KSU’s 1Q16 earnings
Kansas City Southern (KSU) will disclose its first quarter 2016 earnings before the US market opens on April 19, 2016. The earnings will be for the quarter ended March 31. The company will hold a conference call with securities analysts and institutional investors on the same day to discuss the results.
Beginning of 2016
According to the Association of American Railroads, coal forms almost 15% of the freight rail volumes for the US railroad industry. However, coal production and consumption weren’t strong in 2015, mainly due to warm weather, lower natural gas prices, and environmental concerns. However, according to the US Energy Information Administration, total coal production is expected to stabilize in 2017.
Predictions of higher natural gas prices in the second half of 2016 may also trigger higher coal utilization among coal-fired power plants, which should be good for US railroads. These better predictions might be reflected in the upward price movement of railroad stocks recently.
As you can see in the above graph, since the beginning of 2016, KSU delivered a return of 16%. In comparison, its peers had the following returns:
- Norfolk Southern (NSC) returned -4%.
- CSX (CSX) returned -3.5%.
- Major Western US carrier Union Pacific (UNP) was marginally up.
- Canada’s largest railroad, Canadian National Railway (CNI), returned 9.7%.
- Canada’s second-largest railroad, Canadian Pacific (CP), returned 2.5%.
- The largest US short-line operator, Genesee & Wyoming (GWR), returned 14%.
Investors interested in rail stocks can consider the iShares US Industrials ETF (IYJ). US-based Class I railroads make up 4.9% of IYJ.
2016 performance guidance
The low commodity price environment and low volumes of general merchandise had compelled many railroads to refrain from issuing guidance for 2016. Even KSU, a small Class I railroad, isn’t an exception.
In the words of KSU’s CEO, David Starling, “We do not have a crystal ball to help project how the industrial economy will perform over the next six months to 12 months. For that reason, we are unable to project definite growth and revenue numbers for the near future.”
In the next article, we’ll look at what Wall Street analysts are expecting for Kansas City Southern.