KCS all aboard for record earnings in Q2 2017

Kansas City Southern posted record second quarter revenues of $656 million, a 15 percent year-over-year jump, fueled by carload volume growth in four out of the Class I railroad’s six major commodity groups.    Kansas City Southern (KCS), a transportation holding company that owns the Kansas City Southern Railway Company, Kansas City Southern de México, S.A. de C.V., and a 50 percent interest in the Panama Canal Railway Company, posted a net income of $135 million for the second quarter of 2017, a 12 percent increase from the same 2016 period, according to the company’s latest financial statements.
   KCS reported second quarter diluted earnings per share (EPS) of $1.27, up from $1.11 per share in last year’s second quarter and a Q2 record for the company.
   The company also posted record second quarter revenues of $656 million, a 15 percent year-over-year increase.
   KCS President and CEO Patrick Ottensmeyer attributed the revenue boost to carload volume growth in four out of the company’s six major commodity groups.
   “Our revenue performance featured strength in Energy, Automotive, and Chemicals & Petroleum, as higher commodity prices, Mexican automotive production and the emergence of Mexican energy reform supported growth,” he said.
   KCS saw overall volumes tick up 6 percent from last year’s second quarter.
   For the first half of 2017, KCS reported a net income of $282 million on revenues of $1.3 billion, up 23 percent and 12 percent year-over-year, respectively.
   According to investment bank Stifel, the foreign climate, which is crucial for KCS, appears to be normalizing, or at least not becoming more detrimental in the near term.
   “As a result, we are increasing our estimates and turning up our multiple by half a turn,” Stifel said. “Our rating remains buy and our target price increases from $108 to $114 (or 18.0x our 2019 EPS estimate of $6.35).”
   A large chunk of Kansas City Southern’s revenues depend on cross-border movements between the U.S. and Mexico, and relations between the two nations have been strained of late as the current U.S. presidential administration is looking to renegotiate the 23-year-old North American Free Trade Agreement (NAFTA). The U.S. Trade Representative last week released a summary of the Trump administration’s top negotiating objectives for the NAFTA revamp, seeking to reduce the U.S. trade deficit, along with boosting market access in Canada and Mexico for U.S. manufacturing, agriculture and services.