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Kansas City Southern's (KSU) Q3 Earnings Beat, Revenues Lag

Zacks Equity Research
·4 mins read

Kansas City Southern’s KSU third-quarter 2020 earnings (excluding 5 cents from non-recurring items) of $1.96 per share beat the Zacks Consensus Estimate of $1.88. The bottom line also increased year over year despite coronavirus-related woes.
 
Meanwhile, quarterly revenues of $659.6 million lagged the Zacks Consensus Estimate of $662.4 million. Moreover, the top line fell 11.8% year over year due to weak volumes as a result of coronavirus-induced weak demand, lower commodity prices, lower fuel surcharge and currency-related headwinds. Overall carload volumes dipped 4% year over year with declines across majority of the segments.

In the reported quarter, operating income (on a reported basis) declined 3.7% to $271.5 million. Moreover, operating income (on an adjusted basis) fell 7.5% to $272 million. Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) improved to 58.8% from 60.7% a year ago. The lower the value of the metric, the better it is. Operating expenses (adjusted) in the quarter declined 14.6% year over year.

Kansas City Southern’s third-quarter performance reflects a significant improvement from the second when volumes declined 21% year over year. Owing to this upturn in financial performance, the company expects to enter into accelerated share-repurchase agreements to buy back shares worth approximately $500 million under its $2 billion share-repurchase program announced in November 2019.

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

Segmental Details

The Chemical & Petroleum segment generated revenues worth $191.9 million, down 1% year over year. While volumes increased 5% year over year, revenues per carload decreased 6% from the prior-year quarter.

The Industrial & Consumer Products segment’s revenues logged $126.4 million, down 19% year over year. Business volumes and revenues per carload decreased 9% and 10% respectively, on a year-over-year basis.

The Agriculture & Minerals segment’s total revenues decreased 6% to $125.3 million. Business volumes and revenues per carload slipped 3% each on a year-over-year basis.

The Energy segment’s revenues of $46.8 million were down 28% year over year. While business volumes decreased 20% year over year, revenues per carload dropped 10%.

Intermodal revenues were $89.1 million, down 11% year over year. While business volumes inched up 2%, revenues per carload declined 13% year over year.

Revenues in the Automotive segment plunged 25% year over year to $48.5 million. While business volumes fell 18%, revenues per carload declined 9% on a year-over-year basis.

Other revenues totaled $31.6 million, down 6% year over year.

Outlook

This Zacks Rank #3 (Hold) company expects its full-year adjusted earnings to slightly increase on a year-over-year basis. Additionally, adjusted operating ratio is predicted to be at the low end of the 60-61% range in 2020. The company continues to anticipate capital expenditures of $425 million or less in 2020. For the period 2021-2022, capital expenditures are still expected to be roughly 17% of revenues. The company estimates free cash flow to be approximately $550 million in the current year.

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

Upcoming Releases

Investors interested in the railroad space are keenly awaiting third-quarter 2020 earnings reports from key players, namely CSX Corporation CSX, Union Pacific Corporation UNP and Norfolk Southern Corporation NSC. While CSX and Union Pacific will release earnings numbers on Oct 21 and Oct 22 respectively, Norfolk Southern will announce the same on Oct 28.

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Union Pacific Corporation (UNP) : Free Stock Analysis Report
 
Kansas City Southern (KSU) : Free Stock Analysis Report
 
CSX Corporation (CSX) : Free Stock Analysis Report
 
Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
 
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