Yahoo Finance Why Did Kansas City Southern’s Industrial and Consumer Revenues Slide in 4Q15?
On Track or Off? Kansas City Southern Railways' 4Q15 Earnings
Kansas City Southern’s industrial and consumer revenues
In this part of our series on the Kansas City Southern Railway Company (KSU) 4Q15 results and outlook for 2016, we’ll assess the largest contributor to the railway’s revenues: its Industrial and Consumer segment. Any revenue headwind associated with this segment will have more impact on overall revenues. In 4Q15, KSU’s industrial and consumer revenues were at $129 million, down by 14% over the same period last year.
KSU’s industrial and consumer volumes
KSU’s carloads in 4Q15 fell by 14% over 4Q14. This YoY (year-over-year) decrease for the quarter was primarily due to sustained weakness in metals freight, but the drop was offset by a slight rise in other commodities carloads.
KSU’s Industrial and Consumer segment transports metals and ores like iron, zinc, copper, and steel. KSU also transports steel coils, plates, and pipes from US-based mini-mills to various US and Mexico locations for oil drilling, appliance, and automotive applications.
KSU’s management weighs in on company outlook
Patrick Ottensmeyer, Chief Transportation Officer of Kansas City Southern, shared his thoughts on KSU’s outlook—and the industry outlook in general—the following way: “I was at a rail industry conference last week and I thought one railroad executive characterized the current landscape quite well when he said, and I’m paraphrasing here, we are in an energy market depression, an industrial and manufacturing recession, but somehow, the consumer is doing okay.”
Investors should note that according to the most recently released Markit US Manufacturing PMI, order book growth has “stalled as producers report some of the toughest trading conditions since the end of the global financial crisis.”
Industry peer group status
However, Kansas City Southern is not the only railroad to face the industrial headwinds. Its peer group companies include Union Pacific Railroad Company (UNP), CSX Corporation (CSX), Norfolk Southern Railway Company (NSC), Canadian Pacific Railway (CP), and Canadian National Railway (CNI). All these companies are now being shaken by the rough waters of industrial freight volumes. These companies together, notably, make up 7.21% of the Industrial Select Sector SPDR ETF (XLI).
In the next part of this series, we’ll go through Kansas City Southern’s chemical freight revenues and the related headwinds this segment faces in the future.
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