* Weak rail coal shipments offset by autos, containers
* No softening in business from major customers
* Shares up 5 percent
By Lynn Adler
April 24 (Reuters) – Railroad operating company Kansas City
Southern’s quarterly results beat forecasts, sending its
shares up 5 percent.
Kansas City Southern, the third major U.S. public railroad
to report a higher-than-expected profit despite weak utility
coal volume in the first quarter, cited robust automobile and
intermodal shipment revenue as well as growing cross-border
business with Mexico.
Intermodal refers to the shipment of goods in containers
that can be shifted from one mode of transportation to another.
“Most importantly we are simply not hearing any talk about a
softening or decline in business levels from any of our major
customers,” Pat Ottensmeyer, executive vice president of sales
and marketing at Kansas City Southern, told investors on a
Tuesday conference call.
The Kansas City, Missouri-based company, which relies
heavily on shipments to and from Mexico through its unit Kansas
City Southern de Mexico, had a 7 percent increase in carloads
and record quarterly revenue.
Coal represented 14 percent of Kansas City Southern’s
revenue in 2011, a smaller share than at the larger railroads,
and the company said it expects utility coal demand to pick up
in the second quarter.
Lower coal carloads have also partially been offset by
increasing “shale-play” volume.
“The common theme of the rails is the pace of growth in
their shale region businesses – oil and gas, inbound and
outbound cars,” said Kevin Kirkeby, an S&P; Capital IQ analyst.
This includes shipments of sand used in fracking, a process in
which sand and chemical-laden water is pumped into wells to
retrieve oil, and of piping and crude oil.
Also, “the near-sourcing phenomenon continues” as an
increasing number of auto companies are stepping up production
in Mexico, he added.
Kansas City Southern maintained its 2012 guidance of a
mid-single-digit rise in pricing and volume growth, and low
double-digit revenue growth, despite the drop in utility coal
demand caused by a mild winter and decade-low natural gas
prices.
Kansas City Southern’s first-quarter net income of $75
million, or 68 cents a share, compared with $64 million, or 58
cents a share, a year earlier. Excluding debt retirement costs,
it earned 75 cents, topping the average Wall Street estimate of
72 cents, according to Thomson Reuters I/B/E/S.
Automotive segment revenue jumped 21 percent for the
fourth-largest public U.S. railroad company, driven by a rise in
demand for new cars by consumers whose autos had aged during the
recession.
“I know I’ve got a new car and had to wait in line to
process it because they sold five within an hour,” Kansas City
Southern’s Chief Executive David Starling told analysts. “So I
think you’re seeing this played out now in the volumes that are
going to come out of Mexico, both on the raw materials side, on
auto parts, but that’s dependent on the auto industry staying
strong.”
The two largest public U.S. railroads — Union Pacific Corp
and CSX Corp, last week reported above-forecast
profits despite the coal volume slump.
The No. 3 railroad, Norfolk Southern Corp, reports
results after the market closes on Tuesday.
Kansas City Southern shares were up 5.3 percent at $74.59 on
the New York Stock Exchange in afternoon trading.
