October 20, 2017 / 12:15 PM / a year ago

Kansas City Southern overcomes hurricane to beat on revenue

(Reuters) - Regional U.S. railroad Kansas City Southern (KSU.N) posted a better-than expected quarterly profit on Friday despite disruptions from Hurricane Harvey but may be impacted by the NAFTA negotiations as more than a quarter of its revenue comes from shipments between Mexico and the United States.

The fourth-largest U.S. railroad reported a higher quarterly net profit and record third-quarter operating income on year-over-year growth at all of its six business units.

Operating income of $234 million represented a 17 percent increase from the same quarter a year ago, even as it took a $19 million to $23 million hit from Hurricane Harvey, which devastated the U.S. Gulf Coast in August.

“Despite the severity of the storm and widespread flooding, we recovered quickly from the extended service outage, delivering record third quarter operating income, operating ratio and adjusted earnings per share,” Chief Executive Pat Ottensmeyer said.

After adjustments for one-time items, the railroad earned $1.35 per share, versus the $1.31 analysts expected.

The results sent Kansas City Southern’s shares up nearly 3 percent in early morning trading before they gave up some of their gains; by late morning the shares were up about 1.7 percent at $105.55.

Less positively, the Kansas City, Missouri-based operator said it expects a decline in shipments of vehicles, coal and sand used for hydraulic fracturing in the fourth quarter.

It also faces uncertainty over the future of the North American Free Trade Agreement (NAFTA), as U.S., Canadian and Mexican governments work to renegotiate the 23-year-old trade pact.

“We are still hopeful and confident that NAFTA will be modernized. And even if things don’t turn out the way we would hope, North American trade will continue, and we will continue to play a role in those supply chains,” Ottensmeyer said.

The railroad reported third quarter revenue of $657 million, beating the $650.5 million analysts expected, on strength of shipments of cars, coal, chemicals and petroleum.

Carload volumes increased 3 percent from the third quarter of 2016, it said.

The railroad also said it reported a record third quarter operating ratio - a measure of operating costs as a percentage of revenue - of 64.4 percent, a 2.5 percentage point improvement over third quarter 2016. The lower the operating ratio, the more efficiently the railroad is running.

It posted third-quarter net income of $130 million, or $1.23 per share, up from $121 million, or $1.12 per share, a year earlier.

Reporting by Eric M. Johnson in Seattle; Editing by Steve Orlofsky and Phil Berlowitz

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