A month has gone by since the last earnings report for Kansas City Southern (KSU). Shares have lost about 1.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Kansas City Southern due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Earnings Miss at Kansas City Southern in Q3
Kansas City Southern’s third-quarter 2018 earnings (excluding 13 cents from non-recurring items) of $1.57 fell short of the Zacks Consensus Estimate of $1.58 per share. The bottom line, however, expanded 16.3% on a year-over-year basis.
The company reported revenues of $699 million, which fell short of the Zacks Consensus Estimate of $707.1 million. However, the top line improved 6.5% on a year-over-year basis. The year over year revenue growth was due to a 4% rise in overall carload volumes.
In the quarter, adjusted operating income increased 9% to $256 million. Kansas City Southern’s operating ratio (operating expenses as a percentage of revenues) was 63.4% compared with 64.4% reported a year ago. Improvement in this key metric is a positive for the company.
The Chemical & Petroleum segment generated revenues of $160.6 million, up 17% year over year. Volumes improved 15% year over year. Revenues per carload also improved 2% from the prior-year quarter.
The Industrial & Consumer Products segment generated revenues of $152.5 million, flat year over year. While business volumes decreased 1%, revenues per carload increased 1% year over year.
The Agriculture & Minerals segment’s total revenue was $116.2 million, flat year over year. While business volumes declined 2%, revenues per carload were up 2% both on a year-over-year basis.
The Energy segment generated revenues of $73.2 million, down 2% year over year. Disappointing performances at the Utility Coal and Frac Sand units hurt the segment’s results. While business volumes decreased 8% year over year, revenues per carload rose 7%.
Intermodal revenues were $100 million, up 8% year over year. While business volumes improved 7%, revenues per carload increased 1% in the reported quarter.
Revenues at the Automotive segment came in at $66.2 million, up 8% year over year. Both business volumes and revenues per carload increased 4% on a year-over-year basis.
Other revenues totaled $30.3 million, up 32% year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Kansas City Southern has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kansas City Southern has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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