Kansas City Southern (KSU) Q3 Earnings: What's in Store?

Kansas City Southern KSU is slated to report third-quarter 2018 results on Oct 19, before market opens.

In the second quarter, the company delivered better-than-expected earnings, while revenues missed the Zacks Consensus Estimate. However, the metrics improved on a year-over-year basis. Results were boosted by solid segmental performances in the Chemical & Petroleum and Automotive units.

Let’s see how things shape up for this announcement.

Congestion in the U.S. rail network is expected to hurt the company’s third-quarter results. Moreover, high costs are concerning and might weigh on the bottom line in the to-be-reported quarter. High operating expenses could lead to deterioration in the operating ratio (operating expenses as a percentage of revenues). Moreover, soft revenues in the Energy segment might dent top-line growth.

In fact, shares of the company have underperformed the industry in the July-September period. The stock has gained 6.9% compared with the industry’s rise of 13.8%.

However, robust overall carload volumes are expected to aid the company’s top line in the third quarter.  A strong economy and network capacity investments are expected to result in volume growth.

Moreover, we expect a detailed commentary on the recently inked United States-Mexico-Canada Agreement (USMCA) during the third-quarter conference call. The new deal, which replaces North American Free Trade Agreement (NAFTA), is expected to be beneficial to the company in the long term as Kansas City Southern has significant Mexican exposure. However, the deal will not impact third-quarter results, in any way.

Earning Whispers

Our proven model does not show that Kansas City Southern is likely to beat estimates this quarter. This is because a stock needs to have a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Zacks Rank: Kansas City Southern carries a Zacks Rank #3.

EarningsESP: However, Kansas City Southern has an Earnings ESP of -0.70%. The Most Accurate Estimate is at $1.57 per share, lower than the Zacks Consensus Estimate of $1.58. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation Sector may check out the following companies with the right combination of elements to beat estimates in the next releases:

Old Dominion Freight Line, Inc. ODFL has an Earnings ESP of +0.26% and a Zacks Rank #2. The company will release third-quarter 2018 results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Union Pacific Corporation UNP has an Earnings ESP of +0.46% and a Zacks Rank #2. The company will release third-quarter 2018 results on Oct 25.

Alaska Air Group, Inc. ALK has an Earnings ESP of +2.37% and a Zacks Rank #3.  The company will release third-quarter 2018 results on Oct 25.

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