Kansas City Southern (NYSE:KSU)’s KSU third-quarter 2021 earnings (excluding 31 cents from non-recurring items) of $2.02 per share missed the Zacks Consensus Estimate of $2.07. Results were hurt by the decline in overall carload volumes. The bottom line, however, increased 3.1% on a year-over-year basis despite adjusted operating expenses increasing substantially.
Quarterly revenues of $744 million surpassed the Zacks Consensus Estimate of $725.9 million and increased 12.8% year over year, driven by a favorable product mix, higher fuel surcharge, and the strengthening of the Mexican peso against the U.S. dollar. Overall carload volumes dipped 3% due to headwinds like a global microchip shortage-led auto plant shutdowns, service disruptions at the Mexican port of Lazaro Cardenas following teachers' protests and supply-chain disruptions following increased regulation of refined fuel product shipments into Mexico.
Citing lack of visibility regarding the impact of auto plant shutdowns, Lazaro Cardenas’ service interruptions and supply-chain disruptions related to refined fuel product, management suspended the previously provided guidance
Kansas City Southern Price, Consensus and EPS Surprise
Kansas City Southern price-consensus-eps-surprise-chart | Kansas City Southern Quote
Coming back to the third-quarter 2021 earnings report, operating expenses (on a reported basis) escalated 26.8% to $492.1 million. Operating expenses included $36.5 million in merger costs. Kansas City Southern, currently carrying a Zacks Rank #4 (Sell), inked a merger deal worth $31 billion with Canadian Pacific (NYSE:CP) Railway Limited CP last month whereby the latter is expected to acquire the former. The deal is expected to be completed next year.
Adjusted operating expenses increased 17.5%. Operating income (on an adjusted basis) increased 6% to $288.4 million. Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) deteriorated to 61.2% from 58.8% a year ago. Lower the value of the metric, the better.
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Other Financial Details of Q3
The Chemical & Petroleum segment generated revenues worth $204.1 million, up 6% year over year. While segmental volumes declined 5% year over year, revenues per carload improved 12% from the prior-year quarter’s level.
The Industrial & Consumer Products segment’s revenues logged $159 million, up 26% year over year with all sub groups, metals and scrap, forest products and others recording higher revenues. Business volumes and revenues per carload increased 7% and 17%, respectively, on a year-over-year basis.
The Agriculture & Minerals segment’s total revenues increased 12% to $139.8 million. While business volumes expanded 5% year over year, revenues per carload gained 6%.
The Energy segment’s revenues of $74.6 million were up 59% year over year, riding on the 58% rise in revenues of the Utility Coal sub-group. While business volumes surged 43% year over year, revenues per carload increased 12%.
Intermodal revenues were $86.9 million, down 2% year over year. While business volumes declined 13% year over year, revenues per carload climbed 11% year over year.
Revenues in the Automotive segment declined 17% year over year to $40.1 million. While business volumes plummeted 30%, revenues per carload increased 18% on a year-over-year basis.
Other revenues totaled $39.5 million, up 25% year over year.
Key Upcoming Railroad Releases
Investors interested in the Zacks Transportation – Rail industry will be keenly awaiting the third-quarter 2021 earnings reports of Union Pacific Corporation (NYSE:UNP) UNP and Norfolk Southern Corporation (NYSE:NSC) NSC on Oct 21 and Oct 27, respectively.
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