Kansas City Southern Q1 net profit flattish on 4% revenue decline

Lower revenue contributed to flattish year-over-year first-quarter net profit for Kansas City Southern (NYSE: KSU).

First-quarter net income was $153.4 million, or $1.68 per diluted share, up 0.7% from $152.3 million, or $1.58 per diluted share, in the first quarter of 2020.

On an adjusted basis, net income for the first quarter of 2021 was $174.2 million, or $1.91 per diluted share, and operating income was $272.3 million. The adjusted figures account for $19.3 million in merger costs, according to Kansas City Southern (KCS).

Revenue slipped 4% to $706 millon amid a 1% drop in carload volumes, a lower fuel surcharge and fluctuations in foreight currency.

Operating expenses were $453 million compared with $442.9 million. The higher figure in 2021 was driven primarily by merger costs.

Unadjusted operating income was $253 million, compared with $288.8 million a year ago.

Operating ratio (OR) was 64.2% in the first quarter of 2021, compared with 60.5% in the first quarter of 2020. OR, which is a company’s expenses as a percentage of revenue, is a tool investors use to gauge the profitability of a company, with a lower OR implying improved financial health. On an adjusted basis, first-quarter 2021 OR was 61.4%, compared with

59.7% in the first quarter of 2020.

“Although our first quarter performance was impacted by several unique and challenging events, including the Polar Vortex, and lingering network congestion, our operating team is focused on improving operating metrics and customer service through PSR [precision scheduled railroading] phase III,” said KCS President and CEO Pat Ottensmeyer. “Based on an outlook for improvement in volume growth and operational trends, we can confidently confirm our 2021 guidance.”

In the railroad’s first-quarter earnings release Friday, Ottensmeyer also mentioned Canadian Pacific’s (NYSE: CP) proposed acquisition of KCS, saying, “During the first quarter, we also announced an exciting and historic combination with Canadian Pacific, creating the first rail network connecting the U.S., Mexico, and Canada. This combination is expected to provide an enhanced competitive alternative to existing rail service providers, resulting in improved service to customers of all sizes. This transaction represents an exciting opportunity for KCS and CP stakeholders, and we look forward to delivering the benefits to our customers, employees, investors, and communities.”

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