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Kansas City Southern’s Q4 Earnings Rose on Higher Pricing

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Surpassed expectations

Kansas City Southern (KSU) reported better-than-expected results for the fourth quarter. Moreover, the company’s quarterly revenues and adjusted EPS improved significantly on a YoY basis. The railroad company’s fourth-quarter EPS of $1.56 was three cents higher than analysts’ estimate of $1.53 and grew ~13% YoY as well. The robust growth in bottom-line results was mainly driven by higher revenues and pricing, partially offset by increased operating expenses.

Revenues for the quarter came in at $694 million, higher than Wall Street analysts’ estimate of $685.4 million. Quarterly revenues also grew 5% mainly due to a 3% rise in pricing. The company registered pricing gains across all segments except Intermodal.

Nonetheless, rising operating expenses remain a drag on the company’s bottom-line results. Kansas City Southern’s adjusted operating expenses increased 5.6% YoY to $446.1 million. As a result, its operating ratio (operating expenses as a percentage to revenues) increased 30 basis points YoY to 64.3%.

For the full year, Kansas City Southern reported revenues of $2.714 billion, slightly higher than analysts’ consensus estimate of $2.707 billion and marked YoY growth of 5.1%. Adjusted EPS of $5.97 beat Wall Street expectations by a couple of cents and increased 13.7% on a YoY basis. However, the 2018 operating ratio of 64.3% was flat when compared with 2017.

Peer performance

In the transportation sector, CSX (CSX) and J.B. Hunt Transport (JBHT) recently reported their fourth-quarter 2018 results. CSX’s fourth-quarter adjusted EPS of $1.01 grew ~58% YoY on 10% higher revenues, lower costs, and reduced taxes. JBHT’s adjusted EPS of $1.78 was 70% higher than the year-ago quarter.

Other major US railroad companies (IYT) are yet to report their quarterly results. Analysts expect Union Pacific (UNP) and Norfolk Southern (NSC) to register 34.6% and 36% YoY growth in their respective fourth-quarter adjusted EPS.

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