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Kansas City Southern KSU

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Morningstar’s Analysis

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Kansas City Southern’s Third Quarter Tempered by Auto Sector Weakness and Congestion in Mexico

Matthew Young, CFA Equity Analyst

Analyst Note

| Matthew Young, CFA |

Wide-moat Kansas City Southern’s third-quarter top line rose 6% year over year (excluding fuel and foreign exchange impacts), mostly due to favorable mix shifts (including slower intermodal activity) and positive core pricing. Revenue came in slightly below our expected run rate. While underlying industrial end market demand in the U.S. remains healthy (U.S. carloads rose 6%) and coal saw an uptick, consolidated carload volume declined 3%. Lower volume stems from softer automotive carloads linked to the semiconductor shortage, regulatory-related headwinds to refined product volumes heading into Mexico, and network interruptions from persistent teacher-protests on a corridor between Lazaro Cardenas and Mexico City. Production slowdowns and shutdowns among the auto OEMs is taking longer than expected to resolve because of the stubborn chip shortage, but management expects the issues in Mexico to gradually ease (albeit timing is uncertain).

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Company Profile

Business Description

Kansas City Southern, the smallest Class I railroad, derives about half of its $2.6 billion revenue on 3,400 miles of track in the Central and Southern United States. Remaining sales are produced by operating concessions on 3,300 miles of rail in Mexico and 47 miles of track adjacent to the Panama Canal. KCS' freight includes industrial and forest products (around 21% of total revenue), chemicals and petroleum (26%), agriculture and minerals (18%), intermodal (13%), energy (9%), and autos (9%); other revenue stems from switching, demurrage, and the like.

Contact
427 West 12th Street
Kansas City, MO, 64105
T +1 816 983-1303
Sector Industrials
Industry Railroads
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 6,522

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