11/31/2015 The Wall Street Journal
Ask a Mets fan: It’s the right time to go back to Kansas City, to paraphrase Bob Dylan.
We’re speaking of Kansas City Southern (ticker: KSU), the U.S. railroad that distinguishes itself by gathering nearly half its revenue from an emerging market: Mexico. Via a rail hub in the Midwest that extends to California ports and through Texas to Mexico, Kansas City Southern hauls everything from refrigerators to new cars to oil-and-gas liquids and agricultural products. Low oil prices are a benefit and a curse: lower fuel costs help the bottom line, but lower energy shipments don’t.
What’s battered the stock of late is the emissions-cheating scandal at Volkswagen(VLKAF), which means fewer Mexican-made VWs will ride Kansas City Southern’s rails in the immediate future while the mess gets sorted out. In the latest quarter, revenue fell nearly 7%, with pressure in the automotive, and industrial and consumer-products categories.
The railroad’s shares, also affected by worries about energy shipments and Mexico’s economic woes, are down 31% this year, including a nearly 8% decline in October. The drop reflects a lot of bad news. Profits, projected to fall 7% this year to $4.45 a share, are expected to recover to $4.94 in 2016, though sales may rise only slightly to nearly $2.6 billion.