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Kansas City Southern Misses Q3 Earnings, Revenues Lag

Kansas City SouthernKSU reported third-quarter 2015 earnings (on an adjusted basis) of $1.21 per share, missing the Zacks Consensus Estimate by a penny. Lower-than-expected revenues resulted in the earnings miss. Also, earnings declined 6% on a year-over-year basis.

Kansas City Southern - Earnings Surprise | FindTheBest

Including special items, the Kansas City, MO-based railroad operator reported earnings of $1.20 per share in the third quarter of 2015.

Total revenue reached $632 million in the quarter, down 7% year over year and short of the Zacks Consensus Estimate of $639 million. The year-over-year decline can be primarily attributed to a 19% drop in revenues at the energy segments. With the company reporting lower-than-expected earnings and revenues, investors were naturally disappointed. Consequently, shares of the company shed value in early trading.

The top line grew 1% in the third quarter of 2015, excluding the estimated impacts of the depreciation of the Mexican peso and weak U.S. fuel prices. In the reported quarter, operating income came in at $220 million, down 4% year over year. Meanwhile, operating ratio stood at 65.2% as against 66.1% in the year-ago quarter. Carload volumes declined 2% in the quarter.

Segment Results

The Chemical & Petroleum segment contributed $123 million in revenues, up 5% year over year. Volume improved 8%.

The Industrial & Consumer Products generated revenues of $150.2 million, down 10% year over year. Business volumes also dropped 7% while revenues per carload declined 3% from the prior-year quarter.

The Agriculture & Minerals segment's revenues totaled $110.6 million, up 6% year over year. On a year-over-year basis, business volumes improved 12% and revenues per carload decreased 6%.

The Energy segment generated $73.7 million in revenues, down 19% year over year. Energy revenues fell 19% mainly due to below par performances of coal and Frac Sand. Business volumes improved 2% year over year and revenues per carload also fell 21%.

Intermodal revenues were $95.2 million, down 11% year over year. Business volumes dropped 6% while revenues per carload fell 5% year over year.

The Automotive segment accounted for $54.6 million of the total revenue, down 17% year over year. Business volumes also fell 6% year over year and revenues per carload dropped 11%.

Quarterly Other revenues totaled $24.6 million, down 3% year over year.

Our View

The third-quarter earnings and revenue miss at the company renders disappointment. We note that coal has turned into a splitting headache for railroad operators like Kansas City Southern. While exports continue to be affected by the strong dollar, softness in the energy sector has encouraged utilities to switch to burning natural gas (which is much cheaper). As coal is one of the key revenue drivers for Kansas City Southern, coal-related headwinds continue to significantly hurt the company's top line.

According to the U.S. Energy Information Administration, coal exports have been soft mainly due to low fuel prices and weak global fuel demand. Increased output from other coal-exporting nations too has induced the current gloom.

Upcoming Releases

Two other key players in the railroad space, Union Pacific Corp. UNP and Norfolk Southern Corp. NSC , are slated to release their third-quarter results on Oct 22 and Oct 28, respectively.

Zacks Rank

Currently, Kansas City Southern has a Zacks Rank #3 (Hold). A better-ranked stock in the transportation space is Genesee & Wyoming Inc. GWR , with a Zacks Rank #2 (Buy).

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KANSAS CITY SOU (KSU): Free Stock Analysis Report

UNION PAC CORP (UNP): Free Stock Analysis Report

NORFOLK SOUTHRN (NSC): Free Stock Analysis Report

GENESEE & WYO (GWR): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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