Teacher protests in Mexico crimp Kansas City Southern's overall volume

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KANSAS CITY, Mo. — Kansas City Southern’s main line to the Mexican Port of Lazaro Cardenas has been blocked by teacher’s union protests for 45 straight days, putting a dent in the railway’s overall traffic and revenue.

The blockage of the line to Mexico’s busiest port is responsible for a 3% decline in KCS’s fourth-quarter volume to date, Chief Financial Officer Mike Upchurch told an investor conference on Tuesday morning.

Absent the blockades, KCS volume is up 2%. “The rest of our business is really performing quite well,” Upchurch says, noting that cross-border volume is up 14% since Oct. 1, thanks to robust growth in refined products exports to Mexico as well as intermodal traffic.

Teachers protests in Mexico are nothing new: They’ve been blocking the rail lines of KCS de Mexico and its predecessors periodically for 37 years, Upchurch says.

The latest round of protests — which have nothing to do with KCS — began on Oct. 2. “It’s effectively shut down traffic between the port in Lazaro and inland markets in Mexico,” Upchurch says.

KCS hauls stack trains between the port and the Mexico City area. The port traffic represents about a quarter of KCS’s overall intermodal volume.

The railroad has asked government officials, customers, and its labor unions to help resolve the dispute, Upchurch says.

Earlier this month KCS announced new priorities for its capital structure, including increasing its leverage ratio, repurchasing $3 billion worth of shares through the end of 2023, increasing its dividend by 10%, and putting 40% to 50% of its cash toward capital projects and 50% to 60% of its cash toward share repurchases and dividends.

KCS is on a pace to repurchase $969 million of its shares this year.

The railroad will continue to invest in capacity expansion next year, including longer sidings and yard expansions that will enable it to handle ongoing growth in cross-border traffic. It is also forging ahead with plans for a second bridge across the Rio Grande at the Laredo, Texas, gateway, the busiest freight railroad border crossing in North America.

Upchurch spoke at the Stephens Annual Investment Conference.

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