KANSAS CITY, Mo. – Kansas City Southern’s revenue, profits, and earnings grew to record levels in the third quarter despite flat overall traffic volume, the railroad reported on Friday.
Operating income rose 6%, to $282 million, as revenue grew 7%, to $747.7 million. Earnings per share, adjusted for the impact of one-time items, was up 24%, to $1.94, topping the estimates of Wall Street analysts.
The railway’s operating ratio, also adjusted for one-time items, was 60.7%, a 2.7-point improvement.
“We feel like we had a really good quarter,” CEO Pat Ottensmeyer told investors and analysts on the railroad’s earnings call.
Strong volume gains in chemicals and petroleum and agriculture and minerals traffic were offset by declines in intermodal, automotive, and energy traffic. Industrial and consumer products traffic volume was flat.
The railroad’s key operating metrics all showed significant improvement, as cars spent less time in yards and trains moved faster as KCS adopts an operating plan based on the principles of Precision Scheduled Railroading.
Terminal dwell improved 23% compared to the same period last year, while average train speed was up 32% even as cross-border traffic grew 12%, Chief Operating Officer Jeff Songer says.
KCS is currently beating the operational goals it set for the year, including targets for train speed, terminal dwell, train length, car miles per day, and fuel efficiency.
The railway is moving tonnage on fewer but longer trains. Since it began PSR, the locomotive fleet has been reduced by 14%, to 903 units, as horsepower is better matched to tonnage, says Sameh Fahmy, executive vice president of Precision Scheduled Railroading.
KCS has made trip-plan compliance figures available to its customers. On-time performance now sits at 68%, which Fahmy says leaves a lot of room for improvement.
The quarter’s 12% growth in grain traffic was attributed to improved cycle times as the railroad has become more fluid. It now takes unit grain trains 21 days to cycle from Midwest origins to destinations in Mexico and return, down from 28 days, Fahmy says.
KCS has 800 grain hoppers in storage but hopes to fill them with additional business.
KCS is currently whiteboarding its operations in Mexico with a goal of reducing switching and work events for through trains, Fahmy says. The first phase of operational changes in Mexican terminals will begin Nov. 1, with a third and final phase expected to be complete early next year.
The railway also is negotiating with Mexican unions regarding gaining more flexible work rules and reducing crew size, which currently stands at three or four people in some instances.
For the fourth quarter, KCS has a positive outlook for traffic that represents 70% of its revenue, a neutral outlook for 10%, and a negative outlook for 20%, which includes intermodal and energy, Chief Marketing Officer Mike Naatz says.
This is primarily a story of efficiency gains. This is great, but a declining economy leading to less business will eventually catch up.