Why Kansas City Southern (KSU) Bombed on Friday

NEW YORK (TheStreet) -- Kansas City Southern (KSU) shares suffered a double-digit percentage drop heading into Friday's trading session after fourth-quarter earnings missed analyst expectations on both the top and bottom line.

The railroad operator reported fourth-quarter earnings of $1.03 a share, 7 cents short of consensus from analysts surveyed by Thomson Reuters. Revenue of $616 million, though an 8.5% year-over-year increase, came in $1.8 million shy of expectations.

In total, carload volumes were 2% higher than the year-ago quarter. Revenue growth was led by a 30% increase in the transportation of agriculture and minerals. Energy revenue declined 17% due to a fall in utility coal shipments.

Over fiscal 2013, the Kansas City-based business pulled a record $2.4 billion in revenue, up 6% from 2012 and $30 million higher than analysts anticipated. Net income of $3.98 a share was nearly 20% higher than the year earlier but fell short of consensus for $4.05 a share.

"While some shifts in market conditions impacted volumes in our Agriculture & Minerals and Energy commodity groups, 2013 marks the fourth consecutive year KCS has recorded a double-digit percentage increase in its adjusted diluted earnings per share," said CEO David L. Starling in a statement.

"We expect to maintain our excellent growth momentum in 2014 and beyond. As 2014 evolves, investors can expect to see positive developments in a wide-range of commodity groups, including intermodal, automotive, steel and chemical & petroleum products."

In morning trading Friday, shares had dumped 19.9% to $93.97, following a flat trading range over January.

TheStreet Ratings team rates KANSAS CITY SOUTHERN as a Buy with a ratings score of A+. The team has this to say about their recommendation:

"We rate KANSAS CITY SOUTHERN (KSU) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

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