Kansas City Southern takes aim at rail efficiency, shares jump

FILE PHOTO: A logo of the Kansas City Southern (KCS) Railway Company is pictured in Toluca, Mexico October 1, 2018. REUTERS/Edgard Garrido

LOS ANGELES (Reuters) - Regional railroad operator Kansas City Southern KSU.N on Friday said it is revamping operations after 2018 financial and operational results fell short of company targets, sending shares up almost 5 percent in early trading.

“We did not meet the expectation of our customers (and) our shareowners, particularly in the areas of customer service and growth,” Chief Executive Patrick Ottensmeyer said on a conference call.

Like many of it peers, the company is implementing efficiency measures known as Precision Scheduled Railroading aimed at keeping trains running on time. It bolstered that effort by retaining management consultant Sameh Fahmy, a former Canadian National Railway Co CNR.TO executive who worked beside industry turnaround expert Hunter Harrison.

Kansas City Southern, which derives one-third of its revenue from Mexico, reported an adjusted fourth-quarter operating ratio of 64.3 percent, 30 basis points higher than prior year.

Operating ratio measures operating costs as a percentage of revenue. A lower operating ratio means more efficiency and higher profitability.

The company said it aims to reduce its operating ratio to 60 percent to 61 percent by 2021.

Fourth-quarter net income was $161.8 million, or $1.59 per share. Excluding items, it earned $1.56 per share. Analysts, on average, expected a profit of $1.53 per share, according to Refinitiv IBES data.

Revenue rose to $694 million from $660.4 million, boosted by petroleum and crude oil shipments.

Shares in Kansas City Southern were up 4.9 percent at $109.29 in morning trading.

Reporting by Lisa Baertlein in Los Angeles; editing by Jonathan Oatis