Kansas City Southern profits slip amid flat traffic, revenue

Railroad sees return to growth this year
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KANSAS CITY, Mo. — Kansas City Southern’s fourth-quarter profit slipped 4 percent amid rising expenses and flat traffic and revenue, the railroad announced today.

The railroad’s earnings call was dominated by questions about the future of U.S.-Mexico trade in light of the Trump administration’s plans to renegotiate the North American Free Trade Agreement.

CEO Patrick J. Ottensmeyer says that any modifications to NAFTA will be done in a rational way that will strengthen both economies and the future of KCS. The railroad’s management assured investors and Wall Street analysts that its customers — including automakers, a focus of Trump’s critical Twitter messages in recent weeks — remain confident about continued growth in Mexican production and trade.

KCS reported fourth-quarter revenue of $599 million, which was unchanged from 2015. Operating expenses increased 2 percent versus a year ago, helping to push the operating ratio up by 1.4 points, to 64.8 percent.

“KCS’ ability to react swiftly and efficiently was proven throughout 2016, as our network faced challenging operational interruptions throughout the year,” Ottensmeyer says. “In addition, volatility in key commodities such as energy, consumer, and intermodal markets created uncertainty during 2016. Despite these conditions, KCS’ achieved a full-year operating ratio of 64.9 percent, a 1.5 point improvement versus 2015 adjusted.”

For the full year, KCS’ revenue was $2.3 billion, down 3 percent from 2015. Carloads for 2016 were 2.17 million, a decrease of 2 percent. Full-year 2016 operating income was $819 million, an increase of 2 percent. Reported net income in 2016 totaled $480 million, or $4.43 per diluted share, compared with $485 million, or $4.40 per share, in 2015.

Despite political and economic uncertainty, KCS is encouraged about prospects for growth this year. It has a favorable outlook on 65 percent of its traffic, including intermodal, automotive, and chemicals and petroleum. It has a neutral outlook on the remainder, including agriculture and minerals, industrial and consumer, and energy traffic.

The railroad’s capital spending will decline in 2017, to between $550 million and $560 million. Last year KCS spent $584 million.

Some 39 percent of the capital budget will be earmarked for growth, including capacity improvements in Mexico, the Sanchez Yard expansion, and a storage-in-transit yard for Sasol Chemicals’ plastics plant expansion in Louisiana.

KCS has a number of locomotives in storage and will not purchase locomotives this year. “It would be a nice problem to have if we were buying locomotives in 2018,” because it would mean KCS experienced strong traffic growth, Chief Financial Officer Mike Upchurch says.

NEWSWIRETrains News Wire

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