Markets
CSX

Will Kansas City Southern (KSU) Disappoint in Q2 Earnings?

Kansas City SouthernKSU is scheduled to report second-quarter 2018 results on Jul 20, before the market opens.

Last reported quarter, the company delivered a negative earnings surprise of 3.7%, having missed on both earnings and revenues. However, both metrics improved on a year-over-year basis. Results were boosted by volume growth and a strong performance of the Chemical & Petroleum unit.

A similar fate is expected in the second quarter as well.

Let's look into the factors responsible for such an outlook.

Factors at Play

Congestion in the U.S. rail network and capacity constraints might hurt the company's second-quarter results as was the case in the first quarter. Additionally, high operating expenses could lead to deterioration in operating ratio, thus affecting the bottom line.

Moreover, soft revenues at the Agriculture & Minerals as well as the Energy segments might limit top-line growth in the quarter to be reported.

Further, the company's trailing 12-month return on equity (ROE) undercuts its growth potential. The company's ROE of 12% compares unfavorably with its industry's 20% ROE and the S&P 500 index's 16.6% tally.

Owing to the headwinds, shares of the company have declined 3.5% in the Apr-Jun period, underperforming the industry 's 8.3% rise.

However, an impressive overall volume expansion is expected to aid the company's second-quarter results. Significant volume growth at the intermodal and automotive segment is also anticipated to drive results.

Earnings Whispers

Our proven model does not conclusively show that Kansas City Southern is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Zacks ESP : Kansas City Southern has an Earnings ESP of -0.49%. 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 #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Kansas City Southern Price and EPS Surprise

Kansas City Southern Price and EPS Surprise | Kansas City Southern Quote

Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like United Parcel Service, Inc. UPS , Union Pacific Corporation UNP and CSX Corporation CSX as these possess the right combination of elements to beat on earnings in their next releases.

UPS has an Earnings ESP of +0.53% and a Zacks Rank of 3. The company will report second-quarter earnings on Jul 25.

Union Pacific has an Earnings ESP of +0.14% and a Zacks Rank #3. The company is scheduled to release second-quarter financial figures on Jul 19.

CSX has an Earnings ESP of +1.02% and a Zacks Rank #2. The company is scheduled to report second-quarter earnings numbers on Jul 17. You can see the complete list of today's Zacks #1 Rank stocks here .

Wall Street's Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It's a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Kansas City Southern (KSU): Free Stock Analysis Report

CSX Corporation (CSX): Free Stock Analysis Report

Union Pacific Corporation (UNP): Free Stock Analysis Report

United Parcel Service, Inc. (UPS): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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.

In This Story

CSX UNP UPS

Other Topics

Earnings Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More