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Kansas City Southern posts increase in Q4'19 coal segment revenues YOY

Kansas City Southern posted an 11% increase in its fourth-quarter 2019 utility coal revenue year over year, with the company's coal segments helping to slightly offset declines in its other energy sectors.

The railroad made $31.8 million in utility coal revenue during the recent period compared with $28.7 million in the fourth quarter of 2018, according to a Jan. 17 earnings release. Its coal and petroleum coke segment also saw a 3% year-over-year uptick in fourth-quarter revenue, increasing to $11.3 million in the recent quarter.

While the company's coal and petroleum coke business saw a 15% increase in revenue per unit on an annual basis, the utility coal segment posted a 6% decline.

Kansas City Southern's fourth-quarter energy revenue fell 4% year over year to $62.7 million, with frac sand and crude oil posting substantial percentage declines over the period.

For the year ended Dec. 31, 2019, the railroad's utility coal segment saw an 8% year-over-year increase in revenue to $126.9 million. Its coal and petroleum coke segment saw a 2% revenue decline over the year, to $43.2 million.

Michael Naatz, the railroad's chief marketing officer, said on a Jan. 17 earnings call that the company expects 2020 utility coal to be flat year over year, adding that "we actually view this favorably considering the strong year-over-year growth we saw in 2019." Utility coal and Canadian crude shipments are the company's two "key drivers of performance" in its energy segment, Naatz said.

Executives on the call also touted the United States-Mexico-Canada Agreement, which the U.S. Senate passed on Jan. 16 to replace the North American Free Trade Agreement. Naatz said trade developments and economic conditions "remain top of mind in 2020," noting that it will be tough to predict the effect of those factors on the company.

"We are, however, optimistic. We just think that given continued mixed economic signals, we feel that an element of caution is prudent," the chief marketing officer said. "I, for one, am happy to see that USMCA is almost behind us. That should provide us some favorable benefits in the future."

The company also made changes to its network as part of its precision scheduled railroading transition. CFO Michael Upchurch said the railroad is expecting aggregate annualized savings from the transition by 2021 to amount to about $125 million, including incremental savings of $61 million in 2020.

Kansas City Southern posted a 6% increase in full-year 2019 revenues to $2.9 billion while noting a 1% decline in carloads in its statement. The company's fourth-quarter net income decreased year over year to $127.9 million, or $1.30 per diluted share, from $161.8 million, or $1.59 per diluted share.