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Kansas City Southern's (KSU) Q3 Earnings Beat, Revenues Lag

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Kansas City Southern’s (KSU - Free Report) third-quarter 2020 earnings (excluding 5 cents from non-recurring items) of $1.96 per share beat the Zacks Consensus Estimate of $1.88. The bottom line also increased year over year despite coronavirus-related woes.
 
Meanwhile, quarterly revenues of $659.6 million lagged the Zacks Consensus Estimate of $662.4 million. Moreover, the top line fell 11.8% year over year due to weak volumes as a result of coronavirus-induced weak demand, lower commodity prices, lower fuel surcharge and currency-related headwinds. Overall carload volumes dipped 4% year over year with declines across majority of the segments.

In the reported quarter, operating income (on a reported basis) declined 3.7% to $271.5 million. Moreover, operating income (on an adjusted basis) fell 7.5% to $272 million. Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) improved to 58.8% from 60.7% a year ago. The lower the value of the metric, the better it is. Operating expenses (adjusted) in the quarter declined 14.6% year over year.

Kansas City Southern’s third-quarter performance reflects a significant improvement from the second when volumes declined 21% year over year. Owing to this upturn in financial performance, the company expects to enter into accelerated share-repurchase agreements to buy back shares worth approximately $500 million under its $2 billion share-repurchase program announced in November 2019.

Kansas City Southern Price, Consensus and EPS Surprise

Kansas City Southern Price, Consensus and EPS Surprise

Kansas City Southern price-consensus-eps-surprise-chart | Kansas City Southern Quote

Segmental Details

The Chemical & Petroleum segment generated revenues worth $191.9 million, down 1% year over year. While volumes increased 5% year over year, revenues per carload decreased 6% from the prior-year quarter.

The Industrial & Consumer Products segment’s revenues logged $126.4 million, down 19% year over year. Business volumes and revenues per carload decreased 9% and 10% respectively, on a year-over-year basis.

The Agriculture & Minerals segment’s total revenues decreased 6% to $125.3 million. Business volumes and revenues per carload slipped 3% each on a year-over-year basis.

The Energy segment’s revenues of $46.8 million were down 28% year over year. While business volumes decreased 20% year over year, revenues per carload dropped 10%.

Intermodal revenues were $89.1 million, down 11% year over year. While business volumes inched up 2%, revenues per carload declined 13% year over year.

Revenues in the Automotive segment plunged 25% year over year to $48.5 million. While business volumes fell 18%, revenues per carload declined 9% on a year-over-year basis.

Other revenues totaled $31.6 million, down 6% year over year.

Outlook

This Zacks Rank #3 (Hold) company expects its full-year adjusted earnings to slightly increase on a year-over-year basis. Additionally, adjusted operating ratio is predicted to be at the low end of the 60-61% range in 2020. The company continues to anticipate capital expenditures of $425 million or less in 2020. For the period 2021-2022, capital expenditures are still expected to be roughly 17% of revenues. The company estimates free cash flow to be approximately $550 million in the current year.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Investors interested in the railroad space are keenly awaiting third-quarter 2020 earnings reports from key players, namely CSX Corporation (CSX - Free Report) , Union Pacific Corporation (UNP - Free Report) and Norfolk Southern Corporation (NSC - Free Report) . While CSX and Union Pacific will release earnings numbers on Oct 21 and Oct 22 respectively, Norfolk Southern will announce the same on Oct 28.

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