Kansas City Southern’s (NYSE:KSU) third-quarter net profit rose 5.3% as a 16.7% decrease in operating expenses helped to offset a 12% decline in revenue.
Net income in the third quarter of 2020 was $189.7 million, or $2.01 per diluted share, compared with $180.1 million, or $1.81 per diluted share, in the third quarter of 2019.
Third-quarter revenue fell 12% to $659.6 million as a result of lower volumes, which in turn were driven by a decline in demand due to COVID-19. Carload volumes slipped 4% in the quarter. Lower commodity prices, a lower fuel surcharge and unfavorable foreign currency impacts also affected quarterly revenue, Kansas City Southern (KCS) said.
But operating expenses were $388.1 million in the third quarter of 2020, compared with $465.7 million a year ago. Lower fuel charges drove the decline, and compensation and benefits expenses were also down year-over-year.
Third-quarter operating income was $271.5 million, a 3.7% decline from a year ago.
Operating ratio was 58.8%, compared with 62.3%, or 60.7% on an adjusted basis, in the third quarter of 2019. Operating ratio is a tool used to gauge the financial health of a company, with a lower percentage implying improving health.
“Kansas City Southern’s strong third-quarter results demonstrate the company’s resiliency and the tremendous discipline and focus of our workforce,” said KCS President and CEO Patrick J. Ottensmeyer. “Our service was tested this quarter with an unprecedented volume recovery and two hurricanes that struck the heart of our network. KCS responded by steadfastly executing the lessons learned in its precision scheduled railroading (PSR) implementation, which included aligning resources with rapidly increasing demand while maintaining a keen focus on preserving efficiencies created from PSR principles.”
Meanwhile, service metrics were mixed in the third quarter, with average train speed rising 4% to 14.5 miles per hour but average terminal dwell time slipping 13% to 22.9 hours.
KCS updates 2020 guidance
KCS said it now expects adjusted diluted earnings per share to be slightly higher on a year-over-year basis, which the company attributes to an improved outlook for the year. It also expects full-year 2020 adjusted operating ratio to be on the low end of the 60% to 61% range.
Capital expenditures for 2020 remain at $425 million, while guidance for 2021 and 2022 capital expenditures remains at around 17% of revenue, KCS said.
“Our performance this year has been remarkable given the challenges we have faced. This strong and sustainable operational performance has given us confidence to reintroduce elements of our guidance,” Ottensmeyer said. “Our outlook has improved for adjusted operating ratio, free cash flow and adjusted diluted earnings per share, and the company is positioned to deliver superior growth and customer service.”
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