Kansas City Southern Tops on Q1 Earnings - Analyst Blog

Kansas City Southern KSU reported first quarter 2014 adjusted earnings of $1.05 per share, handsomely beating the Zacks Consensus Estimate of 98 cents. Adjusted earnings increased 18% from 89 cents in the year-ago quarter buoyed by higher freight volumes. The positive results pushed the stock higher by 2.3% on Wednesday trade on NYSE.

Total revenue was $607.4 million in the first quarter, up 9.9% year over year and almost in line with the Zacks Consensus Estimate of $608 million. The year-over-year increase was primarily attributable to 4% growth in carloads and solid revenue growth in the Agricultural and Intermodal segments.

Adjusted operating income was $190.0 million, up 17.0% year over year. Adjusted operating ratio was 68.7%, resulting in an improvement of 180 basis points from last quarter.

Segment Quarterly Results

Chemical & Petroleum segment contributed $105.2 million to revenues, up 2.7% year over year. Volume was down 2.9% year over year while revenue per unit grew 5.8% year over year.

Industrial & Consumer Products generated revenues of $149.1 million, up 3.4% year over year. Business volume was down 2% year over year. Revenue per carload was up 5.4% year over year.

Agriculture & Minerals segment revenues were $113.4 million, up 40% year over year. Business volume grew 26.5% year over year. Revenue per carload also grew 10.7% year over year.

Energy segment generated $78.2 million in revenues, up 2.5% year over year. Business volume rose 1.8% year over year. Revenue per carload inched up 0.7% year over year.

Intermodal segment revenues were $88.0 million, up 10.3% year over year. Business volume expanded 3.1% year over year. Revenue per carload grew 7.1% year over year.

Automotive segment accounted for $52.4 million of total revenue, up 6.7% year over year. Business volume was up 5.9% year over year. Revenue per carload rose 0.8% year over year.

Other revenues were $21.1 million, up 5.5% year over year.

Liquidity Position

The company exited the first quarter with cash and cash equivalents of $167.5 million compared with $429.5 million at the end of 2013. Long-term debt increased to $1,857.3 million, slightly up from $1,856.9 million at the end of 2013. The company had free cash flows of $7.6 million in the quarter ended Mar 31, 2014 compared with $2.8 million in the corresponding quarter a year ago.

Capital expenditures for the first three months amounted to $98.0 million compared with $112.7 million for the same period a year ago.

Dividend

The company paid a dividend of $23.8 million during the first quarter.

Recommendation

We believe Kansas City Southern remains well positioned to reap benefits from the ongoing strong pricing trend. The company's productivity initiatives and efficient cost control measures are expected to drive operating performance over the long term. Further, strategic investments in infrastructural development will ensure the achievement of growth goals.

However, we remain cautious on the stock due to competitive pressure, a unionized workforce and heavy investments. Further, the ongoing uncertainties in its coal business and a competitive market may also pose significant headwinds to the company's growth.

Kansas City Southern, carries a Zacks Rank #3 (Hold).

Declared Results

Recently, CSX Corporation CSX reported first quarter 2014 earnings of 40 cents, surpassing the Zacks Consensus Estimate of 38 cents.

Other Releases

Other major railroad carriers expected to report first quarter earnings in the coming week are Canadian Pacific Railway Limited CP and Norfolk Southern Corporation NSC.