Kansas City Southern says coal shipments weaker

Reuters News
Posted: May 18, 2012 11:14 PM
Kansas City Southern says coal shipments weaker

By Nick Zieminski

NEW YORK (Reuters) - Railroad operating company Kansas City Southern said on Friday shipments of coal, farm products and chemicals were weaker than expected a month ago, but kept its full-year profit forecast unchanged, saying shipments should pick up once the railroad moves past temporary factors.

"We had a much more positive outlook 30 days ago," Chief Financial Officer Michael Upchurch told the Bank of America Merrill Lynch global transportation conference in Boston.

Second-quarter energy linehaul revenue, including coal, is now expected to be down by single-digit percentages, compared with earlier expectations of double-digit growth, the company said.

Second-quarter linehaul revenue, which excludes fuel surcharges and other items, is expected to be down in the agriculture and mineral category as well as in chemicals and petroleum.

A mild winter caused an increase in stockpiles of coal, cutting demand for replenishment. One large utility customer pushed back shipments. Coal represented 14 percent of Kansas City Southern's revenue in 2011 -- a smaller share than at the larger railroads.

Kansas City Southern expects all categories to show positive sales gains for the year and the company reaffirmed its full-year forecast.


Separately, Kansas City Southern expects strong long-term growth from "near-sourcing," the movement of manufacturing plants to Mexico from Asia.

More customers prefer a shorter supply chain and lower transport costs, and see a diminishing advantage to manufacturing in China. Wage differences between China and Mexico have narrowed, Upchurch said.

Companies including Dupont and Co, Siemens AG, Wal-Mart Stores Inc, and Caterpillar Inc are expanding in Mexico, with most plants near KSU rail lines and many of the vehicles destined for the U.S. market.

Its vehicle customers in Mexico include Chrysler, Ford Motor Co, General Motors Co, Nissan Motor Co Ltd and Volkswagen AG.

The company expects to carry additional auto shipments as Honda, Mazda Motor Corp, Nissan and Audi open plants in the next two years.

"The level of activity is extremely high," Upchurch said. "We'll see more of that traffic coming into the KCS network."

Auto production in Mexico is expected to reach 3.48 million vehicles in 2015, up more than 1 million from 2011, with the vast majority destined for export, according to an analysis by Wallenius & Wilhelmsen Logistics.

Cross-border revenue currently accounts for about one-quarter of total company sales.

Kansas City Southern shares slipped 0.6 percent at $65.04 in early trading on the New York Stock Exchange.

(Reporting By Nick Zieminski in New York; editing by Gerald E. McCormick and Jeffrey Benkoe)