Kansas City Southern shares plunged 15 percent on Friday after the railroad company reported fourth-quarter financial results that disappointed investors and fell short of analyst expectations.
By STEVE ROSEN and MARK DAVIS
The Kansas City Star
Despite delivering higher quarterly profits and revenues, the Kansas City railroad company saw its stock fall sharply when trading opened and remain down all day until closing at $99.49. That was a decline of $17.79.
It was Kansas City Southern’s steepest drop since October 2008 and the most on the Standard & Poor’s 500 index Friday, according to Bloomberg News.
The results added to railroads’ mixed performance against analysts’ estimates in the past two weeks, with Union Pacific Corp. and Norfolk Southern Corp. beating those views and CSX Corp. coming up short. Shares of the major rail carriers fell during Friday’s sharp market decline.
Analyst Jon Braatz at Kansas City Capital Associates said investors had bid up Kansas City Southern’s stock price in anticipation of more traffic as new auto assembly plants in Mexico open this year. The traffic won’t come as soon as previously expected, he said.
“They were thinking the ramp-up (at the auto plants) would be quicker,” Braatz said.
Otherwise, Braatz said, Friday’s report showed the railroad continues to operate well.
“There certainly was no disaster from an operational standpoint,” Braatz said.
The company said revenue climbed to $616 million in the fourth quarter, up from $568 million in the comparable quarter in 2012. Kansas City Southern earned $114 million in the three months that ended Dec. 31, compared to a profit of $93 million in 2012’s final quarter.
Overall freight-hauling carload volumes were up 2 percent in the quarter from year-earlier levels, Kansas City Southern said.
Fourth-quarter revenue growth was led by a 30 percent increase in agriculture and mineral shipments and an 18 percent gain in intermodal shipping. Automotive and industrial and consumer products hauling both grew 9 percent in the quarter, while chemical and petroleum revenue climbed 2 percent.
However, energy revenue for the quarter fell 17 percent compared to 2012 because of a decline in utility coal shipments, the company said.
The earnings per share of $1.03 trailed the $1.09 average of 19 estimates compiled by Bloomberg. The sales projection was $618.6 million.
“It appears that utility coal will be a headwind” in 2014, Anthony Gallo, a Wells Fargo & Co. analyst, said in a note to investors. “Our 8 percent volume growth target was dependent on robust growth in automotive, agriculture and minerals and a rebound in utility coal.”
Coal volumes at railroad companies industrywide have been damped by power companies switching to cheaper natural gas, eroding sales from a cargo that has been an industry mainstay.
For all of 2013, Kansas City Southern said revenue climbed to a record $2.4 billion, up 6 percent from 2012. Carload volumes were up 2 percent from the previous year, but the railroad’s profit of $353 million was down from $379.4 million in 2012.
David Starling, the company’s president and chief executive, said in the earnings statement that 2013 “proved to be another very good year” for Kansas City Southern. While he said “some shifts in market conditions” affected the railroad’s agriculture and minerals and energy commodity groups, the company still reported strong overall operational and financial results.