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Kansas City Southern (KSU) Q4 Earnings Beat, Revenues Lag

Zacks Equity Research

Kansas City Southern’s KSU fourth-quarter 2019 earnings (excluding 52 cents from non-recurring items) of $1.82 beat the Zacks Consensus Estimate by a penny. Moreover, the bottom line improved 17% on a year-over-year basis. The year-over-year improvement resulted from a better operational performance.

This Kansas City, MO-based railroad operator, however, reported lower-than-expected revenues. Quarterly revenues of $729.5 million fell short of the Zacks Consensus Estimate of $738.3 million. However, the top line improved 5.1% on a year-over-year basis, mainly owing to strong performances at the Chemicals and Petroleum and the Agriculture & Minerals units. Overall, carload volumes declined 1% mainly due to weakness in the Automotive and Intermodal segments.

In the reported quarter, operating income (on a reported basis) declined roughly 8% to $236 million. However, operating income (excluding restructuring charges pertaining to Precision Scheduled Railroading initiatives) rose 10.6% to $274.3 million. Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) improved to 62.4% from 64.3% a year ago. Lower the value of the metric the better.

Kansas City Southern Price, Consensus and EPS Surprise

 

Kansas City Southern Price, Consensus and EPS Surprise
Kansas City Southern Price, Consensus and EPS Surprise

Kansas City Southern price-consensus-eps-surprise-chart | Kansas City Southern Quote

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Segmental Details

The Chemical & Petroleum segment generated revenues of $186.1 million, up 13% year over year. Volumes expanded 7% year over year. Revenues per carload also climbed 6% from the prior-year quarter.

The Industrial & Consumer Products segment generated revenues of $154.4 million, up 11% year over year. Both business volumes and revenues per carload were up 5% on a year-over-year basis.

The Agriculture & Minerals segment’s total revenues decreased 3% to $127.3 million. While business volumes were up 2%, revenues per carload declined 5% on a year-over-year basis.

The Energy segment’s revenues logged $62.7 million, down 4% year over year. Notably, the positive impact of increased Utility Coal shipments was more than negated by declines in Frac Sand and Crude Oil operations. While business volumes increased 2% year over year, revenues per carload declined 6%.

Intermodal revenues were $97.2 million, down 1% year over year. While business volumes slipped 5%, revenues per carload increased 5% year over year.

Revenues in the Automotive segment increased 4% year over year to $62.3 million. While business volumes fell 6%, revenues per carload climbed 11% on a year-over-year basis.

Other revenues totaled $39.5 million, up 12% year over year.

Outlook

For 2020, volume growth is expected in low single digits. Moreover, this Zacks Rank #3 (Hold) railroad operator anticipates mid-single digit revenue growth in 2020. Capital expenditures anticipated to be roughly 17% of revenues in the 2020-2022 period.

Additionally, Kansas City Southern expects 2020 operating ratio in the 60-61% range. The metric is expected to be below 60% in 2021. Moreover, earnings per share is projected to grow at mid-teens CAGR for the 2019-2021 time frame.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Investors interested in the broader Transportation sector are keenly awaiting fourth-quarter 2019 earnings reports from key players, namely United Airlines UAL, Canadian National Railway CNI and Alaska Air Group ALK. While United Airlines will report fourth-quarter earnings on Jan 21, Canadian National and Alaska Air Group will announce the same on Jan 28.

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