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Kansas City Southern's (KSU) Q4 Earnings: A Beat in Store?

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Kansas City Southern (KSU - Free Report) is scheduled to report fourth-quarter 2017 results on Jan 19, before the market opens.

Last quarter, the company delivered a positive earnings surprise of 2.3%. The company’s earnings (on an adjusted basis) of $1.35 per share outpaced the Zacks Consensus Estimate by 3 cents. The bottom line also expanded 20.5% on a year-over-year basis.

The company’s revenues of $656.6 million also topped the Zacks Consensus Estimate of $647.9 million. The top line improved 9% on a year-over-year basis. Results were boosted by a 3% rise in overall carload volumes.

We expect this Kansas City, MO-based railroad operator to report better-than-expected earnings per share in the fourth quarter too. In fact, the positive sentiment surrounding the stock can be gauged from the fact that the Zacks Consensus Estimate for fourth-quarter earnings has inched up almost 1% over the last 30 days.

Lets delve deep to unearth the factors likely to influence its Q4 results:

We believe that volume growth will aid Kansas City Southern’s results in the final quarter of 2017. The Zacks Consensus Estimate for fourth-quarter carload volumes is pegged at 1.7%, higher than the figure reported in the previous quarter.

The company's Industrial & Consumer Products segment and the Chemical & Petroleum unit are anticipated to maintain its strong performance in the fourth quarter. The improving scenario pertaining to coal is also a positive. The company’s efforts to control costs are expected to boost fourth-quarter earnings as well.

Apart from Kansas City Southern, other railroad companies like CSX Corporation (CSX - Free Report) and Norfolk Southern (NSC - Free Report) are focusing on cost control to drive earnings.

Furthermore, we expect Kansas City Southern to report an improved operating ratio (operating expenses as a percentage of revenues) in the to-be-reported quarter. The lower the value of operating ratio the better as it implies that more cash is available to reward shareholders through dividends/buybacks.

However, high operating expenses might hurt this railroad operator’s bottom line in the fourth quarter. In fact, the new tax law might push up operating expenses due to one-time bonus payments.

What Does Our Model Say?

Our proven model too indicates that chances of Kansas City Southern beating the Zacks Consensus Estimate is high as it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).

Zacks ESP: Kansas City Southern has an Earnings ESP of +0.21%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. 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 #3. The combination of the company's favorable Zacks Rank and positive ESP makes us confident of an earnings beat.  

Also, the Zacks Consensus Estimate for fourth-quarter earnings of $1.36 reflects a 21.4% increase on a year-over-year basis. The same for sales is projected at $656.9 million, up 9.8% year over year.

Kansas City Southern Price and EPS Surprise


Kansas City Southern Price and EPS Surprise | Kansas City Southern Quote

Another Stock That Warrants a Look

Investors interested in the Zacks Rail industry may also consider Union Pacific Corporation (UNP - Free Report) as our model shows it possesses the right combination of elements to post an earnings beat in its next release.

Union Pacific has an Earnings ESP of +0.45% and carries a Zacks Rank #2. The company will release fourth-quarter 2017 results on Jan 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

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