Kansas City Southern
) reported second quarter 2012 adjusted earnings per share of 85
cents, surpassing the Zacks Consensus Estimate by a penny. The
earnings figure grew 19.7% year over year from 71 cents, driven by
higher freight rates and strong growth in Intermodal and Automotive
Adjusted earnings for the second quarter exclude the impact of 3
cents per share of special items related to adjustment for debt
retirement costs and 27 cents related to adjustments for
elimination of net deferred liability.
Quarterly total revenue was $545 million, up 2% year over year,
but came below the Zacks Consensus Estimate of $590 million. The
year-over-year increase was primarily attributable to a 4% growth
In the second quarter, adjusted operating income was $161
million, up 6% year over year on 120 basis points (bps) improvement
in adjusted operating ratio (defined as operating expenses as a
percentage of revenue) to 70.5%.
In the second-quarter,
Chemical & Petroleum
accounted for $98 million of total revenue, down 7% year over year
on 8% decline in volumes. Revenue per unit was $1,609, up 1% year
Industrial & Consumer
products accounted for $137.2 million, up 10% year over year.
Business volume was 83,600, up 4% year over year. Revenue per
carload was $1,641, up 6% year over year.
Agriculture & Minerals
accounted for $106 million, down 7% year over year. Business volume
was 63,300, down 10% year over year. Revenue per carload was
$1,853, up 3% year over year.
accounted for $67.9 million, down 12% year over year. Business
volume was 66,100, down 11% year over year. Revenue per carload was
$1,027, down 1% year over year.
accounted for $76.4 million, up 23% year over year. Business volume
was 228,000, up 17% year over year. Revenue per carload was $335,
up 5% year over year.
accounted for $39.6 million, up 15% year over year. Business volume
was 24,100, up 18% year over year. Revenue per carload was $1,643,
down 2% year over year.
revenue was $20.2 million, up 18% year over year.
The company exited the second quarter of 2012 with cash and cash
equivalents of $105.5 million, compared to $72.4 million in 2011
and $156 million in second quarter of 2011. Long-term debt
was $1.57 billion compared with $1.60 billion in 2011. The
company's debt-to-equity ratio was 53.5% versus 58% at year-end
Despite the economic volatilities, we believe Kansas City
Southern remains poised to gain from its major product lines like
Intermodal and Automotive. Additionally, the company's productivity
initiatives and efficient cost control are expected to drive
operating performances over the long term.
Further, strategic investments on infrastructural development
will ensure the achievement of long-term growth goals of the
company. Management's efforts to improve its balance sheet strength
by reducing debt burden and interest also remain encouraging,
making the company attractive for long-term investment.
On the other side, there are several headwinds that challenge
the carrier's growth, such as stiff competition from other class
one freight railroads such as
Union Pacific Corp.
), followed by capital intensive nature of business, unionized
workforce and stringent railroad regulation.
We maintain our long-term Neutral recommendation on Kansas City
Southern. Currently, it holds a short-term (1-3 months) Zacks
#3 Rank (Hold).
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