With overall carload volumes having surged 50% (as of Sep 7, 2020) after hitting rock bottom in early May, Kansas City Southern (KSU - Free Report) reinstated its financial guidance for certain key metrics at the Cowen 2020 global transportation and sustainable mobility conference. Notably, the outlook was withdrawn by the company due to coronavirus-led uncertainties in April while announcing its first-quarter 2020 results.
Due to volume improvements in its key strategic areas, the railroad operator, currently carrying a Zacks Rank #3 (Hold), now expects 2020 adjusted operating ratio (operating expenses as a % of revenues) in the 60-61% range. Notably, adjusted operating ratio in 2019 was 63.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company expects to realize incremental savings of $95 million (with respect to operating expenses) in 2020, indicating a 63.8% rise from the 2019 reported figure. Notably, benefits of the precision-scheduled railroading model in the form of reduced costs and increased efficiency are helping Kansas City Southern better deal with the coronavirus-related challenges.
Adjusted effective tax rate is anticipated to be 26% for the current year and 28% for next year. Also, the company is on track to achieve free cash flow in excess of $500 million in 2020. Moreover, this railroad operator expects 2020 earnings to be roughly similar to $6.90 reported in 2019. The Zacks Consensus Estimate for the same is currently pegged at $6.71.
Quarter to date (as of Sep 7, 2020), revenues and volumes have been down roughly 14% and 6%, respectively.
All these forecasts were presented by Kansas City Southern’s executive vice president and chief financial officer Michael W. Upchurch via a webcast at the above-mentioned meet.
Stocks to Consider
Investors interested in the Zacks Transportation sector may consider Knight-Swift Transportation Holdings (KNX - Free Report) , Canadian Pacific Railway Limited (CP - Free Report) and Werner Enterprises (WERN - Free Report) . Knight-Swift sports a Zacks Rank #1(Strong Buy) while Canadian Pacific and Werner carry a Zacks Rank #2 (Buy) at present.
Shares of Knight-Swift, Canadian Pacific and Werner have rallied 43%, 42.5% and 31.2%, respectively, in the past three months.
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