Advertisement

What's in Store for Kansas City Southern' (KSU) Q2 Earnings?

Kansas City Southern KSU is scheduled to report second-quarter 2020 earnings on Jul 17, before the market opens.

The Zacks Consensus Estimate for the company’s second-quarter earnings has been revised 10.6% downward to $1.18 over the past 60 days. However, it has an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average being 7%.

Let’s see whether the company is able to repeat its success story in the June quarter as well.

Factors Likely at Play

The already low volumes due to freight softness are likely to have declined further during the June quarter due to the prevalent coronavirus pandemic. While sluggish U.S. market might have weighed on intermodal volumes, unscheduled plant shutdown is likely to have affected volumes at the automotive unit. Meanwhile, weaknesses in the crude oil segment might reflect on energy volumes.

Notably, the Zacks Consensus Estimate for carloads (volumes) in the intermodal segment suggests a 23.1% decline from the first-quarter 2020 reported figure. The same for automotive volumes indicates a 76.8% plunge from the previous quarter’s reported figure. Additionally, the consensus mark for energy volumes implies a 17% decrease from the sequential quarter’s reported number. Besides, the consensus estimate for Chemicals and Petroleum volumes fell 16.5% from the reported March-quarter figure.

Kansas City Southern Price and EPS Surprise

Kansas City Southern Price and EPS Surprise
Kansas City Southern Price and EPS Surprise

Kansas City Southern price-eps-surprise | Kansas City Southern Quote

Nevertheless, improved operational efficiency, courtesy of the precision scheduled railroading model, is expected to have aided the company’s bottom-line performance. Consistent cost-reduction efforts are also likely to get reflected in the company’s earnings. Moreover, the railroad operator’s operating ratio (operating expenses as a percentage of revenues) is likely to have improved in the quarter to be reported owing to cost-controlling initiatives. Notably, lower the value of this metric, the better. The Zacks Consensus Estimate for the operating ratio hints at an improvement of 8.4% from the year ago quarter’s reported figure.

Earnings Whispers

The proven Zacks model does not conclusively predict an earnings beat for Kansas City Southern this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, that is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Kansas City Southern has an Earnings ESP of -2.01% as the Most Accurate Estimate is pegged at $1.16, lower than the Zacks Consensus Estimate of $1.18. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Highlights of Q1 Earnings

In the last reported quarter, Kansas City Southern’s earnings (excluding 38 cents from non-recurring items) of $1.96 beat the Zacks Consensus Estimate by 26 cents. Moreover, the bottom line improved 27.3% on a year-over-year basis on the back of better operational efficiency. The company also reported better-than-expected revenues. Quarterly revenues of $731.7 million surpassed the Zacks Consensus Estimate of $714.5 million. Further, the top line rose 8.4% year over year.

Stocks to Consider

Investors interested in the broader Transportation sector may consider United Airlines Holdings, Inc. UAL , Southwest Airlines Co. LUV and Air Lease Corporation AL as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

United Airlines has an Earnings ESP of +25.24% and a Zacks Rank of 3, currently. The company will release second-quarter 2020 results on Jul 21.

Southwest Airlines presently has an Earnings ESP of +23.80% and is a #3 Ranked player. The company will release second-quarter 2020 results on Jul 23.

Air Lease has an Earnings ESP of +23.32% and is Zacks #3 Ranked at present. The company will release second-quarter 2020 results on Aug 6.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
Kansas City Southern (KSU) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
Air Lease Corporation (AL) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research