KANSAS CITY. Mo. — Kansas City Southern, which reported fourth-quarter and full-year earnings growth today, expects revenue to grow at least 11% this year as cross-border petroleum and intermodal traffic continue to soar.
“We feel very good about 2021 and beyond,” CEO Pat Ottensmeyer told investors and analysts on the railroad’s earnings call on Friday morning.
For the quarter, KCS revenue was affected by a 59-day blockage of its main line between the Port of Lazaro Cardenas and Mexico City due to teachers’ protests unrelated to the railroad. A 3% decline in volume pushed revenue down 5%, but operating income rose 11%. Earnings per share rose 38%, or 4% when adjusted for the impact of one-time items. The quarterly operating ratio improved 5.4 points to 62.2%, or 60.2% on an adjusted basis.
For the year, cost and efficiency gains related to implementation of Precision Scheduled Railroading boosted the railroad’s profitability. Operating income rose 13%, to $1 billion, despite an 8% decline in revenue and 6% drop in traffic volume. The operating ratio for 2020 was 61.9%, a 1.3-point improvement.
Like other railroads, KCS has reinstated its financial outlook after suspending it last year at the onset of the pandemic. KCS expects revenue to grow between 11% and 14% this year thanks to continued strength in cross-border traffic. The railroad is projecting an operating ratio improvement to 57.5% this year, and to between 55% and 56% in 2022.
KCS increased its capital budget for 2021 to around $497 million, up from $410 million.
Some 30% of the budget will go toward growth projects, including track capacity, locomotive overhauls, and design work for the planned second span over the Rio Grande at Laredo, Texas. The second span should be completed in early 2023.
Capacity projects for this year are largely centered on Mexico, where segments of double track, new passing sidings, and separated industry lead tracks will be built to permit locals to dodge main line traffic. Yard expansions are under way at Sanchez Yard in Nuevo Laredo, Monterrey, and San Luis Potosi.
KCS will sharpen its focus on service improvements this year under the third phase of its shift to Precision Scheduled Railroading, Ottensmeyer says.
