For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Kansas City Southern (NYSE:KSU) useful as an attempt to give more color around how Kansas City Southern is currently performing.
Did KSU perform worse than its track record and industry?
KSU’s trailing twelve-month earnings (from 31 December 2019) of US$539m has declined by -14% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 8.5%, indicating the rate at which KSU is growing has slowed down. What could be happening here? Let’s examine what’s going on with margins and whether the rest of the industry is feeling the heat.
In terms of returns from investment, Kansas City Southern has fallen short of achieving a 20% return on equity (ROE), recording 11% instead. Furthermore, its return on assets (ROA) of 6.7% is below the US Transportation industry of 6.9%, indicating Kansas City Southern’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Kansas City Southern’s debt level, has increased over the past 3 years from 10% to 11%.
