Kansas City Southern's run for the border pays off
— -- With the U.S. economy verging on recession, rail lines responsible for moving goods and commodities around the country are certain to absorb a financial blow. Already, Kansas City Southern says the amount of paper, forest and metal products it shipped in the fourth quarter fell more than 10% from the same quarter a year earlier, due to the collapse of the housing market.
But CEO Michael Haverty, 63, says Kansas City Southern is well positioned to ride out weakness in the U.S. economy, thanks to its south-of-the-border foothold. About half of the company's $1.7 billion in annual revenue comes from its wholly owned Mexican subsidiary and a 50% stake in a small rail line adjacent to the Panama Canal.
"We feel pretty good about this year. … If we went into a deep recession, that would certainly cause me concern. But we would probably be affected less than others would be," he told USA TODAY in a telephone interview.
Investors seem to agree. So far this year, shares of Kansas City Southern are up 11.6% vs. 2.9% for the Dow Jones Transportation index. Earlier this month, the company reported better-than-expected earnings of $49.9 million vs. $35.7 million in the final quarter of 2006. Revenue was $460 million vs. $442 million in the year-earlier period.
Southern exposure
Dating to 1887, the venerable Midwestern line, headquartered in Kansas City, Mo., is the smallest of the seven major North American railroads. Its 5,850 miles of track, sprawling across 10 U.S. states and deep into the Mexican heartland, are dwarfed by Union Pacific's 32,300-mile coast-to-coast network.
Kansas City Southern's involvement in Mexico dates to the mid-1990s, when it purchased a 49% stake in a Mexican rail operator. By 2005, Haverty had bought out his Mexican partner and established full control of a Mexican line, renamed Kansas City Southern de Mexico.
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