Kansas City Southern (KSU) Q4 Earnings Beat, Revenues Lag

Kansas City Southern’s (NYSE:KSU) fourth-quarter 2019 earnings (excluding 52 cents from non-recurring items) of $1.82 beat the Zacks Consensus Estimate by a penny. Moreover, the bottom line improved 17% on a year-over-year basis. The year-over-year improvement resulted from a better operational performance.

This Kansas City, MO-based railroad operator, however, reported lower-than-expected revenues. Quarterly revenues of $729.5 million fell short of the Zacks Consensus Estimate of $738.3 million. However, the top line improved 5.1% on a year-over-year basis, mainly owing to strong performances at the Chemicals and Petroleum and the Agriculture & Minerals units. Overall, carload volumes declined 1% mainly due to weakness in the Automotive and Intermodal segments.

In the reported quarter, operating income (on a reported basis) declined roughly 8% to $236 million. However, operating income (excluding restructuring charges pertaining to Precision Scheduled Railroading initiatives) rose 10.6% to $274.3 million. Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) improved to 62.4% from 64.3% a year ago. Lower the value of the metric the better.

Segmental Details

The Chemical & Petroleum segment generated revenues of $186.1 million, up 13% year over year. Volumes expanded 7% year over year. Revenues per carload also climbed 6% from the prior-year quarter.

The Industrial & Consumer Products segment generated revenues of $154.4 million, up 11% year over year. Both business volumes and revenues per carload were up 5% on a year-over-year basis.

The Agriculture & Minerals segment’s total revenues decreased 3% to $127.3 million. While business volumes were up 2%, revenues per carload declined 5% on a year-over-year basis.

The Energy segment’s revenues logged $62.7 million, down 4% 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 increased 2% year over year, revenues per carload declined 6%.

Intermodal revenues were $97.2 million, down 1% year over year. While business volumes slipped 5%, revenues per carload increased 5% year over year.

Revenues in the Automotive segment increased 4% year over year to $62.3 million. While business volumes fell 6%, revenues per carload climbed 11% on a year-over-year basis.

Other revenues totaled $39.5 million, up 12% year over year.

Outlook

For 2020, volume growth is expected in low single digits. Moreover, this Zacks Rank #3 (Hold) railroad operator anticipates mid-single digit revenue growth in 2020. Capital expenditures anticipated to be roughly 17% of revenues in the 2020-2022 period.

Additionally, Kansas City Southern expects 2020 operating ratio in the 60-61% range. The metric is expected to be below 60% in 2021. Moreover, earnings per share is projected to grow at mid-teens CAGR 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 fourth-quarter 2019 earnings reports from key players, namely United Airlines (NASDAQ:UAL) , Canadian National Railway (NYSE:CNI) and Alaska Air Group (NYSE:ALK) . While United Airlines will report fourth-quarter earnings on Jan 21, Canadian National and Alaska Air Group will announce the same on Jan 28.

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