July 19, 2019 / 12:14 PM / 3 months ago

Kansas City Southern profit beats on cost controls

(Reuters) - Kansas City Southern (KSU.N) reported a better-than-expected quarterly profit, as cost controls helped the U.S. railroad to make up for flat carload volume amid concerns of slowing economic growth.

The railroad, which gets nearly half of its annual revenue from Mexico, on Friday dialed back planned spending on operational investments as it lowered its volume forecast for this year.

U.S. freight volumes have declined for seven straight months, fueling worries that the domestic economy is succumbing to a global slowdown and pressure from President Donald Trump’s trade spats with key partners like China and Mexico.

Kansas City Southern, which joined Union Pacific Corp (UNP.N) and CSX (CSX.O) in reporting weakness in coal, frac sand and intermodal shipments, said it is monitoring trade developments for potential impacts to its industrials and consumer units.

It reiterated 2019 profit and revenue forecasts, even as it lowered volume expectations. It now sees flat to slightly lower volume for the year, down from its previous call for growth of 2% to 3%.

Based on the new volume forecast, the railroad pared its capital spending plan to “below $600 million” for 2019, versus up to $660 million previously.

“In spite of some troubling signals in the economy and still some unresolved trade issues, we feel really good about the progress we’re making and still feel good about the outlook,” Chief Executive Officer Patrick Ottensmeyer said on a conference call with analysts.

Kansas City Southern said its adjusted operating ratio - a closely watched measure of operating expenses as a percentage of revenue - fell to 63.7% in the second quarter from 64.0% a year earlier. A lower operating ratio signals improved profitability.

“The company is handling the same volume as last year with fewer assets, fewer crewstarts and considerably less network congestion, driving an improvement in ... operating metrics and cost profile,” Ottensmeyer said in a statement.

Net income available to common stockholders fell to $128.7 million, or $1.28 per share, in the quarter ended June 30, from $148.2 million, or $1.45 per share, a year earlier.

On an adjusted basis, Kansas City Southern earned $1.64 per share, beating analysts’ average estimate by 3 cents, according to IBES data from Refinitiv.

Revenue increased 4.6% to $714 million.

Shares in Kansas City Southern increased 2.5 percent to $120.91 in morning trading.

Reporting by Ankit Ajmera in Bengaluru; Editing by Maju Samuel and Jonathan Oatis

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