UPDATE 3-Kansas City Southern profit tops estimates, shares up

* Q3 EPS $0.49 vs Street view $0.45

* Revenue $438.3 million vs Street view $445.9 million

* Mexico growth key

* Shares rise 5 percent
(Adds analyst comment, updates share price, adds byline)

By Lynn Adler

NEW YORK, Oct 26 (BestGrowthStock) – U.S. railroad Kansas City
Southern (KSU.N: ) reported a better-than-expected quarterly
profit on rising freight volumes and cost cutting, sending its
shares up nearly 5 percent.

The profit beat came despite a curb on revenue due to track
damage caused by Hurricane Alex in July.

Rising cross-border traffic, especially as Mexico’s economy
expands, will contribute to low-double-digit revenue growth in
2011, the company said on a conference call.

“Our business in the U.S. remains stable to positive,” said
Chief Executive David Sterling. “Mexico is going to be the
industrial growth engine for us.”

Labor costs are significantly lower in Mexico than in the
United States and essentially equal to rates in China, the
company said.

It said it was seeing “higher daily average carloadings
than at any time over the past four years, and we are back to
pre-recession levels.”

Third-quarter net income rose to $50.2 million, or 48 cents
per share, up from $25.4 million, or 27 cents a share, a year

Excluding debt retirement costs of 1 cent a share, earnings
were 49 cents a share, 4 cents above analysts’ average
forecast, according to Thomson Reuters I/B/E/S.

“They did really well with productivity and efficiency in
the quarter even despite the impact of the hurricane, which
really impacted all of July, and did better-than-expected as
far as costs are concerned,” said Neal Deaton, associate
analyst at BB&T Capital Markets.

Revenue rose to $438.3 million from $386.1 million, short
of analysts’ average estimate of $445.9 million. The company
said it lost an estimated $33 million in revenue from hurricane
damage to Kansas City Southern de Mexico.

“Their revenues were up 13.5 percent year over year, but
their operating expenses were only up 7 percent,” Deaton

Automotive revenues jumped 64 percent from a year ago as
auto production rebounded, the company said.

It said it expects rebounding freight volumes to help boost
second-half revenue by almost 20 percent.

Kansas City Southern estimated Hurricane Alex reduced
third-quarter income by about 14 cents a share. It expects 9
cents of that to be covered by insurance.

Its shares were up $2.13 to $44.07 in midday trade after
briefly touching a 52-week high of $44.91. The shares are up
about 26 percent this year.

UPDATE 3-Kansas City Southern profit tops estimates, shares up