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Kansas City Southern Raises Outlook
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ShareKansas City Southern (KSU - Analyst Report), a leading rail transportation company in the U.S., Mexico, and Panama, has announced that its second half 2010 revenue will increase by nearly 20% year over year due to significant growth in freight volume. According to Kansas City Southern, performance with respect to carloadings in August was the best so far in 2010 and the second best in previous three years.
We believe improvement in business volumes, effective cost control measures, and solid pricing environment will become the primary catalysts for the company’s future growth. An improving U.S. economy, surge in automotive shipments, and a rebound in many of the company’s end-markets will sustain the company’s businesses in the long-run. Kansas City Southern is also likely to benefit from investments and partnerships at Lazaro Cardenas, Meridian Speedway and Victoria-Rosenberg.
During July 2010, the company suffered a setback when freight volume declined by 18.1% due to the impact of Hurricane Alex on the Mexican coast. But once normal service resumed, business volume has raised enormously in August. This was up 13.7% year over year and more importantly was also slightly better than the pre-recession August 2008 volume.
Recently, Kansas City Southern restructured its balance sheet. During the second quarter 2010, the company raised around $215 million from an equity offering that helped the company reduces its debt burden by $237 million (out of the targeted $300 million). Management announced that it will pay the remainder $63 million of debt during the third quarter 2010.
Additionally, the company has secured commitments for a $100 million revolving credit facility for its Mexican operations. As a result, Standard & Poor recently raised Kansas City Southern’s long-term bond rating from B to BB- and also issued a BB rating for the new $100 million credit facility.
We maintain our long-term Neutral recommendation for Kansas City Southern. Currently, it is a short-term Zacks #3 Rank (Hold) stock.
Read the full analyst report on KSU
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