(The following article by Randolph Heaster was posted on the Kansas City Star website on July 31.)
KANSAS CITY — Kansas City Southern took a small loss in the second quarter, mainly because of an earnings decline at its Mexican rail venture and higher fuel costs.
For the three months ending June 30, Kansas City Southern lost $500,000, or 3 cents a share, on $146.3 million in revenues. During the same period last year, the company earned $14.5 million, or 23 cents a share, on $39.2 million in sales.
Kansas City Southern shares closed Wednesday at $12.37, up 22 cents.
Kansas City Southern said its investment in Grupo TFM, Mexico’s biggest railroad, produced a $2.3 million loss because of higher taxes and the Mexican peso strengthening against the U.S. dollar. Kansas City Southern owns 47 percent of Grupo TFM and is trying to buy the rest of it, which is held by the similarly named Grupo TMM.
On the domestic side, Kansas City Southern Railway Co. saw its revenues rise in most commodity groups, including agriculture and minerals, paper and forest products, coal and intermodal business.
However, costs also rose on the domestic railroad, with fuel prices averaging 24 percent higher than the same time last year.
“Revenues in almost all our business groups improved, and we are cautiously optimistic that the national economy is strengthening, which we believe will allow us to build on this positive trend,” said Michael R. Haverty, Kansas City Southern’s chairman and chief executive officer, in a news release.
Haverty said most of the loss at Grupo TFM was tied to U.S. accounting and tax issues and wasn’t connected to any underlying weakness in the operation.
For the first half of 2003, Kansas City Southern earned $13.1 million, or 19 cents a share, on $286.5 million in revenues. During the same period last year, the company earned $26.2 million, or 44 cents a share, on $283.1 million in sales.
In another development earlier this month, a Mexican circuit court ordered a tax rebate to be paid to Grupo TFM. The ruling reverses a tax court’s ruling last December blocking the payment.
Kansas City Southern and Grupo TMM have estimated that the refund will exceed $800 million. The rebate may help Grupo TMM pay off bonds it defaulted on in May, which in turn could persuade bondholders not to oppose Kansas City Southern’s bid to acquire Grupo TMM’s interest in Grupo TFM.
The two companies said it wasn’t known when the tax court will issue its new ruling and when the tax rebate will be paid.