On Dec 14, shares of Kansas City Southern KSU plunged to a 52-week low of $73.25 and eventually closed a little higher at $74.08. Adverse foreign currency movements characterized by the strengthening of the U.S. dollar, lower fuel surcharges received from customers due to declining fuel costs and slow carload growth at the energy sector continue to hurt the stock, leading to a negative year-to-date return of over 39%.
On Dec 2, the company provided a disappointing outlook for fourth-quarter revenues. The company expects year-over-year revenue decline of high single-digit percentage rate.
Notably, weakness in domestic coal shipments is the primary reason behind the muted outlook as coal is a key revenue-generating commodity for railroad operators.
Interestingly, according to the U.S. Energy Information Administration, coal exports have declined mainly due to weak fuel prices and soft global fuel demand. Increased output from other coal-exporting nations has also not helped matters. With the problem unlikely to be resolved any time soon, the path ahead for the company appears to be a bumpy one.
Naturally, the company’s revenues have already declined 7% (as of Nov 30) in the fourth quarter mainly due to adverse foreign currency movement and soft fuel prices in the U.S. Carloads declined 3%, as of Nov 30, in the ongoing fourth quarter of 2015.
Further, management is skeptical about growth at the intermodal business. This is because after starting off the quarter on a strong note, intermodal volumes decelerated in November, signaling an end to the peak season.
Meanwhile, Kansas City Southern reported weak financial numbers in the third quarter of 2015, with both the top and the bottom line lagging the Zacks Consensus Estimate.
Also, downward estimate revisions reflect pessimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2015 and 2016 moved south by 1.6% and 4.5% to $4.40 and $4.88 per share, respectively, over the last 60 days.
Zacks Rank & Stocks to Consider
Currently, Kansas City Southern has a Zacks Rank #3 (Hold). Better-ranked stocks in the transportation sector include Hawaiian Holdings Inc. HA, SkyWest Inc. SKYW and American Railcar Industries, Inc. ARII. While Hawaiian Holdings and SkyWest sport a Zacks Rank #1 (Strong Buy), American Railcar Industries holds a Zacks Rank #2 (Buy).
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