Kansas City Posts Strong 2Q

Kansas City Southern (KSU - Analyst Report), a leading freight rail transportation company, reported excellent financial results for the second quarter 2010. Quarterly net income was $34.6 million or 34 cents per share compared to $6.5 million or 7 cents per share in the year-ago quarter. However, in the second quarter 2010, the company incurred 21 cents per share of debt retirement costs. Excluding this, the adjusted EPS in the reported quarter was 55 cents, far ahead of the Zacks Consensus Estimate of 44 cents.
 
Quarterly total revenue was $461.6 million, a whopping increase of 35% year-over-year. This also exceeds the Zacks Consensus Estimate of $450 million. An improving U.S. economy resulted in significantly higher business volume. All the six major operating segments witnessed a surge in revenue.
 
In the second quarter 2010, Kansas City Southern achieved its highest ever operating ratio. Quarterly operating ratio was 72.4% compared to 87.4% in the prior-year quarter. Total business volume in the reported quarter was 468,400, up 24% year-over-year. Operating income in the same quarter was $127.2 million, up 195% year-over-year. Improvement in volumes, effective cost control measures, and solid pricing environment are the primary reasons for these strong results.
 
During the second quarter 2010, Kansas City Southern generated $108.8 million of cash from operations and free cash flow was $42.4 million.
 
Segment Wise Results
 
In the second quarter 2010, Chemical & Petroleum segment accounted for $93.4 million of total revenue, up 18% year-over-year. Business volume was 64,500, up 10% year-over-year. Revenue per carload was $1,448, up 7% year-over-year.
 
Industrial & Consumer segment accounted for $109.2 million of total revenue, up 31% year-over-year. Business volume was 78,300, up 21% year-over-year. Revenue per carload was $1,395, up 9% year-over-year.
 
Agriculture & Minerals segment accounted for $115.9 million of total revenue, up 42% year-over-year. Business volume was 71,400, up 20% year-over-year. Revenue per carload was $1,623, up 18% year-over-year.
 
Coal segment accounted for $53.3 million of total revenue, up 25% year-over-year. Business volume was 65,100, down 8% year-over-year. Revenue per carload was $819, up 36% year-over-year.
 
Intermodal segment accounted for $49.6 million of total revenue, up 54% year-over-year. Business volume was 171,600, up 48% year-over-year. Revenue per carload was $289, up 4% year-over-year.
 
Automotive segment accounted for $24.3 million of total revenue, up 292% year-over-year. Business volume was 17,500, up 122% year-over-year. Revenue per carload was $1,389, up 77% year-over-year.
 
Quarterly Other revenue was $15.9 million, down 2% year-over-year.

We maintain our Neutral recommendation for Kansas City Southern. Currently it is a Zacks #3 Rank (Hold) stock.

Read the full analyst report on KSU