Mexico unit drags KCS earnings

Mexico unit drags KCS earnings

Rail operator Kansas City Southern on Wednesday reported lower quarterly profit, hurt by weak earnings from its Mexican railway partner.

The holding group for KCS, based in Kansas City, Mo., said profit was $4.3 million in the third quarter against $10.6 million a year earlier.

Revenue for the third quarter was $146.3 million, or 5 percent more than the $138.9 million posted in the year-earlier quarter.

Kansas City Southern, which also owns rail interests in Panama, said in a news release that operating income in the quarter more than doubled to $14.9 million from $6.2 million a year earlier.

Agriculture and minerals revenues increased by $3.5 million, with strong gains in export grain, food products, and ores and minerals. Paper and forest products revenues grew $2.8 million on a 12 percent increase in pulp and paper revenues, and a 17 percent gain in lumber revenues. Chemical and petroleum products revenues declined $1.8 million quarter-to-quarter on a $2.1 million decline in its plastics business which was due in part to the continued high price of natural gas. Coal revenues declined $800,000 million coming off record volume levels in 2002. Intermodal and automotive revenues were relatively unchanged from a year ago.

Railroad expenses decreased by 2 percent compared with the third quarter of 2002 primarily due to lower car hire and compensation expenses. Casualty and insurance costs and fuel costs were higher.

The operating ratio in the third quarter was 87.5 percent, down from 94.3 percent a year earlier.

But consolidated results were dragged down by lower earnings from Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V., or Grupo TFM, in which the company holds an equity stake, and a reduction in other income.

In a prepared statement, Michael R. Haverty, KCS chairman, president and chief executive, said, "We are also cautiously optimistic that KCSR's 5 percent revenue growth during the quarter is indicative of a strengthening economy and that it can continue to experience top line growth, especially in 2004.

"During the second quarter of 2003, we saw signs of an improving economy as, simultaneously, our U.S. rail operations were improving. Both of these trends continued during the third quarter, which gives rise to expectations that 2004 may very well be an improved year for KCS."

Haverty also said that KCS remains committed to its purchase of the remainder of TFM. A Delaware judge last week granted KCS an injunction and ordered it and TFM parent, Grupo TMM, to resolve the dispute through arbitration.