KCS Predicts 20 Percent Revenue Growth

Kansas City Southern, the smallest of the North American Class I carriers, predicts second-half 2010 revenue growth of nearly 20 percent and says its rail lines have "fully recovered" from the impact of Hurricane Alex this summer.

Alex swept westward across the Gulf of Mexico and made landfall June 30, causing widespread flooding that shut down northern Mexico's roadways and closed off freight traffic for days at Laredo, the largest U.S.-Mexico truck crossing. It also swamped some tracks of Kansas City Southern de Mexico, and damaged a key rail bridge that took weeks to get back into operation.

KCS said Aug. 2 its "rail network has fully recovered from the impacts of Hurricane Alex and related tropical storms that caused widespread damage and flooding in central and northeastern Mexico" on KCSM. In the four weeks when its service was disrupted after Alex hit, KCS traffic shrank 18.1 percent from the four weeks just before that event.

However, August brought the highest number of monthly carloadings of the year, said Michael Upchurch, executive vice president and chief financial officer. That put volume up 13.7 percent from August 2009 and even slightly over August 2008. That also "made it the second largest volume month for the company in the last three years and surpassed internal projections developed prior to the hurricane for both volume and revenue," KCS said.

The rebound for KCS took place amid a general rebound in freight rail shipments after a slowdown that began at the end of April and continued into July. However, Upchurch told the Hodges Capital Management Investment Forum in Dallas, Texas, that the speed of KCS' repairs "not only kept our customers' businesses open and productive, it also has put KCS in position to have a very strong finish to 2010."

He said KCS officials "have sufficient visibility into our markets and book of business to project that, excluding the impact of the hurricane on July revenues, KCS' second half 2010 revenue growth should approach 20 percent" from a year earlier. And Upchurch said that since KCS saw business levels rebound earlier last year than some other railroads, the projected growth comes against a tough comparison period in 2009.

-- Contact John D. Boyd at jboyd@joc.com.