(The following story by Randolph Heaster appeared on The Kansas City Star website on August 6.)
KANSAS CITY — Kansas City Southern posted a 25 percent jump in its second-quarter earnings, but the stock has fallen 13 percent since the financial results were released.
Not only that, but the stock’s biggest one-day drop during its recent slide was July 26, the day of the earnings report.
Pat Ottensmeyer, chief financial officer, thinks some reports on the company’s earnings missed the mark when they said Kansas City Southern did not meet analysts’ expectations with its second-quarter bottom line.
The railroad company reported a net profit of 30 cents a share. However, that included a charge of 6 cents a share on refinancing costs, Ottensmeyer said last week. When that charge is excluded, the 36 cents a share matches the Wall Street consensus.
“Revenues are up, even though volumes have been soft through the first half of year,” Ottensmeyer said. “It really was not a horrible quarter by any stretch of the imagination.”
With or without the charge, several transportation analysts agreed, Kansas City Southern posted a good second quarter.
“Kansas City Southern reported another solid quarter and our thesis on the stock remains unchanged,” wrote Art Hatfield of Morgan Keegan, who gives the stock an “outperform” rating.
Christian Wetherbee of Merrill Lynch also remained bullish on Kansas City Southern after the earnings release.
“We reiterate our ‘buy’ rating and $45 price objective on Kansas City Southern shares, as we believe the market’s reaction to Thursday’s (July 26) second-quarter 2007 results was overdone,” he wrote in the firm’s update.
One factor contributing to the recent decline in Kansas City Southern’s stock has been the hit the rail sector as a whole has taken.
Carload volumes continue to be down, and all of the big railroads except CSX Corp. saw their stocks fall last week.
Another reason for the stock’s recent weakness, Ottensmeyer said, could be that speculation is beginning to wane about an acquisition in the rail industry.
“All the stocks, including us, were driven higher on speculation about a leveraged buyout in the rail industry” before the recent decline, he said.