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Will Low Volumes Mar Kansas City Southern (KSU) Q1 Earnings?

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Kansas City Southern KSU is scheduled to report first-quarter 2020 earnings numbers on Apr 17, before the market opens.

The Zacks Consensus Estimate for the company’s first-quarter earnings has been revised downward by 2.9% over the past 60 days. However, it has an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average being 4.7%.

Let’s see whether the company is able to repeat its success story in the first quarter as well.

Factors Likely at Play

The already low volumes due to freight softness are likely to have declined further in the wake of the coronavirus outbreak. While sluggish U.S. market might have weighed on intermodal volumes, unscheduled plant shutdown might have affected volumes at the automotive unit. Meanwhile, weaknesses in the crude oil and frac sand might reflect on energy volumes.

Notably, the Zacks Consensus Estimate for carloads (volumes) in the intermodal segment suggests a 7.1% decline from the fourth-quarter 2019 reported figure. The same for automotive volumes indicates a 10.5% slip from the previous quarter’s reported figure. Additionally, the consensus mark for energy volumes implies a 10.8% decrease from the sequential quarter’s reported number.

However, improved operational efficiency, courtesy of the precision scheduled railroading model, is expected to have aided overall performance. Consistent cost-reduction efforts are also likely to get reflected in the company’s earnings as well as in its operating ratio (operating expenses as a percentage of revenues). Notably, lower the value of operating ratio, the better.

Kansas City Southern Price and EPS Surprise


Kansas City Southern Price and EPS Surprise

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

Earnings Whispers

The proven Zacks model does not conclusively 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, that 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 -0.61% as the Most Accurate Estimate is pegged at $1.68, lower than the Zacks Consensus Estimate of $1.69. 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.

Highlights of Q4 Earnings

In the last reported quarter, the company delivered a positive earnings surprise of 0.6%. The bottom line also improved 17% year over year on the back of better operational performance. Although, total revenues increased 5.1% owing to strong performances at the Chemicals and Petroleum and the Agriculture & Minerals units, the top line fell short of the Zacks Consensus Estimate.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Ardmore Shipping Corporation ASC, Scorpio Tankers Inc. STNG and Landstar System, Inc. LSTR as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

Ardmore Shipping has an Earnings ESP of +37.93% and a Zacks Rank #2.

Scorpio Tankers has an Earnings ESP of +1.60% and a Zacks Rank of 3.

Landstar has an Earnings ESP of +0.44% and is also a #3-Ranked player. The company will release first-quarter earnings numbers on Apr 22.

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