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Kansas City Southern Cuts 2015 Revenue Outlook - Analyst Blog

Zacks Equity Research

Shares of railroad operator Kansas City Southern KSU declined 7.96% to $106.48 on Mar 24, 2015 following the company’s decision to lower its 2015 revenue guidance. Slower-than-expected carload growth primarily from the energy sector caused the company to trim the revenue growth outlook.

The railroad operator now expects its top line in 2015 to grow in low single digits. The previous guidance provided in January this year had called for mid single-digit revenue growth.

Apart from the slow carload growth, other factors such as the weakening of the Mexican peso versus the dollar and lower fuel surcharge revenues due to plummeting fuel prices were also responsible for the company lowering its 2015 revenue growth guidance. The company said that although lower expenses are expected to mitigate the adverse impact of these factors, lower carload volumes should dampen revenue growth for 2015.

We note that Kansas City Southern has railroad investments in the U.S., Mexico and Panama. The Zacks Consensus Estimate for 2015 hints at earnings of $5.40 per share on revenues of $2.72 billion.

First Quarter Forecast

Adverse foreign currency movements, low fuel surcharge revenues and slow carload growth from the energy sector has caused the company to predict first quarter 2015 revenues to be flat on a year-over-year basis. The company had reported revenues of $607 million in the first quarter of 2014.

Kansas City Southern projects coal revenues in the quarter to decline around 20% due to soft natural gas prices. Adverse foreign currency movements and low fuel surcharge revenues are expected to dampen first quarter revenues by approximately 4%.

The company expects first quarter 2015 earnings to be flat to slightly higher than earnings of $1.05 per share recorded in the first quarter of 2014. The Zacks Consensus Estimate of earnings for the first quarter is pegged at $1.22 per share.

The disappointing revenue outlook provided by this major railroad player impacted shares of other railroad operators like CSX Corp. CSX and Union Pacific Corp. UNP as well, causing them to decline.

Zacks Rank

Kansas City Southern presently carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader transportation sector is Covenant Transportation Group, Inc. CVTI. The stock sports a Zacks Rank #1 (Strong Buy).

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