Despite declines in its coal volumes, Kansas City Southern swung to a fourth quarter and year-end profit, partly on growth in shipments of crude oil and frack sand, executives of the railroad said Tuesday.
"The growth in crude and frack sand (shipments) almost offset the declines in utility coal revenues," Pat Ottensmeyer, executive vice president of sales and marketing, said in a fourth-quarter earnings conference call with analysts. "For the full year, utility coal revenues fell about $35 million and crude and frack sand revenues grew by $32 million."
The Kansas City, Missouri-based railroad company's coal revenues in 2012 fell to 70% of the earnings generated by the railroad's energy business unit compared with 87% in 2011. The company's other energy-related commodity group showing strong growth in 2012 was frack sand. Carloads in the fourth quarter were 5,900 compared with 5,700 in the year-ago quarter, a 4% increase. Revenues grew to $13.1 million compared with $9.7 million, a 35% increase.
Full-year frack sand shipments rose to 25,600 carloads compared with 21,300 carloads in 2011, a 20% increase. Revenues jumped to $50.8 million for the year, compared with $31.8 million in 2011, a 60% increase.
CRUDE SHIPMENTS UP 400%
Like other US railroads, Kansas City Southern is moving more crude oil by rail. Company officials in the conference call said crude by rail shipments are originating from Canada, the Bakken and shale plays in Texas.
In the fourth quarter, the railroad reported 3,500 carloads of crude oil, compared with 700 in the same period last year, a 400% increase. Revenues jumped to $7.3 million in the quarter compared with $800,000 a year ago, a more than 800% increase.
Annually, crude shipments in 2012 totaled 8,700 carloads compared with 2,600 carloads in 2011, a 235% increase. Revenues jumped to $16.4 million compared with $3.6 million in 2011, a 356% increase.
Kansas City Southern officials Tuesday said they remained cautious about coal shipments in 2013, citing Texas utility Luminant, which has shut two coal-fired units, as well as the continuing uncertainty in the market related to above-average temperatures and low natural gas prices.
"Our forecast is based on fairly fresh projections, nominations and expectations from our customers and, of course, we learned last year that those can be wrong, and can change over the course of a year, but we haven't been informed of any additional plant closures," Ottensmeyer said.
Luminant is still taking coal and has expressed plans to return the units to service this summer, he said.
"Our assumption is our coal business for utility coal is expecting a decline in the mid-single digits over the course of the year, which is better than last year (on a year-over-year basis) but still, coming down," Ottensmeyer said.
Kansas City Southern earlier Tuesday reported fourth quarter net income of $92 million, or $0.83 per diluted share, compared with $96 million, or $0.87 per diluted share, in the year-ago quarter, a decline of 4.2% and 4.6%, respectively.
For the year, Kansas City Southern reported annual net income of $377 million compared with $329 million in 2011, a 14.6% increase. The railroad reported 2012 revenues of $2.2 billion, which it said was a record. The railroad reported revenues of $2.1 billion in 2011, a 6.7% increase.
COAL CARLOADS DOWN
Operating primarily in the southern Great Plains, as well as Texas, Louisiana, Mississippi and Mexico, Kansas City Southern reported fourth quarter total carloads of 532,000 compared with 522,000 in the year-ago quarter, a 1.9% increase.
For the year, total carloads were 2,112,100, compared with 2,013,700 in 2011, a 4.9% increase.
Coal carloads for the railroad in the fourth quarter dipped substantially, falling to 51,500 compared with 66,700 in the year-ago quarter, a 22.8% decline. Quarterly coal revenues dropped to $54.1 million in the quarter compared with $66.9 million a year-ago, a 19.1% decrease.
For the year, the railroad reported 211,600 coal carloads compared with 245,800 in 2011, a 13.9% decline. Annual revenues fell to $211 million compared with $245.5 million last year, a 14.1% decline.
"Despite the impact on our coal franchise of an unseasonably warm winter and low natural gas prices, the effect on our grain carloadings of one of the most severe droughts in U.S. history and finally, the dampening effect on overall economic activity late in the year due to fiscal cliff concerns, KCS achieved record carloadings and revenues in 2012," said David Starling, the railroad's president and CEO, in remarks accompanying the earnings statement.
