Cheap energy hits Kansas City Southern’s outlook, stock price

Revenue growth at Kansas City Southern is getting squeezed by falling energy prices and the rising value of the U.S. dollar, the railway operator said Monday.

The company cited falling energy prices to project a 10 percent decline in its energy revenues for the first three months of this year. Add in a strong dollar and total revenues for 2015 are likely to grow by 4 percent less than previously expected.

Investors punished the company’s stock in trading Monday, cutting $9.21 or nearly 8 percent off of share prices that closed at $106.48. The stock was the worst performer on the Standard & Poor’s 500 index.

Kansas City Southern’s news weighed on shares of other rail companies, including Union Pacific Corp. and Norfolk Southern Corp., which saw smaller stock declines.

Falling energy prices have cut into the amount of hydraulic fracturing activity, and that has reduced Kansas City Southern’s business tied to hauling “frac sand and metals,” the company said in its announcement.

Rail shipments of coal also have been reduced by cheap natural gas, which is a competing energy source for power plants and other energy consumers.

Combined, these are cutting into the volume of rail cars the rail line hauls, and that is expected to cut into operating income, the company said. It did not offer an estimate of the effect on earnings.

Lower fuel prices also mean the rail carrier is charging a lower fuel surcharge, and that further cuts into its revenues. This decline is expected to be offset by the railways’ own lower fuel costs.

Finally, Kansas City Southern said the climbing value of the dollar hurt the reported value of revenue that it earns in Mexican pesos when they are converted to dollars. The company has a large Mexican rail business.

This story was originally published March 23, 2015 at 4:04 PM with the headline "Cheap energy hits Kansas City Southern’s outlook, stock price."