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What's in Store for Kansas City Southern (KSU) in Q3 Earnings?

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Kansas City Southern (KSU - Free Report) is scheduled to report third-quarter 2021 earnings on Oct 19, before market open.

The railroad operator's earnings surpassed the Zacks Consensus Estimate in only one of the last four quarters and lagged the same on the remaining occasions. The average miss is 1.5%.

Kansas City Southern Price and EPS Surprise

Kansas City Southern Price and EPS Surprise

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

The Zacks Consensus Estimate for the company’s third-quarter earnings has been revised 6.3% downward to $2.24 per share in the past 60 days. 

Against this backdrop, let’s discuss the factors that might have impacted Kansas City Southern’s performance in the September quarter.

We expect the company’s performance in the to-be-reported quarter to have been hurt by the Delta variant and Hurricane Ida-led headwinds. Network congestion is expected to have dented the overall carload volumes in the quarter under review, hampering shipment of goods. 

However, improvement in the adjusted operating ratio (operating expenses as a percentage of revenues) due to increased efficiency, courtesy of the precision-scheduled railroading model, is likely to aid the company’s bottom-line results. The metric is predicted to be 57% for the September quarter. The same was reported as 61% in the June quarter. The reading for this key metric was 59% a year ago. Lower the value of the metric, the better.

Earnings Whispers

The proven Zacks model does not predict an earnings beat for Kansas City Southern this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, this is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Kansas City Southern has an Earnings ESP of -8.28% as the Most Accurate Estimate is pegged at $2.05, lower than the Zacks Consensus Estimate of $2.24. 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).

Highlights of Q2 Earnings

Kansas City Southern’s second-quarter 2021 earnings (excluding $6.23 from non-recurring items) of $2.06 per share missed the Zacks Consensus Estimate of $2.16. However, the bottom line surged 79.1% on a year-over-year basis despite adjusted operating expenses increasing 28.9%.

Quarterly revenues of $749.5 million surpassed the Zacks Consensus Estimate of $733.1 million and increased 36.8% year over year, driven by the 31% rise in overall carload volumes. 

Stocks to Consider

Investors interested in the broader Transportation  sector may consider C.H. Robinson Worldwide (CHRW - Free Report) , Covenant Logistics Group (CVLG - Free Report) and Landstar System (LSTR - Free Report)  as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

C.H. Robinson Worldwide has an Earnings ESP of +2.03% and a Zacks Rank #3, presently. The company will release third-quarter 2021 results on Oct 26.

Covenant Logistics has an Earnings ESP of +0.50% and a Zacks Rank #2 at present. The company will release third-quarter 2021 results on Oct 20.

Landstar System  has an Earnings ESP of +4.13% and is currently a #2 Ranked player. The company will release third-quarter 2021 results on Oct 20.