KSU Kansas City Southern

By Paul Ziobro and Ezequiel Minaya 

Kansas City Southern, which posted flat revenue and sagging profit even as the wider railroad sector shows glimmers of a turnaround, warned of risks to the U.S. and Mexican economies if negotiations about a cross-border trade deal aren't handled carefully.

"There are still many questions about the future of Nafta, and the trade relationship between the U.S. and Mexico," Chief Executive Patrick Ottensmeyer said Friday during a call with analysts. "While we've gotten some indication of the direction of the new administration through the nomination of most of the key trade policy makers, we still don't have definitive answers to several of those questions."

The company, which operates a railroad between the two countries, has seen its stock battered since President Donald Trump's election , over the prospects of a renegotiated North American Free Trade Agreement that could hurt its business.

Mr. Ottensmeyer said that Kansas City Southern still doesn't have definitive answers as to the Trump administration's plans for the trade agreement. But Kansas City Southern is already feeling some of the effects of the uncertainty.

Ford Motor Co. said earlier this month that it was scrapping plans for a $1.6 billion assembly plant in Mexico that was to be built along one of the company's rail lines. The car maker withdrew the plans amid pressure from Mr. Trump and instead is investing $700 million in a Michigan facility.

Mr. Ottensmeyer called the Ford announcement disappointing but said that other automotive customers are still calling for the company to invest in infrastructure.

"We've actually received calls saying, 'We understand what's being said, but we want you to continue marching down the path that we have,'" he said.

Petroleum revenue declined 11% during Kansas City Southern's fourth quarter with the crude oil segment tumbling 67%. Sales linked to coal, a key cargo for freight lines that has been falling in double digits amid a commodities slump across the industry, fell a relatively modest 9%.

Like other railroad operators, Kansas City Southern has cut costs in an effort to ride out a long stretch of low energy prices that have caused energy producers to reduce drilling in the U.S.

That in turn has weighed on demand for coal used to generate electricity, frack sand used in hydraulic fracturing and crude oil.

The industry is on the cusp of a turnaround, as the declines from the loss of coal revenue moderate. Earlier this week, Union Pacific Corp. reported grain volumes jumped, the slide in coal volume and revenue was more modest and intermodal business was flat. And on Tuesday, CSX Corp. posted a 9.2% climb in revenue with coal shipments rising 8.3%.

In the latest quarter, KSU's total carload volume was flat from a year earlier.

Over all, Kansas City Southern reported a profit of $129.6 million, or $1.21 a share, down from $140 million, or $1.28 a share, a year earlier. Adjusted profit slipped to $1.12 from $1.23 a year ago. Revenue was flat at $598.5 million.

Analysts polled by Thomson Reuters expected per-share profit of $1.17 and revenue of $603.6 million.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Ezequiel Minaya at ezequiel.minaya@wsj.com

(END) Dow Jones Newswires

January 20, 2017 13:05 ET (18:05 GMT)

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