With A -14% Earnings Drop, Is Kansas City Southern's (NYSE:KSU) A Concern?
For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Kansas City Southern (NYSE:KSU) useful as an attempt to give more color around how Kansas City Southern is currently performing.
Check out our latest analysis for Kansas City Southern
Did KSU perform worse than its track record and industry?
KSU's trailing twelve-month earnings (from 31 December 2019) of US$539m has declined by -14% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 8.5%, indicating the rate at which KSU is growing has slowed down. What could be happening here? Let's examine what's going on with margins and whether the rest of the industry is feeling the heat.
In terms of returns from investment, Kansas City Southern has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. Furthermore, its return on assets (ROA) of 6.7% is below the US Transportation industry of 6.9%, indicating Kansas City Southern's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Kansas City Southern’s debt level, has increased over the past 3 years from 10% to 11%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that experience a drawn out period of decline in earnings are undergoing some sort of reinvestment phase However, if the whole industry is struggling to grow over time, it may be a indicator of a structural shift, which makes Kansas City Southern and its peers a higher risk investment. You should continue to research Kansas City Southern to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for KSU’s future growth? Take a look at our free research report of analyst consensus for KSU’s outlook.
Financial Health: Are KSU’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
