes in capital-spending and higher pricing as the tools to get there.

When Norfolk Southern reported its first-quarter earnings a few months ago, it announced that revenue from railways had fallen off by 22%. Coal transportation made up a $602 million share of rail sales, representing a 9% drop from the year-ago.

Union Pacific, the largest U.S. railroad company based on revenue, reported lower freight revenues across the board from the prior year as well. Its sales drop was marked by a steep 55% plunge in automotive transportation.

But the crisis of declining shipments doesn't stop with those two. According to data from the Association of American Railroads in May, coal carloads fell 15.8% for U.S. railroaders during that month. Total U.S. carload traffic during the month plummeted 24.7% compared to the same time last year.