(The following Reuters story by Michael Connor was distributed on July 21.)
MIAMI — Kansas City Southern, the U.S. rail group planning to change its name to Nafta Rail, on Monday said second-quarter profits had been hurt by weak results at a Mexican railway and would disappoint Wall Street.
“The current First Call second-quarter 2003 earnings per share consensus estimate for KCS is 19 cents,” the cargo hauler said in a news release. “KCS anticipates its earnings per share will be reported in the low single cents per share.”
Wall Street had been forecasting that KSU would earn between 15 cents a share and 22 cents a share in the quarter, with a consensus forecast of 19 cents, according to seven analysts surveyed by First Call, a unit of Thomson.
KSU earned 27 cents a share in the second quarter of 2002.
The Kansas City, Missouri, holding group for freight-hauler Kansas City Southern Railway said earnings from Grupo TFM, a Mexican rail group owned by Kansas City and Grupo TMM TMMA.MX TMM.N of Mexico, were weaker than expected. No figures were provided by KSU.
KSU said the weakness at TFM, or Transportacion Feeroviaria Mexicana, was due to U.S. accounting regulations covering Mexican tax provisions affected by the rise in value of the Mexican peso against the U.S. dollar.
A spokesman for KSU, which plans to issue its second-quarter results on July 30, was not immediately available to give details.
“TFM is extremely volatile and hard to read,” said UBS Warburg rail analyst Rick Paterson. “Last year the quarterly contribution from TFM ranged from $5 to $13 million.”
KSU also said quarterly operating income at its U.S. operations was also lower than 2002’s second quarter because of higher fuel, insurance and other costs. Executives of other leading railroads have complained of choppy cargo volumes and a lukewarm economy in the second quarter.
Kansas City Southern, which is the smallest among the leading U.S. railroads, on April 21 announced a deal to buy control of Mexico’s main rail-freight line to the U.S. border in a cash-and-stock deal worth about $400 million.
The deal calls for the company to be renamed Nafta Rail and to operate three railroads courting shippers in the trade corridor created by the early 1990s North American Free Trade Agreement among Canada, Mexico and the United States.
So far, the proposed combination has won approval from anti-trust regulators in Mexico but still requires consideration by other regulators in the United States and Mexico.
On Monday, Kansas City shares closed down 51 cents, or about 3.8 percent, in trading on the New York Stock Exchange. Other rails also fell, with the Dow Jones U.S. Railroads Index off about 1.2 percent for the day.