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Kansas City Southern’s First-Quarter Expectations

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First-quarter expectations

Kansas City Southern (KSU) is scheduled to report its first-quarter results on April 17. Kansas City Southern, the smallest of all the Class I railroad companies (IYT), has a mixed earnings history. The company has beat Wall Street analysts’ estimate three times in the trailing four quarters.

The company has registered double-digit earnings growth for all of the quarters. According to the consensus estimate polled by Reuters, the first quarter won’t be an exception.

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For the first quarter, analysts expect the EPS to grow 11.1% YoY (year-over-year) to $1.44 due to higher revenues and the lower effective tax rate. However, increased operating expenses will likely weigh on the company’s bottom-line growth.

Analysts expect the first-quarter revenues to increase 5.4% YoY to $672.8 million due to higher pricing and increased carload volumes. In the fourth-quarter of 2018, the company reported a 3% rise in pricing.

According to weekly rail traffic data released by Kansas City Southern, the company has registered a 9.8% YoY increase in carload volumes. However, the benefit from higher carload traffic would be partially offset by a volume decline in intermodal units. During the first quarter, Kansas City Southern’s intermodal units fell 5.6% YoY.

The effective tax rate for Kansas City Southern is expected to be significantly lower than the first quarter of 2018. For the first quarter, analysts expect the tax rate to be 29.4%—down from 34.6% in the first quarter of 2018.

Rising operating expenses might have a negative impact on the company’s bottom-line results. For the first quarter, analysts expect the operating expenses to increase ~4% YoY to $436.6 million.

Peers’ expectations

Union Pacific (UNP), Norfolk Southern (NSC), and CSX (CSX) are expected to see EPS growth of 13.3%, 13.2%, and 17%, respectively, YoY.

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