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Kansas City Southern (KSU) Stock Gains on Q3 Earnings Beat

Zacks Equity Research

Kansas City Southern’s KSU third-quarter 2019 earnings (excluding 13 cents from non-recurring items) of $1.94 beat the Zacks Consensus Estimate by 17 cents. The bottom line also improved 23.6% on a year-over-year basis. Results were aided by a better operational performance. This outperformance on the earnings front seems to have found favor with investors. As a result, the stock gained in early trading.

The company delivered revenues of $747.7 million, surpassing the Zacks Consensus Estimate of $730.3 million. Moreover, the top line improved 7% on a year-over-year basis, mainly owing to strong performances at the Chemicals and Petroleum and the Agriculture & Minerals units.

Overall, carload volumes were flat year over year as growth in the above-mentioned units was mitigated by declines in the Energy, Automotive and Intermodal segments. 

In the reported quarter, operating income (on a reported basis) increased 6.3% to $282 million. Moreover, operating income (excluding restructuring charges pertaining to Precision Scheduled Railroading initiatives and a gain on insurance recoveries) rose 15% to $294 million.

Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) improved to 60.7% from 63.4% 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-eps-surprise-chart | Kansas City Southern Quote

Segmental Details

The Chemical & Petroleum segment generated revenues of $194.2 million, up 21% year over year. Segmental revenues were aided by increased refined fuel products and liquid petroleum gas shipments to Mexico. Volumes expanded 12% year over year. Revenues per carload also climbed 7% from the prior-year quarter.

The Industrial & Consumer Products segment generated revenues of $155.9 million, up 2% year over year. While business volumes were flat, revenues per carload inched up 2% year over year.

The Agriculture & Minerals segment’s total revenues were $133.7 million, up 15% year over year owing to improved cycle times. While business volumes grew 10%, revenues per carload improved 4% on a year-over-year basis.

The Energy segment’s revenues logged $65 million, down 11% 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 contracted 8% year over year, revenues per carload dipped 3%.

Intermodal revenues were $100.5 million, up 1% year over year. While business volumes slipped 3%, revenues per carload increased 3% year over year.

Revenues at the Automotive segment slid 2% year over year to $64.8 million. While business volumes fell 4%, revenues per carload climbed 2% on a year-over-year basis.

Other revenues totaled $33.6 million, up 11% year over year.

Outlook

For 2019, volume growth is still expected to be flat to slightly down. Moreover, this Zacks Rank #3 (Hold) railroad operator still anticipates current-year revenue growth between 5% and 7%. Capital expenditures are still anticipated below $600 million in the year.

Additionally, Kansas City Southern still expects operating ratio at the lower end of the 60-61% range by 2021. Adjusted earnings per share are projected in the low-to-mid-teens band (compound annual growth rate 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 third-quarter 2019 earnings reports from key players, namely Canadian National Railway CNI,  United Parcel Service UPS and Norfolk Southern NSC. While Canadian National and UPS will report third-quarter earnings on Oct 22, Norfolk Southern will announce the same on Oct 23.

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