(Reuters circulated the following article on May 2.)
CHICAGO — Railroad operator Kansas City Southern posted better-than-expected quarterly profit Tuesday on higher margins, improved service, fuel surcharges and rising prices, sending its shares up 10 percent.
The company said it expects a “strong pricing environment in the United States and Mexico for the rest of the year” and substantial cost improvements from placing its Mexican unit on the same computer platform as the rest of its operations.
Analysts said the first-quarter results indicated the company’s operating ratio was improving, which should lead to rising profits.
UBS analyst Rick Paterson wrote in a research note that investors should focus on operating ratio improvements, the volume of goods the company ships to the United States from the Mexican port of Lazaro Cardenas, which it operates, and the potential for further development at that port.
UBS maintained its “buy” rating and target price of $30 on the company’s stock.
The Kansas City, Missouri-based company said first-quarter profit totaled $8 million, or 11 cents a share, up from $7 million, or 9 cents a share, a year earlier.
Wall Street analysts had expected earnings per share of 6 cents, according to Reuters Estimates.
Kansas City Southern officials said in a conference call with analysts that the railroad will hire a new assistant vice president in charge of sales and market to coordinate its cross-border business.
The company took over full control of its Mexican unit, Kansas City Southern de Mexico SA, when it bought the 51 percent stake of Mexican logistics company Grupo TMM SA
Now this unit is fully integrated with Kansas City Southern’s network, Haverty said. “We expect strong revenue growth from the imminent start-up of intermodal service between the southeast United States and the interior and Pacific Coast of Mexico,” he said.
Intermodal shipping uses standardized containers that can be easily interchanged between different modes of transport — ship, truck and rail.
Kansas City Southern serves three ports in Mexico, including Lazaro Cardenas. It has touted the port and its Mexican-U.S. rail network as an additional route to bring goods from developing nations such as China into the United States.
Chief Executive Officer Michael Haverty said in the conference call that the company will start intermodal test runs for a “big box” retailer from Lazaro Cardenas in June. He declined to name the retailer. Earlier this year, the company said retail giant Wal-Mart Stores Inc.
Haverty said several maritime shipping companies, including Danish shipping and oil group A.P. Moeller-Maersk
In afternoon trade on the New York Stock Exchange, Kansas City Southern shares were up $2.51 at $26.98.