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Kansas City Southern (KSU) Q1 Earnings: Is a Beat Likely?

Zacks

Leading railroad operator, Kansas City Southern KSU is scheduled to report first-quarter 2017 results on Apr 21, before the market opens.

Last quarter, the company reported a negative earnings surprise of 4.27%. The company’s earnings (on an adjusted basis) of $1.12 per share missed the Zacks Consensus Estimate of $1.17. Also, earnings deteriorated 9% on a year-over-year basis. Kansas City Southern reported revenues of $598.5 million, which fell short of the Zacks Consensus Estimate of $608.1 million. Revenues were flat year over year.

However, things might be looking up for the company in the first quarter. The positive sentiment surrounding the stock can be gauged from the fact that the Zacks Consensus Estimate for the first quarter has increased almost 1% over the last seven days.

Moreover, shares of Kansas City Southern have performed well lately, outperforming the Zacks categorized Transportation – Rail industry over the last three months. The stock gained 6.37% while the industry advanced a meager 0.76% in the same period.


Why a Likely Positive Surprise?

Our proven model shows that Kansas City Southern is likely to beat the Zacks Consensus Estimate this quarter because it has the perfect combination of two key ingredients.

Zacks ESP: The Earnings ESP for Kansas City Southern is +0.86% as the Most Accurate estimate is pegged at $1.17, while the Zacks Consensus Estimate is at $1.16. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Kansas City Southern carries a Zacks Rank #3 (Hold). Please note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Meanwhile, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Kansas City Southern’s Zacks Rank #3 and +0.86% ESP makes us reasonably confident of a positive earnings beat.

Factors at Play

We expect the company's Industrial & Consumer Products segment and Agriculture & Minerals unit to maintain its strong performance in the first quarter. We are also positive about Kansas City Southern's vast network.

The company's efforts to reward shareholders are also encouraging. Kansas City Southern recently declared a regular dividend of 25 cents per share for its outstanding 4% non-cumulative preferred stock paid on Apr 14, 2017, to shareholders on record as of Mar 13. The company also announced a regular dividend of 33 cents per share for holders of the company's shares. It was paid on Apr 5 to shareholders on record as of Mar 13.

The company's initiatives to control costs are also impressive. Other railroad companies like Canadian National Railway Company CNI, Union Pacific UNP and Norfolk Southern are also focusing on cost control to drive earnings.

However, headwinds like the drop in revenues at the Energy segment which hurt Kansas City Southern's fourth-quarter results are expected to affect its first quarter as well.

Another Stock to Consider

Investors interested in railroad space may also consider CSX Corporation CSX as our model shows it possesses the right combination of elements to post an earnings beat in its next release.

CSX has an Earnings ESP of +2.33% and a Zacks Rank #2. The company will report its first-quarter 2017 results on Apr 19. You can see the complete list of today’s Zacks #1 Rank stocks here.

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