A month has gone by since the last earnings report for Kansas City Southern (NYSE:KSU). Shares have added about 16.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Kansas City Southern due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Kansas City Southern Beats on Earnings in Q2
Kansas City Southern’s second-quarter 2020 earnings (excluding a penny from non-recurring items) of $1.15 per share beat the Zacks Consensus Estimate of $1.12. However, the bottom line declined approximately 30% year over year due to decline in demand as a result of coronavirus.
Meanwhile, quarterly revenues of $547.9 million lagged the Zacks Consensus Estimate of $550.2 million. Moreover, the top line fell 23% year over year due to weak volumes. Overall carload volumes plunged 21% year over year with declines across all segments.
In the reported quarter, operating income (on a reported basis) declined 13.3% to $180.4 million. Moreover, operating income (on an adjusted basis) fell 26.3% to $190.9 million. Kansas City Southern’s adjusted operating ratio (operating expenses as a percentage of revenues) deteriorated to 65.2% from 63.7% a year ago. The lower the value of the metric the better. Operating expenses (adjusted) in the quarter declined 21.5% year over year.
Segmental Details
The Chemical & Petroleum segment generated revenues worth $158.5 million, down 16% year over year. Volumes declined 13% year over year. Revenues per carload also dipped 3% from the prior-year quarter.
The Industrial & Consumer Products segment’s revenues logged $120.6 million, down 20% year over year. Business volumes and revenues per carload decreased 14% and 7% respectively, on a year-over-year basis.
The Agriculture & Minerals segment’s total revenues decreased 7% to $114.4 million. Business volumes slipped 7% while revenues per carload were flat on a year-over-year basis.
The Energy segment’s revenues of $39.3 million were down 27% year over year. While business volumes decreased 19% year over year, revenues per carload dropped 10%.
Intermodal revenues were $63.5 million, down 31% year over year. While business volumes dropped 22%, revenues per carload declined 12% year over year.
Revenues in the Automotive segment plunged 78% year over year to $15.6 million. While business volumes fell 73%, revenues per carload declined 19% on a year-over-year basis.
Other revenues totaled $36 million, up 1% year over year.
Outlook
The company anticipates capital expenditures of $425 million or less in 2020. For the period 2021-2022, capital expenditures are still expected to be roughly 17% of revenues. The company is committed to generate free cash flow of $500 million or more in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Kansas City Southern has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kansas City Southern has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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