Kansas City Southern’s first-quarter net profit jumps 16 percent

Image credit: Kansas City Southern

Kansas City Southern‘s (NYSE: KSU) said its first quarter 2019 net profits rose nearly 16 percent amid its ongoing transition to precision scheduled railroading (PSR).

Adjusted net income for the first quarter of 2019 totaled $154.9 million, or $1.54 per share, compared with $133.8 million, or $1.30 per share, for the first quarter of 2018.

Record first quarter revenue of $675 million boosted profits, even though overall carloads declined by 1 percent due to service interruptions at Lázaro Cárdenas, Mexico because of teacher protests, KSU said. First quarter revenue rose 6 percent from the $639 million in the first quarter of 2018.

First quarter revenue growth was due to increased volumes in chemical and petroleum, agricultural and minerals, and energy and industrial and consumer products, KSU said.

KSU’s adjusted operating ratio was 64.2 percent in the first quarter of 2019 compared with 65.8 percent for the same period in 2018.

The reduced operating ratio comes as KSU transitions to PSR, an operating tool that can lower company expenses as it seeks to maximize a company’s assets. Using PSR, railroads schedule railcars on a fixed schedule.

KCS adopted PSR in January, following other Class I railroads that have deployed it in recent years, including CSX (NYSE: CSX), Norfolk Southern (NYSE: NSC) and Union Pacific (NYSE: UNP).

“Although we are still in the early stages of implementation, KCS’ transition to a precision-scheduled network is already producing improved velocity and dwell, which is driving improved customer service, labor and asset utilization as well as other efficiencies,” said KSU president and chief executive officer Pat Ottensmeyer.

During the company’s first quarter earnings call, Ottensmeyer stressed that KSU would be implementing PSR in such a way as not to constrain network capacity, especially in light of last year, when extra volumes would’ve strained the network and caused service disruptions.

“We’re going to make sure we’ll have the capacity to handle the business, especially in areas where we see growth, which include refined products, plastics, automotive and intermodal,” Ottensmeyer said.

Company officials on the call said the railroad will roll out PSR slowly by looking at how to utilize locomotives, train lengths, crews and other assets in such a way that addresses service needs, such as why delays occur most frequently at certain pinch points such as Houston.

“Our approach is not going to be to close [hump] yards,” said Sameh Fahmy, executive vice president for handling PSR integration. Hump yards are where railcars get sorted into their different destinations.

By reducing switching and dwell times, KSU “is actually able to absorb more business,” Fahmy said. Terminal dwell times averaged 21.8 hours in the first quarter of 2019, compared with 22.9 hours for the same period a year ago and 24.8 hours for fiscal year 2018.

Officials pointed to how the railroad handled extra volumes in recent weeks because of record flooding in the Midwest. KSU might not have been able to handle those extra volumes effectively in the fall of 2018, before it began implementing PSR.

“We actually absorbed the blow and maintained a decent velocity,” Fahmy said.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily. Her transportation background extends to writing about automotive fuels and additives for Hart Energy Publishing and producing summaries on advanced transportation research for a federal government agency. In her spare time, she likes writing travel articles, taking photographs, and singing and dancing. She has a bachelor's degree in music and political science from Barnard College, a master's in journalism from Boston University, and a master's in musical theater from Boston Conservatory.

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