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Earnings preview: Railroads to drive Kansas City Southern Q2 results

Kansas City Southern (NYSE: KSU) is set to release its earnings results for the second quarter of 2019 on Friday before the market opens. The results will be benefited by higher top line growth despite restructuring charges, exclusion of the Mexican fuel excise tax credit and higher compensation and benefits.

The company is engaged in the freight rail transportation business operating through a single coordinated rail network under a reportable segment. The company generates revenues and cash flows by providing its customers with freight delivery services both within its regions, and throughout North America through connections with other Class 1 rail carriers.

Throughout the year, the company is implementing principles of the precision scheduled railroading methodology. Due to this, the company’s management approved a restructuring plan during the first quarter and Kansas City Southern recognized restructuring charges of $67.5 million. The company expects this restructuring plan and other related to initiatives to be completed in 2019 and to provide cost savings of about $16 million for the balance of 2019.

Railroad to drive Kansas City Southern Q2 results
Photo Courtesy: Kansas City Southern / Facebook post

Analysts expect the company’s earnings to jump by 4.50% to $1.61 per share and revenue will rise by 3.50% to $706.23 million for the second quarter. In comparison, during the previous year quarter, Kansas City reported a profit of $1.54 per share on revenue of $682.4 million. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters.

For the first quarter, the company reported a 29% dip in earnings due to higher costs and expenses. Revenues increased by 6% helped by refined product shipments to Mexico in Chemicals and Petroleum segment and improved network cycle times in Agriculture and Minerals segment. Energy and Industrial and Consumer Products also grew 5% and 2%, respectively, while auto plant shutdowns and teacher protests hurt Automotive and Intermodal, which declined by 4% and 12%, respectively.

The railroad industry in North America is dominated by a few very large carriers. The larger U.S. western railroads (BNSF Railway Co. and Union Pacific Railroad Co.), in particular, are significant competitors of Kansas City Southern because of their substantial resources and competitive routes. The company believes that its investments and strategic alliances continue to competitively position it to attract additional rail traffic throughout its rail network.

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