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.