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Will Kansas City Southern (KSU) Disappoint in Q2 Earnings?

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Kansas City Southern (KSU - Free Report) is scheduled to report second-quarter 2018 results on Jul 20, before the market opens.

Last reported quarter, the company delivered a negative earnings surprise of 3.7%, having missed on both earnings and revenues. However, both metrics improved on a year-over-year basis. Results were boosted by volume growth and a strong performance of the Chemical & Petroleum unit.

A similar fate is expected in the second quarter as well.

Let’s look into the factors responsible for such an outlook.

Factors at Play

Congestion in the U.S. rail network and capacity constraints might hurt the company’s second-quarter results as was the case in the first quarter. Additionally, high operating expenses could lead to deterioration in operating ratio, thus affecting the bottom line.

Moreover, soft revenues at the Agriculture & Minerals as well as the Energy segments might limit top-line growth in the quarter to be reported.

Further, the company’s trailing 12-month return on equity (ROE) undercuts its growth potential. The company’s ROE of 12% compares unfavorably with its industry’s 20% ROE and the S&P 500 index’s 16.6% tally.

Owing to the headwinds, shares of the company have declined 3.5% in the Apr-Jun period, underperforming the industry’s 8.3% rise.

However, an impressive overall volume expansion is expected to aid the company’s second-quarter results. Significant volume growth at the intermodal and automotive segment is also anticipated to drive results.

Earnings Whispers

Our proven model does not conclusively show that Kansas City Southern is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Zacks ESP: Kansas City Southern has an Earnings ESP of -0.49%. 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). We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Kansas City Southern Price and EPS Surprise

 

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

 

Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like United Parcel Service, Inc. (UPS - Free Report) , Union Pacific Corporation (UNP - Free Report) and CSX Corporation (CSX - Free Report) as these possess the right combination of elements to beat on earnings in their next releases.

UPS has an Earnings ESP of +0.53% and a Zacks Rank of 3. The company will report second-quarter earnings on Jul 25.

Union Pacific has an Earnings ESP of +0.14% and a Zacks Rank #3. The company is scheduled to release second-quarter financial figures on Jul 19.

CSX has an Earnings ESP of +1.02% and a Zacks Rank #2. The company is scheduled to report second-quarter earnings numbers on Jul 17. You can see the complete list of today’s Zacks #1 Rank stocks here.

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