Kansas City Southern CEO sees ‘modestly strong’ economic recovery continuing this year

The CEO of Kansas City Southern told CNBC on Friday he sees the company’s recovery from coronavirus business lows continuing for the rest of 2020, an optimistic sign for the broader U.S. economy.

The railroad operator reported third-quarter earnings earlier in the day, posting revenues of $660 million that missed Wall Street estimates of $663 million. However, Kansas City Southern’s per-share earnings of $1.96, excluding items, was better than the profits per share of $1.90 analysts had forecast.

“Across our industrial and consumer economy, we think it’s going to continue to be modestly strong from this point through the end of the year,” CEO Patrick Ottensmeyer said on “Closing Bell.”

Kansas City Southern also raised its full-year guidance Friday, saying it expects earnings per share to be slightly higher on a year-over-year basis. Shares of the company closed down 2.72% Friday to $179 apiece. The stock is up nearly 17% this year.

Carload volumes were down 4% in the third quarter compared with the year-ago period. But that is improving, Ottensmeyer said. “We’re up a little bit from last year and certainly above pre-Covid levels,” he said.

Railroad operators, with their exposure to multiple different industries, are often seen as bellwethers for the economy. The U.S. has added millions of jobs back in recent months after steep employment cuts from the pandemic, and sectors such as housing have seen impressive strength. However, there are questions now about the resilience of the recovery, especially as Congress has been unable to come to terms on another round of stimulus.

Ottensmeyer said Kansas City Southern’s strongest segment has been refined petroleum products, largely driven by moving fuel from Gulf Coast refineries into Mexico. The company also has experienced strength in its automotive segment, he said, as the auto industry rebounded from the coronavirus slowdown.

On the other hand, Ottensmeyer said Kansas City Southern has seen weakness in its intermodal volumes, which involve multiple modes of transportation. He said they’re lagging the industry there and “that has to do with some service interruptions, some issues going on in Mexico that we’re trying to deal with that have caused us to lose some business, at least for some period of time.”

In general, Kansas City Southern has seen an “incredible” V-shaped recovery on its shipping volumes from pandemic lows, according to Ottensmeyer. He said the last few months have been like a roller coaster “if you think about the things we needed to do, not knowing what was ahead, with volumes falling that quickly and that dramatically in the second quarter, and then bouncing back 90 days later.”