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Kansas City Southern (KSU) Up 13.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Kansas City Southern (KSU - Free Report) . Shares have added about 13.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Kansas City Southern due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Kansas City Southern Beats on Earnings & Revenues in Q3

Kansas City Southern’s earnings (excluding 13 cents from non-recurring items) of $1.94 beat the Zacks Consensus Estimate by 17 cents. The bottom line also improved 23.6% on a year-over-year basis. Results were aided by a better operational performance.

The company delivered revenues of $747.7 million, surpassing the Zacks Consensus Estimate of $730.3 million. Moreover, the top line improved 7% on a year-over-year basis, mainly owing to strong performances at the Chemicals and Petroleum and the Agriculture & Minerals units.

Overall, carload volumes were flat year over year as growth in the above-mentioned units was mitigated by declines in the Energy, Automotive and Intermodal segments.  

In the quarter, operating income (on a reported basis) increased 6.3% to $282 million. Moreover, operating income (excluding restructuring charges pertaining to Precision Scheduled Railroading initiatives and a gain on insurance recoveries) rose 15% to $294 million.

Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) improved to 60.7% from 63.4% a year ago despite higher adjusted operating expenses.
 

Segmental Details
 

The Chemical & Petroleum segment generated revenues of $194.2 million, up 21% year over year. Segmental revenues were aided by increased refined fuel products and liquid petroleum gas shipments to Mexico. Volumes expanded 12% year over year. Revenues per carload also climbed 7% from the prior-year quarter.

The Industrial & Consumer Products segment generated revenues of $155.9 million, up 2% year over year. While business volumes were flat, revenues per carload inched up 2% year over year.

The Agriculture & Minerals segment’s total revenues were $133.7 million, up 15% year over year owing to improved cycle times. While business volumes grew 10%, revenues per carload improved 4% on a year-over-year basis.

The Energy segment’s revenues logged $65 million, down 11% year over year. Notably, the positive impact of increased Utility Coal shipments was more than negated by declines in Frac Sand and Crude Oil operations. While business volumes contracted 8% year over year, revenues per carload dipped 3%.

Intermodal revenues were $100.5 million, up 1% year over year. While business volumes slipped 3%, revenues per carload increased 3% year over year.

Revenues at the Automotive segment slid 2% year over year to $64.8 million. While business volumes fell 4%, revenues per carload climbed 2% on a year-over-year basis.
 

Other revenues totaled $33.6 million, up 11% year over year.

Outlook
 

For 2019, volume growth is still expected to be flat to slightly down. Moreover, the company still anticipates current-year revenue growth between 5% and 7%. Capital expenditures are still anticipated below $600 million in the year.

Additionally, Kansas City Southern still expects operating ratio at the lower end of the 60-61% range by 2021. Adjusted earnings per share are projected in the low-to-mid-teens band (compound annual growth rate for the 2019-2021 time frame).
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Kansas City Southern has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Kansas City Southern has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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