Thursday, April 30, 2009

KCS reports a loss for its first quarter

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Kansas City Southern Thursday reported it lost $7.5 million, or 8 cents per share, in its first quarter, hurt by declining volume, declining fuel surcharge revenue, and $11 million in nonrecurring charges. The loss contrasted with earnings of $32.9 million, or 39 cents per share, in the first quarter of 2008.

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Revenue dropped 23% to $346 million from $450.6 million in the comparable 2008 quarter. Results included a charge of $5.9 million, or 4 cents per share, related to debt retirement costs, and a charge of $5.1 million, or 4 cents per share, related to a foreign exchange loss associated with the weakened Mexican peso.

Analyst estimates expected KCS to notch revenue of $377.4 million and post a profit of 6 cents per share. Despite the shortfall, KCS shares rose in morning trading on the New York Stock Exchange, and were up 2% in early afternoon trade.

Noted Dahlman Rose & Co. Director Equity Research (and Railway Age Contributing Editor) Jason Seidl: “With the rail industry trying to cope with the most drastic volume declines in recent history, we believe management will continue to focus its efforts on cutting costs and reducing capital expenditures. Indeed, KSU expects 2009 capital expenditures to be roughly 50% below 2008 levels at nearly $300 million (KSU had $100 million in capital spending in the first quarter). This should enable the company to generate free cash flow in 2009. Despite the significant spending reduction, the company does plan to complete its Victoria-Rosenberg line in the second quarter. While many may question the need for expansionary capital in a recessionary environment, this line should help reduce costs and improve service for the railroad’s burgeoning cross border intermodal business."

Also, "First quarter results were also negatively impacted by the company accidently booking two preferred dividend payments. Tthis is purely a timing issue, as 2Q will not have a payment now. The operating ratio deteriorated 450 basis points year-over-year to 86%, in line with our estimate."