Kansas City Southern (KSU) Misses on Q3 Earnings, Stalls View
Softness in overall volumes dents Kansas City Southern' s (KSU) Q3 results.
Kansas City Southern’s KSU third-quarter 2021 earnings (excluding 31 cents from non-recurring items) of $2.02 per share missed the Zacks Consensus Estimate of $2.07. Results were hurt by the decline in overall carload volumes. The bottom line, however, increased 3.1% on a year-over-year basis despite adjusted operating expenses increasing substantially.
Quarterly revenues of $744 million surpassed the Zacks Consensus Estimate of $725.9 million and increased 12.8% year over year, driven by a favorable product mix, higher fuel surcharge, and the strengthening of the Mexican peso against the U.S. dollar. Overall carload volumes dipped 3% due to headwinds like a global microchip shortage-led auto plant shutdowns, service disruptions at the Mexican port of Lazaro Cardenas following teachers' protests and supply-chain disruptions following increased regulation of refined fuel product shipments into Mexico.
Citing lack of visibility regarding the impact of auto plant shutdowns, Lazaro Cardenas’ service interruptions and supply-chain disruptions related to refined fuel product, management suspended the previously provided guidance
Kansas City Southern Price, Consensus and EPS Surprise
Coming back to the third-quarter 2021 earnings report, operating expenses (on a reported basis) escalated 26.8% to $492.1 million. Operating expenses included $36.5 million in merger costs. Kansas City Southern, currently carrying a Zacks Rank #4 (Sell), inked a merger deal worth $31 billion with Canadian Pacific Railway Limited CP last month whereby the latter is expected to acquire the former. The deal is expected to be completed next year.
Adjusted operating expenses increased 17.5%. Operating income (on an adjusted basis) increased 6% to $288.4 million. Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) deteriorated to 61.2% from 58.8% a year ago. Lower the value of the metric, the better.
Other Financial Details of Q3
The Chemical & Petroleum segment generated revenues worth $204.1 million, up 6% year over year. While segmental volumes declined 5% year over year, revenues per carload improved 12% from the prior-year quarter’s level.
The Industrial & Consumer Products segment’s revenues logged $159 million, up 26% year over year with all sub groups, metals and scrap, forest products and others recording higher revenues. Business volumes and revenues per carload increased 7% and 17%, respectively, on a year-over-year basis.
The Agriculture & Minerals segment’s total revenues increased 12% to $139.8 million. While business volumes expanded 5% year over year, revenues per carload gained 6%.
The Energy segment’s revenues of $74.6 million were up 59% year over year, riding on the 58% rise in revenues of the Utility Coal sub-group. While business volumes surged 43% year over year, revenues per carload increased 12%.
Intermodal revenues were $86.9 million, down 2% year over year. While business volumes declined 13% year over year, revenues per carload climbed 11% year over year.
Revenues in the Automotive segment declined 17% year over year to $40.1 million. While business volumes plummeted 30%, revenues per carload increased 18% on a year-over-year basis.
Other revenues totaled $39.5 million, up 25% year over year.
Key Upcoming Railroad Releases
Investors interested in the Zacks Transportation – Rail industry will be keenly awaiting the third-quarter 2021 earnings reports of Union Pacific Corporation UNP and Norfolk Southern Corporation NSC on Oct 21 and Oct 27, respectively.
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