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Kansas City Southern: A Preview ahead of Its 3Q17 Earnings

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Part 2
Kansas City Southern: A Preview ahead of Its 3Q17 Earnings PART 2 OF 6

Can Kansas City Southern Beat Analysts’ 3Q17 Revenue Estimates?

KSU: Analysts’ 3Q17 revenue estimates

Analysts surveyed by Thomson Reuters are expecting Kansas City Southern (KSU) to report revenue of $655.4 million in 3Q17. The company’s revenue in the same quarter last year was $605.0 million. That indicates an estimated 8.4% year-over-year growth in 3Q17.

KSU’s operations were severely affected by Hurricane Harvey, which hit Texas in August 2017. On September 6, 2017, the company issued an 8-K detailing Harvey’s impact on its networks and its loss of revenue and business.

Can Kansas City Southern Beat Analysts’ 3Q17 Revenue Estimates?

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Peers’ estimated revenue growth

Kansas City Southern has surpassed analysts’ revenue estimates in three of the past eight quarters. Except for 2Q17, the company managed to beat the revenue estimates by a very narrow margin. KSU’s revenue growth of 15.0% in 2Q17 was the strongest in the last two years.

Analysts are expecting KSU’s revenue to rise 10.1% in 2017. Let’s look at analysts’ estimates for KSU’s peers:

  • Norfolk Southern (NSC): $10.4 billion, indicating a rise of 5.2%
  • CSX (CSX): $11.5 billion, indicating a rise of 3.9%
  • Union Pacific (UNP): $21.1 billion, indicating a rise of 5.7%
  • Canadian National Railway (CNI): $13.1 billion Canadian, indicating a rise of 9.1%
  • Canadian Pacific Railway (CP): $6.5 billion Canadian, indicating a rise of 5.3%
  • Genesee & Wyoming (GWR): $2.2 billion, indicating a rise of 10.2%

Can KSU exceed analysts’ revenue expectations?

Among all Class I railroads, Kansas City Southern seems upbeat on revenue growth in the second half of 2017. A deep look into the 2Q17 earnings calls of all major US railroads reveals heightened optimism by KSU, unlike its US counterparts.

The company expects a better intermodal business backed by growth in automobile freight in the second half of the year. It also anticipates improvements in its chemical and petroleum (UGAZ) products volumes. Chemical shipments are expected to rise due to refined product shipments and the commissioning of ethylene crackers over the next two years. Overall, the company remains bullish on ~64.0% of its total freight volumes.

Last year, Kansas City Southern entered into an agreement with BNSF Railway (BRK.B) to offer intermodal solutions between the United States and Mexico. The company estimates robust growth in its BNSF cross-border service offerings and its freight volumes at the Port of Lázaro Cárdenas.

Next, we’ll take a look at analysts’ estimate for KSU’s operating margins in 3Q17.

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