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How Kansas City Southern Performed In 2014

William Bias profile picture
William Bias


  • Kansas City Southern experienced robust expansion in revenue and profitability.
  • Long-term debt refinancing resulted in a 10% decline in interest expense.
  • Kansas City Southern pays a small but sustainable dividend.

On Jan. 30, Midwestern and Mexican railroad company Kansas City Southern (NYSE: KSU) came out with its 2014 annual 10-K that follows up on its earnings statement released on Jan. 23. The company had a robust 2014. Let's take a look to see what's going on with this company.

Robust revenue and profitability growth

In 2014, Kansas City Southern saw its revenue increase 9%. An expanding U.S. Economy as well as record corn harvests due to recovery from droughts in the U.S. Midwest contributed to increases in the overall revenue. Only one segment, energy, saw revenue break even with last year due to prolonged weaknesses in the coal and oil market. Kansas City Southern like its western peer Union Pacific (NYSE: UNP) possesses a fairly even revenue stream without heavy reliance on any one segment. In other words, most of its freight doesn't come from one source such as coal or oil. Anticipated weaknesses in energy can be made up for with increased shipments of more consumer driven freight such as automotive.

Kansas City Southern's yearly net income increased 43% year-over-year due to leverage from the revenue increase. In other words, costs as a percentage of expenses decreased. Kansas City Southern saw its operating margin go from 31.2% in 2013 to 31.4% in 2014. Interestingly, increased equipment ownership lowered the company's equipment leasing costs contributing to lower expenses. Kansas City Southern also lowered it interest expense due to refinancing some of its debt. Long-term debt decreased 1% year over year. Kansas City Southern also saw its yearly free cash flow increase 17% in 2014. Increased net income filtered down to free cash flow.

Good balance sheet

Kansas City Southern has a good balance sheet. It ended 2014 with $348 million in cash, which equates to 9% of stockholders' equity. This is a little lower than the

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: The author is long UNP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (4)

alexscagileri profile picture
Rock star going on many years now.

Never understood Buffet's interest in Burlington Northern when this company and Norfolk Southern always seemed much simpler to me.

You don't need "scale" to win big in the railroad business.
William Bias profile picture
I feel the same way but replace Norfolk Southern with Union Pacific.

Disclosure I own Union Pacific.

Thanks for reading!

joanpete profile picture
"Choo! Choo! Choo!" is what I say when my UNP shares advance.
William Bias profile picture
Thanks for reading joanpete.

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