On GE, Just Say "No"

Reposted from Bruce Krasting’s blog with his permission.

Kansas City Southern (KSU) is a nice little railroad company. The stock is up 40% the past six months.

The company is well run and is profitable. Some highlights from the bosses on the 2011 results:

“KCS’s solid fourth quarter put the final touches on a successful 2011,” stated David L. Starling, president and chief executive officer.

For the full year 2011, revenue was a record $2.1 billion, up 16% over 2010. This is the first time that KCS generated annual revenue above $2 billion. Carloads for 2011 were 2 million, the first time annual volumes reached the 2 million threshold.

Full-year operating income was $612 million, a 26% increase over the prior year, and the Company’s 2011 operating ratio was 70.9% compared with 73.2% in 2010. Diluted earnings per share for full year 2011 were $3.00 compared to $1.67 for 2010.

Moody’s likes KSU, they just upgraded it a notch to Ba1.

RATINGS RATIONALE

With a rapid restoration in freight volume and yield, Kansas City Southern’s credit profile has improved materially.

If this company wanted to raise some cash they could do it in a week. Given their current market cap of $7.5 billion, it could do a secondary offering of stock and raise $100mm in the bat of an eye. If it wanted debt financing, that too would be available from yield hungry investors. Given the strength of the balance sheet, I think they could add another $200mm in debt without much of a problem at all.

But KSU is not going to the capital markets for the money they need to expand. Why should they? After all, Uncle Sam is willing to lend them cheap money: (Link)

Kansas City Southern Railway Company (KCSR) has taken out a $54.6 million Federal Railroad Administration-administered Railroad Rehabilitation and Improvement Financing (RRIF) Program loan to purchase 30 new General Electric diesel-electric locomotives.

I’m so sick of seeing this day after day. Washington is shelling out taxpayer money to support this successful company so they can buy locomotives from GE.

GE pays next to no taxes in the US, they haven’t for years. But when it comes to government money, they are on the top of the list for handouts. There is only one reason that GE keeps sucking on the country’s teat, the CEO is best buds with Obama. Not only are they pals, but GE’s top honcho, Jeff Immelt, is advising the President on what to do.

There are many segments of our economy and society that need a helping hand from the government. I would put the interests of GE (and KSU) at the very bottom of the list. They are doing fine, they don’t need these handouts. This is not an industrial policy. It’s crony capitalism of the very worst kind.

Tags: Cheap Money, Chief Executive Officer, Credit Profile, Debt Financing, Diesel Electric Locomotives, Diluted Earnings Per Share, Earnings Per Share, Federal Railroad Administration, Final Touches, Kansas City Southern, Kansas City Southern Railway, Kcs, Kcsr, Money Link, Operating Ratio, Railroad Company, Railroad Rehabilitation, Rapid Restoration, Secondary Offering, Southern Railway Company, Successful Company

This entry was posted on February 24, 2012 at 11:42 am and is filed under Bruce Krasting, Contributors- Economic and Financial, Economic and Financial Features. You can follow any responses to this entry through the RSS 2.0 feed.