Will Low Volumes Mar Kansas City Southern (KSU) Q4 Earnings?

Kansas City Southern (NYSE:KSU) is scheduled to report fourth-quarter 2019 earnings numbers on Jan 17, before the market opens.

The Zacks Consensus Estimate for the company’s fourth-quarter earnings has been revised downward by 3 cents in the past 60 days.

Let’s unearth the factors that might have induced this bleak prediction.

Persistent sluggishness in freight volumes is likely to have affected the company’s top line in the fourth quarter. Volume softness at key divisions might get reflected in overall volumes. While weakness in the U.S. market is expected to have hurt intermodal volumes, unscheduled plant shutdown might have weighed on automotive volumes. Meanwhile, volumes at the Energy segment might have taken a hit due to weaknesses in the crude oil and frac sand sub-groups.

The Zacks Consensus Estimate for intermodal volumes suggests a 5.2% decline from the year-ago reported number. The same for automotive volumes indicates a 3.5% dip from that reported in the fourth quarter of 2018.

However, improved operational efficiency, courtesy of the precision scheduled railroading model, is expected to have driven earnings in the soon-to-be-reported quarter. This apart, the bottom line is expected to have been boosted by the company’s cost-cutting measures. Cost-reduction efforts are also likely to get reflected in the company’s operating ratio (operating expenses as a percentage of revenues).

The Zacks Consensus Estimate for the company’s operating ratio implies a 100-basis point improvement from the year-ago reported figure.

Earnings Whispers

The proven Zacks model does not conclusively predict an earnings beat for Kansas City Southern in the fourth quarter of 2019. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Kansas City Southern has an Earnings ESP of -0.65% as the Most Accurate Estimate is pegged at $1.8, lower than the Zacks Consensus Estimate of $1.81. 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.

Highlights of Q3 Earnings

In the last reported quarter, the company delivered a positive earnings surprise of 9.6%. The bottom line also improved 23.6% year over year on the back of better operational performance. Meanwhile, total revenues increased 7% year over year, surpassing the Zacks Consensus Estimate.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Azul S.A. (NYSE:AZUL) , Copa Holdings, S.A. (NYSE:CPA) and Canadian Pacific Railway Limited (NYSE:CP) as these stocks possess the right combination of elements to come up with an earnings beat in their next releases.

Azul has an Earnings ESP of +13.33% and a Zacks Rank of 1.

Copa Holdings is a #3 Ranked stock and has an Earnings ESP of +3.33%.

Canadian Pacific has an Earnings ESP of +0.16% and a Zacks Rank of 3. The company will release fourth-quarter 2019 earnings numbers on Jan 29.

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