Kansas City Southern Earnings Slip as Commodities Slide

Kansas City Southern said its third-quarter earnings fell 8.4% as the railroad operator's revenue was hurt by weak freight volume, led by declines in crude and frac sand shipments.

The Kansas City, Mo., company operates railroads in the Midwest and Mexico, a country the railroad company expects will become a growth area as auto makers increase capacity there.

Like other railroad operators, Kansas City Southern has cut costs in an effort ride out a long stretch of low energy prices that have caused energy producers to reduce drilling in the U.S. That in turn has weighed on demand for coal used to generate electricity, frac sand used in hydraulic fracturing and crude oil.

In the latest quarter, the company's total carload volume declined 4% from a year earlier, but improved by 5% from the second quarter.

Among commodity groups with lower volume, shipments of crude oil dropped 63%, frac sand volume declined 19% and coal shipments decreased 1%.

Chief Executive Patrick J. Ottensmeyer, who took the helm in July, said in prepared remarks that events such flooding outages and service disruptions on its Mexican network resulted in additional operating costs.

The company said the service disruptions in Mexico also contributed to a 7% revenue decline in its intermodal business—which moves freight by more than one mode of transportation.

Over all, Kansas City Southern reported a profit of $120.6 million, or $1.12 a share, down from $120.5 million, or $1.20 a share, a year earlier. Revenue decreased 4.3% to $604.5 million. Excluding impacts from a weaker Mexican peso and lower U.S. fuel prices, revenue fell 1%.

Analysts polled by Thomson Reuters expected per-share profit of $1.18 and revenue of $602.7 million.

Operating expenses grew 1.8%.

On Wednesday, CSX Corp. reported that its third-quarter revenue fell 8% as the railroad operator remained under pressure from weak coal demand. However the company's cost-cutting efforts helped its results top analysts' expectations. Union Pacific Corp. plans to release its third-quarter results on Thursday. Norfolk Southern Corp. is set to report on Oct. 26.

Write to Tess Stynes at [e-mail]

(END) Dow Jones Newswires

October 18, 2016 10:05 ET (14:05 GMT)

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