(The following story by Randolph Heaster appeared on The Kansas City Star website on February 6.)
KANSAS CITY, Mo. — Kansas City Southern executives met Tuesday with investment analysts in New York as a tickertape parade showered confetti in the streets.
The parade was for the New York Giants and their fans. But Kansas City Southern’s officers couldn’t be blamed if they also were in a celebratory mood after the company capped a strong 2007 with sharply higher profits and revenues in the fourth quarter and record revenues for the year.
For the three months ended Dec. 31, Kansas City Southern earned $54.7 million, or 56 cents a share, on $460.3 million in revenues. During the same time in 2006, the company reported net income of $40.6 million, or 41 cents a share, on $442.4 million in revenues.
Investors also were buoyed by the news.
On a day when the Dow Jones industrial average fell nearly 3 percent, investors rewarded Kansas City Southern following its earnings announcement. The stock closed at $37.46 a share, up 64 cents, a 1.74 percent gain.
For 2007, Kansas City Southern set a record for revenues at $1.74 billion, a 5 percent rise from 2006’s $1.66 billion. Net earnings for all of last year were $153.8 million, or $1.57 a share, compared with 2006’s $108.9 million, or $1.08 a share.
“A lot of our growth is based on new opportunities. We think we’re the fastest-growing railroad in North America,” Michael R. Haverty, Kansas City Southern chairman and chief executive officer, told analysts.
Haverty said the growth should continue this year. With a key port in western Mexico ramping up and more automotive plants opening along Kansas City Southern de Mexico’s route, the railroad is expecting higher revenues again despite the current weakening economic conditions.
Kansas City Southern had a slight drop in overall carloadings, but higher rates more than offset the decline. The railroad’s operating ratio, which measures operating expenses as a percentage of revenue, fell to 79.2 percent.
Analysts think a railroad is operating efficiently if its operating ratio is below 80 percent.
Kansas City Southern will continue to modernize its locomotive fleet this year and expects its line to the Mexican port in Lazaro Cardenas to post double-digit growth in 2008.
Five ocean liners operate there, and two of them are exploring the possibility of moving cargo through the port and into the United States, said Dan Avramovich, Kansas City Southern’s executive vice president of sales and marketing.
Although the U.S. auto industry is suffering, Mexico has two auto plants expanding, with three more expected to open soon.
Two additional auto plants will also be opening in the southern United States. Kansas City Southern will serve all those facilities.
“We’re very bullish on the automotive industry in Mexico,” Avramovich told analysts Tuesday.
In Kansas City, the railroad expects to open a new intermodal rail-truck facility at the former Richards-Gebaur Memorial Airport in mid-March, said Art Shoener, Kansas City Southern’s president and chief operating officer.
Rick Paterson, analyst with UBS, said several positive trends were helping Kansas City Southern. But he said he thought the most important this year would be the new locomotives that will make operations more efficient.
“A good (fourth quarter) continues a pattern of continued improvement, building credibility,” Paterson said in a report following the analysts’ meeting. “Our only immediate concern is valuation, following the recent rally.”
Nevertheless, Kansas City Southern continues to have long-term value, Paterson noted.
All told, Haverty said Kansas City Southern expects percentage revenue growth this year to be in the high single digits.