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What's in Store for Kansas City Southern (KSU) Q3 Earnings?

Kansas City Southern KSU is scheduled to report third-quarter 2019 results on Oct 18, before the market opens.

The Zacks Consensus Estimate for the company’s third-quarter earnings has been revised downward 1.1% in the past 30 days.

Let’s delve into the factors that might have influenced the quarterly performance.

Continued weakness in rail freight traffic is likely to have affected results in the third quarter as has been the case in the first two quarters of 2019. Overall volumes are expected to have been subdued in the quarter with softness in key segments like Intermodal, Automotive and Energy. While sluggish U.S. market is likely to have hit Intermodal volumes, Automotive volumes might have been hurt by the unscheduled plant shutdown. Additionally, weakness in crude oil and frac sand is likely to reflect on Energy volumes.

However, going by the company’s last two quarter’s results, its Chemical & Petroleum segment is expected to have put up a good show in the soon-to-be-reported quarter on the back of expanded volumes.

Moreover, increased operational efficiency and reduced network congestion, courtesy of the precision scheduled railroading model, are expected to get reflected in the company’s upcoming quarterly results.

Additionally, akin to the first two quarters of 2019, Kansas City Southern’s cost-reduction efforts are likely to have boosted the operating ratio (operating expenses as a percentage of revenues) in the third quarter as well. Notably, lower the value of this key metric, the better. Apart from improvement in the operating ratio, cost-control measures might reflect on the company’s earnings numbers.

Kansas City Southern Price and EPS Surprise


Kansas City Southern Price and EPS Surprise
Kansas City Southern Price and EPS Surprise

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

Highlights of Q2 Earnings

In the last reported quarter, the company delivered a positive earnings surprise of 2.5%. Total revenues also surpassed the Zacks Consensus Estimate. Moreover, both the top and the bottom line increased year over year owing to better operational performance and robust revenues at the Chemicals and Petroleum unit.

Earnings Whispers

The proven Zacks model does not conclusively show that Kansas City Southern is likely to beat estimates in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Earnings ESP: Kansas City Southern has an Earnings ESP of -0.67% as the Most Accurate Estimate is pegged at $1.76, lower than the Zacks Consensus Estimate of $1.77. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Kansas City Southern carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP in the combination leaves surprise prediction inconclusive.

We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector can check out Expeditors International of Washington, Inc. EXPD, Allegiant Travel Company ALGT and Southwest Airlines Co. LUV as these stocks possess the right mix of elements to beat on earnings in their next releases.

Expeditors has an Earnings ESP of +0.74% and a Zacks Rank of 3. The company will report third-quarter 2019 results on Nov 5.

Allegiant has an Earnings ESP of +6.14% and a Zacks Rank #2. The company will announce third-quarter earnings results on Oct 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

Southwest has an Earnings ESP of +0.31% and is Zacks #3 Ranked. This company will release third-quarter financial numbers on Oct 24.

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