Kansas City Southern Beats Q2 Earnings, Revs Up on Volume - Analyst Blog

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Kansas City Southern ( KSU ) reported second-quarter 2014 adjusted earnings of $1.21 per share, beating the Zacks Consensus Estimate of $1.17. Adjusted earnings increased 26% from 96 cents in the year-ago quarter on higher revenues.

Total revenue was $649.7 million in the second quarter, up 12% year over year but below the Zacks Consensus Estimate of $651 million. The year-over-year increase was primarily attributable to solid revenue growth in the Agriculture and Minerals segment along with the Automotive segment.

In the second quarter, adjusted operating income was $214 million, up 20% year over year. Adjusted operating ratio was 67%, reflecting an improvement of 200 basis points year over year.

Segment-wise Quarterly Results

The Chemical & Petroleum segment contributed $115.1 million in revenues, up 6% year over year. Volume and revenue per carload grew 3% each year over year.

Industrial & Consumer Products generated revenues of $156.2 million, up 10% year over year. Business volume grew 7% year over year. Revenue per carload was up 3% year over year.

Agriculture & Minerals revenues were $114.9 million, up 33% year over year. Business volume grew 21% year over year. Revenue per carload also rose 10% year over year.

The Energy segment generated $81.4 million in revenues, down 5% year over year. Business volume dipped 1% year over year. Revenue per carload was also down 4% year over year.

Intermodal revenues were $98.7 million, up 14% year over year. Business volume and revenue per carload grew 7% each year over year.

The Automotive segment accounted for $59.6 million of the total revenue, up 25% year over year. Business volume grew 23% year over year. Revenue per carload rose 2% year over year.

Quarterly Other revenues were $23.8 million, up 8% year over year.

Liquidity Position

The company exited the quarter with cash and cash equivalents of $190.2 million compared with $429.5 million in 2013. Long-term debt decreased to $1,852.4 million from $1,856.9 million in 2013. The company had free cash flows of $56.2 million at the end of the second quarter compared with $13.5 million in the same period a year ago. 

Capital expenditures at the end of the quarter amounted to $268.0 million compared with $265.9 million at the end of the second quarter of 2013. 

Recommendation

We believe Kansas City Southern remains well positioned to reap benefits from the ongoing strong pricing trend. The company's productivity initiatives and efficient cost control measures are expected to drive operating performance over the long term. Further, strategic investments in infrastructural development will ensure the achievement of growth goals.

However, we remain cautious on the stock due to competitive pressure, a unionized workforce, heavy investments and increased railroad regulation. Additionally, the ongoing uncertainties in Coal and competition from other carriers like Canadian National Railway Co. ( CNI ), Norfolk Southern Corp. ( NSC ) and Canadian Pacific Railway ( CP ) may also pose significant headwinds to the company's growth.

 Kansas City Southern retains a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: KSU , CNI , NSC , CP

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