KC Southern Reports Mixed Q1 Earnings
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Kansas City Southern reported mixed first-quarter earnings.
Quarterly income increased to $153 million, or $1.69 a share, compared with $151.7 million, $1.59, in the same period a year ago.
But revenue dropped 4% to $706 million from $731.7 million in the same period a year ago as cold weather in February impacted North American operations, officials said.
“Although our first-quarter performance was impacted by several unique and challenging events, including the polar vortex, and lingering network congestion, our operating team is focused on improving operating metrics and customer service through PSR phase III,” CEO Patrick Ottensmeyer said April 16.
Kansas City Southern is among the Class I railroads that have aggressively moved to become more efficient using PSR, or precision scheduled railroading, a railroad strategy that uses departure schedules and point-to-point delivery methods to achieve low operating ratios and consolidate railroad networks.
The company’s first-quarter operating ratio worsened to 64.2 from 60.5 a year ago.
Chief Financial Officer Michael Upchurch said: “Because about 60% of our business navigates the state of Texas that dealt with substantial weather challenges and then we’re talking about a geography here that isn’t accustomed to the kind of severe winter weather. So we saw a really disproportionate impact, including dealing with significant power outages throughout much of the state.”
The operating ratio measures a company’s operating expenses as a percentage of revenue and determines efficiency.
Ottensmeyer cited a COVID-19-related labor shortage in Mexico, where government officials issued a health decree, limiting the number of people who could work. Of the major Class 1 railroads, Kansas City Southern is the only one with operations in Mexico.
Across the various business lines, Kansas City Southern’s revenue picture was also mixed.
Chemicals and petroleum shipments reported a 16% year-over-year increase, jumping to $231.3 million compared with $198.6 million last year.
Industrial and consumer products reported a 16% decline to $134 million from $159 million last year.
Agriculture and mineral shipments declined 8% to $124.4 million from $134.5 million in 2020.
Energy products, which include coal, fracking sand and crude oil, increased 2% year-over-year to $57.5 million from $56.3 million. Revenue from intermodal shipments declined 8% to $81.3 million from $88.7 million. Automotive shipment revenue also dipped 18% to $44.1 million from $53.9 million a year ago.
Company officials said even with the mixed results, the quarterly trends are moving in a positive direction for the rest of the year.
Chemical and petroleum revenues rose 16%, primarily driven by tremendous growth in refined product shipments, Chief Marketing Officer Michael Naatz said during a conference call with reporters. “Mexico energy-related business posted a 47% year-over-year volume increase. Refined product volumes grew at 56% with manifest traffic leading the way. In March, refined product volumes were up 69% on a year-over-year basis. Growth in this segment was partially offset by lower plastic volumes as the polar vortex affected Gulf Coast manufacturing operations.”
Even with the rising cost of fuel, Kansas City Southern saved $4 million in the first quarter of 2021, spending $70.9 million compared with $74.9 last year.
Today we have entered into a merger agreement with Kansas City Southern that would join two historic railroads to create the first rail network connecting the U.S., Mexico and Canada.https://t.co/irU5Kzqdjo pic.twitter.com/P4yC1dbyLz — Canadian Pacific (@CanadianPacific) March 21, 2021
On March 21, Kansas City Southern agreed to a $25 billion sale, with Canadian Pacific purchasing the smaller railroad. The deal is expected to create a 20,000-mile rail network that will stretch from Vancouver to Montreal, through much of the Upper Midwest and New England, then through parts of the South, eventually to Texas and then deep into Mexico.
The merger must be approved by the Surface Transportation Board.
That vote is expected in 2022.
On April 20, a rival bid by Canadian National was offered for Kansas City Southern, which is $8.7 billion higher than the Canadian Pacific proposal.
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