Houston—Kansas City Southern's energy segment had a strong first quarter given cold weather and coal demand, while the railroad's other segments lagged, the executives said during the railroad's earnings call.
"The energy business actually benefited from the colder weather, and we did see an increase in demand for utility coal," Michael Naatz, executive VP and CMO, said on call April 16. "In the near term, we expect that the demand for utility coal will be favorable as utilities rebuild their stockpiles."Utility coal revenues were $31.7 million, up 34.2% from Q1 2020, and coal and petroleum coke revenues were $10.4 million, down 10.3%.
Total first-quarter energy revenues were $57.5 million, up 2.1% from the year-ago period.
KCS' energy segment shipped 61,600 carloads, up 7% year on year, and revenue per carload averaged $977, down 5%.
Revenues were $706 million in the first quarter, down 3.5% from the year-ago quarter, while income was over $153 million, up 0.7% year on year.
The decline in revenue was driven by a 1% decrease in total volume year on year, the earning's statement said.
Outside of its energy segment, "January and March were essentially in line with our financial expectations," Michael Upchurch, executive VP and CFO, said on the call. "We dealt with an incredibly difficult weather conditions in February, that, in many ways, were far worse than some of the most severe hurricanes that I've lived through over the years here at KCS."
According to Upchurch, 60% of KCS's business runs through Texas, causing the rail to see a disproportionate impact alongside the significant power outages.
Despite first-quarter challenges, KCS expects upside over the rest of the year and double-digit growth.
"We feel very good about our volume outlook and the economic recovery appears to be in full swing, and our network remains the beneficiary of several unique growth opportunities driven largely by refined products exports from the US Gulf Coast into Mexico," Patrick Ottensmeyer, CEO, president, and director, said.
MergerOn March 21, KCS entered into a merger agreement with Canadian Pacific Railway in which CP agreed to acquire KCS in a stock and cash transacting of approximately $29 billion, including the assumption of $3.8 billion of outstanding KCS debt.
"This will create the first rail network connecting the United States, Canada and Mexico and is expected to provide enhanced competitive alternatives to existing rail service, resulting in improved service options, expanded service options to all of our customers and potential customers as a result of this combination," Ottensmeyer said.
The merger is subject to approval by both companies' stockholders and final approval by the Surface Transportation Board.
Final approvals are expected to be completed by mid-2022, the earnings filing said.
