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Kansas City Southern KSU

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Morningstar’s Analysis

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Kansas City Southern Posts Solid Q3 Sequential Volume and Margin Recovery Off Pandemic Lows

Matthew Young, CFA Equity Analyst

Analyst Note

| Matthew Young, CFA |

Wide-moat Kansas City Southern’s third-quarter top line fell 12% (not far off our expectations), though this is much better than the 23% year-over-year decline posted last quarter. Importantly, although total carloads were down 4% year over year, daily volumes rebounded sequentially, rising 30% from the second quarter and 60% off the early-May trough as lockdowns across the U.S. and Mexico eased and economic activity picked up. Of note, the firm’s cross border, domestic intermodal (strong retailer restocking) and automotive (OEM plants reopening) activity rebounded nicely off pandemic lows. Total revenue per carload deteriorated about 9%, but that’s mostly due to lower fuel surcharges, foreign exchange, and mix (disproportionate growth in intermodal). We believe average underlying core pricing remains positive.

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Company Profile

Business Description

Kansas City Southern, the smallest Class I railroad, derives about half of its $2.7 billion revenue on 3,400 miles of track in the Central and Southern United States. Remaining sales are produced by operating concessions on 3,300 miles of rail in Mexico and 47 miles of track adjacent to the Panama Canal. KCS' freight includes industrial and forest products (21% of total revenue), chemicals and petroleum (26%), agriculture and minerals (18%), intermodal (13%), energy (9%), and autos (9%); other revenue stems from switching, demurrage, and the like.

Contact
427 West 12th Street
Kansas City, MO, 64105
T +1 816 983-1303
Sector Industrials
Industry Railroads
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 7,040

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