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Kansas City Southern (KSU) |
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WIKI ANALYSIS
Kansas City Southern (NYSE: KSU) is a railroad shipping company that operates in the U.S. and Mexico. The company's principal subsidiary is its wholly owned Kansas City Southern Railway Company (KCSR). In Mexico, KSU's Kansas City Southern de Mexico (KCSM) operates a primary commercial corridor of the Mexican railroad system and serves Mexican industrial cities and three of its largest shipping ports. KSU also owns 50% of the stock of the Panama Canal Railway Company (PCRC), providing ocean-to-ocean freight and passenger service along the Panama Canal.[1] KSU's most significant commodity cargo is forest products (such as timber) and metals, minerals and agricultural goods like corn and other grains, chemicals and petroleum, and coal.[2]
KSU faces the threat of record high oil prices. The company also faces increased competition from trucks which are newly being granted access to cross the border onto U.S. highways, thus decreasing the need to use trains to send goods across the border.
Business Overview
Business & Financial Metrics[3]
In 2009, KSU generated $68.0 million in net income on $1.48 billion in revenues. This represented a 63% decrease in net income on a 20% decrease in total revenue from 2008.
Business Segments
In 2008, KSU consolidated its business operations into one reportable business segment. Its focus is the operation of a single rail network.[4]
Key Trends and Forces
The rise in fuel prices increases KSU's costs.
Since fuel prices directly affect expenses, KSU and other railroads have methods of compensating for rising fuel costs. The first is fuel hedging, wherein transportation firms buy futures contracts that allow them to purchase fuel in the future at a predetermined price. The other main way that firms offset rising fuel costs is by passing them on to customers through fuel surcharges. Fuel surcharges, however, make rail shipping more expensive for customers, who supply all of KSU's business.
The demand for ethanol raises demand for grains, which are one of KSU's biggest sources of revenue.
Due to high oil prices and concerns about the environment and foreign dependence for oil, demand for biofuels like ethanol has increased rapidly. Grains such as corn are commonly used as the main ingredient in ethanol production.
A ruling that lets Mexican trucks operate in the U.S. will hurt KSU's truck-to-train operations.
Truck-to-train intermodal shipping, in which Mexican trucks transfer their goods to KSU trains for transport into the United States, is an important revenue source for KSU.[5] The North American Free Trade Agreement (NAFTA) originally called for Mexican trucks to have unrestricted access to U.S. highways, but this didn't happen until 2007, when the U.S. Supreme Court overturned a lesser court's ruling blocking access to Mexican trucks. As part of a pilot program introduced that same year, 500 trucks from 100 Mexican firms were given permission to operate freely on U.S. highways.[6]
KSU was named as a defendant in a fuel surcharge-fixing lawsuit.
In March 2008, Archer-Daniels-Midland Company (ADM) filed an antitrust lawsuit against five U.S. railroad companies, including KSU. The suit alleges that Burlington Northern Santa Fe (BNI), CSX (CSX), Norfolk Southern (NSC), Union Pacific (UNP) and KSU cooperated in fixing their prices for fuel surcharges.[7]
Competition
Kansas City Southern is one of the seven Class 1 railroads in the United States.[8] However, KSU's most direct competitors in the geographical markets that it serves are Burlington Northern Santa Fe (BNI) and Union Pacific (UNP) in the U.S. and Ferromex, a private rail company with the largest (by mileage) railroad in Mexico.[9]
References
- ↑ KSU 2007 10-K, page 1
- ↑ KSU 2007 Annual Report, page 6
- ↑ 3.0 3.1 KSU 2009 10-K pg. 30
- ↑ KSU 2009 10-K pg. 56
- ↑ KSU 2007 10-K, pages 29, 32
- ↑ Lawmakers Try Again to Block Mexican Truck Program - NJ.com, 7/10/08
- ↑ Railroad shipping: Archers, Daniel, Midland Files Lawsuit Against Rail Carriers Over Fuel Surcharges - Logistics Management Magazine, 3/31/2008
- ↑ Class 1 Railroad Statistics - Association of American Railroads 4/21/08
- ↑ KSU 2007 10-K, page 4
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