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Kansas City Southern (KSU) Down 0.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Kansas City Southern (KSU - Free Report) . Shares have lost about 0.9% in that time frame, underperforming the S&P 500.

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

Kansas City Southern Beats on Earnings in Q1

Kansas City Southern’s earnings (excluding 38 cents from non-recurring items) of $1.96 beat the Zacks Consensus Estimate by 26 cents. Moreover, the bottom line improved 27.3% on a year-over-year basis on the back of better operational efficiency.

The company also reported better-than-expected revenues. Quarterly revenues of $731.7 million surpassed the Zacks Consensus Estimate of $714.5 million. Moreover, the top line improved 8.4% year over year, mainly owing to strong performances at the Chemicals and Petroleum and the Intermodal units.  Overall, carload volumes increased 4% year over year, mainly on the double-digit volume expansion in the Chemical and Petroleum segment.

In the reported quarter, operating income (on a reported basis) soared 80.8% to $288.8 million. Moreover, operating income (on an adjusted basis) rose 29.4% to $294.8 million. Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) improved to 59.7% from 66.2% a year ago.

Segmental Details

The Chemical & Petroleum segment generated revenues worth $198.6 million, up 18% year over year. Volumes expanded 14% year over year. Revenues per carload also climbed 3% from the prior-year quarter.

The Industrial & Consumer Products segment’srevenues logged $159 million, up 6% year over year. Business volumes and revenues per carload were up 4% and 2%, respectively, on a year-over-year basis.

The Agriculture & Minerals segment’s total revenues increased 9% to $134.5 million. Business volumes were up 2% and revenues per carload improved 8% on a year-over-year basis.

The Energy segment’s revenues of $56.3 million were down 13% year over year. Revenues were hurt by weakness in the Utility Coal (down 27%) and Frac Sand (down 53%) sub-groups. While business volumes decreased 5% year over year, revenues per carload dropped 8%.

Intermodal revenues were $88.7 million, up 11% year over year. While business volumes increased 6%, revenues per carload climbed 5% year over year.

Revenues in the Automotive segment dwindled 6% year over year to $53.9 million. While business volumes fell 12%, revenues per carload ascended 6% on a year-over-year basis.

Other revenues totaled $40.7 million, up 30% year over year.

Outlook

Due to the uncertainty emanating from the coronavirus pandemic, the company withdrew its previously announced 2020 projections for revenues, volumes, operating ratio and earnings per share. The company aims to generate free cash flow of $500 million or more in 2020. Capital expenditures are still anticipated to be roughly 17% of revenues in the 2021-2022 period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -20.64% due to these changes.

VGM Scores

At this time, Kansas City Southern has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Kansas City Southern has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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