October 19, 2018 / 4:23 PM / 25 days ago

Kansas City Southern profit soars, trade worry eases; shares climb

(Reuters) - Railroad operator Kansas City Southern’s (KSU.N) quarterly profit jumped 34 percent, even after network congestion crimped operations in Mexico, where it has extensive services.

Shares climbed 4 percent to $106.76 in midday trading, partly due to easing anxiety around U.S. trade skirmishes and Mexico’s leadership transition.

Kansas City Southern Chief Executive Officer Patrick Ottensmeyer called the reworked United States, Mexico and Canada trade deal a positive, although steel and aluminum tariffs “need to be worked through.”

Renegotiation of the former North American Free Trade Agreement (NAFTA) “left the treaty largely intact and this removes a major risk that was hanging over the stock,” CFRA Research analyst Jim Corridore said in a client note.

Comments from Mexico’s President-elect Andres Manuel Lopez Obrador, who takes office on Dec. 1, have further reduced uncertainty.

“Most of the signals that we’ve gotten are positive and encouraging that we will not see any major shift in either foreign relations or economic policy on Mexico,” Ottensmeyer said on a conference call with analysts.

The company dominates cross-border rail trade between the United States and Mexico, drawing about 30 percent of its revenue from such shipments. Cross-border carloads were up 20 percent from a year earlier, straining operations and sending rail car dwell times up in its Monterrey and Sanchez terminals.

Overall volumes increased 4 percent during the latest quarter, when congestion in northern Mexico sent costs around $7 million higher.

The railroad, which plans to take ownership of 50 locomotives next year, lowered its full-year volume growth forecast on the heels of its third-quarter results. It now expects full-year volume growth in the low single-digit percentages instead of mid-single digits. It cited delays in the start of crude oil movement and its own struggles to meet robust demand.

Despite challenges in the quarter, the company’s operating ratio, which measures operating costs as a percentage of revenue, improved to 62 percent from 64.4 percent a year earlier. A lower operating ratio means more efficiency and higher profitability.

Net income available to shareholders rose to $173.5 million, or $1.70 per share, in the quarter ended Sept. 30, from $129.2 million, or $1.23 per share, a year earlier.

On an adjusted basis, the company earned $1.57 per share, in line with analysts’ estimate, according to data from Refinitiv.

Revenue rose 6.5 percent to $699 million, boosted by southbound volumes of refined petroleum products related to Mexican Energy Reform.

Reporting by Lisa Baertlein in Los Angeles and Rachit Vats in Bengaluru; Editing by Maju Samuel; Editing by David Gregorio

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