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October 22, 2019 10:30 AM, EDT

Kansas City Southern Reports Strong Third-Quarter Earnings

Kansas City Southern releases third-quarter earnings.Kansas City Southern

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Kansas City Southern on Oct. 18 reported an increase in net income in the third quarter, along with record revenue for the company in any quarter.

The Kansas City, Mo.-based Class 1 freight railroad said net income was $180.6 million or $1.81 a share compared with $174 million or $1.71 a share in the same period a year ago.

KCS posted revenue of $747.7 million, up 7% compared with 2018’s $699 million.

The railroad’s operating ratio worsened slightly to 62.3 from 63 in the same period a year ago. This was attributed to a one-time $12 million restructuring charge. Operating ratio, or operating expenses as a percentage of revenue, is a key industry metric used to measure efficiency. The lower the ratio, the greater the company’s ability to generate a profit. However, adjusted operating ratio improved to 60.7 from 63.4. The company said its adjusted operating expenses, operating income and operating ratio are meaningful as they allow investors to evaluate the company’s performance for different periods on a more comparable basis by adjusting for items that are not directly related to the ongoing operations of the railroad.

Overall, carload volumes were flat compared with the prior year.

“Kansas City Southern posted all-time record financial results in the third quarter 2019, including adjusted operating income growth of 15% and an adjusted operating ratio of 60.7,” CEO Patrick Ottensmeyer stated. “These results are a testament to our employees’ hard work, and dedication to improving operational performance and customer service.”

Kansas City Southern and other freight railroads are implementing precision scheduled railroading principles, which are designed to improve customer service, control costs, optimize assets, improve safety and develop employees.

Several Class 1 carriers have said publicly they are using those principles, crafted by the late railroad executive Hunter Harrison, who used them to help turn around the operations of railroads where he served as CEO.

Revenue by sectors:

  • Chemical and petroleum division was up 21% compared with 2018’s second quarter. Much of the increase was in the shipment of refined fuel products and liquid petroleum gas to Mexico.
  • Industrial and consumer products were up 2%.
  • Agriculture and minerals improved 15%. All of the agriculture products shipped by Kansas City Southern, grain, food products, ores and minerals, and stone, clay and glass saw double-digit growth.
  • Energy declined 11%. Much of the drop was caused by a reduction in the amount of fracking sand and crude oil the railroad shipped, and there also was a drop-off in the amount of coal transported.
  • Intermodal revenue increased 1%.
  • Automotive revenue fell 2%.

Of the Class 1 railroads, KCS is the only one to run a dedicated freight system through an agreement with the Mexican government. The majority of the rail system spans from the Valley of Mexico to the U.S. border at Laredo, Texas. There also are tracks connecting to the port cities of Lázaro Cárdenas and Veracruz, giving railroad access to the Gulf of Mexico and the Pacific Ocean to the U.S. border.

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