S&P raises credit rating on Kansas City Southern to BB from BB-minus on stronger earnings, debt reduction efforts; rating is now one notch below investment-grade status; outlook stable

Alison Gallant

NEW YORK , May 13, 2011 (Associated Press) – Standard & Poor's Ratings Services said Friday that it raised ratings on freight railroad Kansas City Southern because of stronger earnings and debt reduction efforts.

S&P said it expects the company to post higher earnings and cash flow this year on rising rail traffic, stable prices and more cost efficiency. It raised the company's ratings, including for corporate credit, by one notch to "BB" from "BB-minus" with a stable outlook. The rating is now one notch below investment-grade status.

Standard & Poor's credit analyst Anita Ogbara said KCS cut reported debt by $337 million to $1.6 billion over the past year, and has boosted operating income by 55 percent. She said rail volumes should continue to grow due to the gradually improving economy, particularly in Mexico.

Last month, the company reported that first-quarter profit nearly doubled as shipments rose for autos and retail goods. It earned $62.6 million as revenue increased 12 percent to $488.6 million.

The shares fell $1.03 to close Friday at $54.66.

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