April 20, 2018 / 12:57 PM / a month ago

UPDATE 3-Kansas City Southern results hurt by U.S. rail congestion

(Adds details on rising costs)

April 20 (Reuters) - Kansas City Southern, a regional U.S. railroad with extensive operations in Mexico, reported lower-than expected quarterly revenue on Friday despite a 1 percent overall increase in rail volumes.

The Kansas City, Missouri-based company said its revenue gains in consumer goods, automotive and petroleum products were partially offset by big drops in agriculture, minerals and other energy cargo, as well as higher fuel and labor costs.

Quarterly revenue of $639 million - a 5 percent increase from the year-ago period - fell short of the $641 million Wall Street analysts expected.

Despite the miss, its shares increased by about 1 percent in early trade before settling flat at $110.41.

The railroad said congestion in the U.S rail network was a big drag on the quarter. Kansas City Southern and other top U.S. railroads are facing scrutiny from the top federal rail regulator over persistent service complaints.

Rising fuel prices shaved about $3 million off operating income, and its revenue was also hit by the closure of a coal-fired power plant in Texas, and by higher headcount despite a tiny overall bump in cargo volume.

Analysts asked executives on a conference call about uncertainty over elections in Mexico and negotiations to revamp the North American Free Trade Agreement (NAFTA). Kansas City Southern dominates cross-border rail trade between the United States and Mexico and draws about 30 percent of its revenue from U.S.-Mexico shipments.

Chief Financial Officer Michael Upchurch told analysts he was “very pleased by recent progress” in the negotiations, while Brian Hancock, the head of marketing, said he expects “steady growth” as energy companies add new storage facilities in Mexico.

“Tanks are now being constructed throughout the network as well as new projects being announced in the Gulf (of Mexico) at both Altamira and Veracruz ports,” he added.

Quarterly net income of $145 million was down from $147 million in the year-ago period, but the railroad managed to eke out a rise in per-share net income, which was $1.40 compared with $1.38 per diluted share a year earlier.

Adjusting for onetime items, the railroad reported earnings of $1.30 a share, compared with $1.17 a year ago. Analysts expected $1.33 per share.

Its operating ratio - a closely watched measure of operating costs as a percentage of revenue - was 65.8 percent, a 0.4 point drop over the first quarter of 2017.

Even so, the railroad maintained its outlook for mid-single-digit volume growth for full-year 2018. (Reporting by Eric M. Johnson in Seattle; Editing by Chizu Nomiyama, Bernadette Baum and Jonathan Oatis)

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