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In the fourth quarter, Kansas City Southern hit the “sweet spot” by generating double-digit revenue and income growth, and controlling costs, resulting in a record-low operating ratio, senior managers said this morning during an earnings webcast and teleconference.

Revenue jumped 18 percent to $479 million, operating income climbed 47 percent to $135 million, adjusted diluted earnings per share ballooned 82 percent to 62 cents, volume rose 12 percent to 488,800 units and the operating ratio improved 5.5 points to a quarterly record 71.8 compared with fourth-quarter 2009 results.

Revenue increased in all six business units and volume rose in each one except coal. Chemical/petroleum revenue rose 11 percent and volume increased 4 percent; industrial/consumer product revenue climbed 23 percent and volume soared 20 percent; agriculture/minerals revenue rose 8 percent and volume went up 5 percent; coal revenue shot up 31 percent but volume fell 5 percent; intermodal revenue ballooned 28 percent and volume jumped 24 percent; and automotive revenue skyrocketed 41 percent and volume soared 40 percent.

“We ended the year having made good progress in maximizing operational efficiency, improving our track and facilities infrastructure, and strengthening our balance sheet and capital structure,” said President and Chief Executive Officer David Starling, adding that KCS continued to stress cost control in the quarter.

Quarterly operating expenses rose 9 percent year over year to $343.5 million primarily because compensation/benefit costs increased 10 percent to $97.8 million, fuel costs shot up 28 percent to $71.9 million — as the average diesel price per gallon rose 36 cents from fourth-quarter 2009’s level to $2.34 — and purchased services costs climbed 10 percent to $48.2 million, said Executive Vice President and Chief Financial Officer Mike Upchurch. Despite the higher compensation/benefit costs, headcount actually dropped from 6,139 in the year-ago period to 6,093 in fourth-quarter 2010, he said.

Since first-quarter 2008, headcount has declined 6 percent, but carloads per employee have climbed 15 percent, showing KCS’ efforts to boost productivity are paying off, said Starling.

For the full year, revenue climbed 23 percent to $1.8 billion, operating income ballooned 82 percent to $486.5 million, diluted earnings per share more than doubled to $1.67, volume rose 15 percent to 1.9 million units, operating expenses increased 9 percent to $1.3 billion and the operating ratio improved 8.8 points to 73.2 compared with 2009 results.

Don’t expect another 8.8-point improvement in the operating ratio this year, said Starling.

“But we do expect to lower it this year, as we do every year,” he said, adding that KCS strives to reduce the ratio by 1 to 1.5 points on an annual basis.

The Class I also expects low double-digit revenue growth in 2011.

“We’ve entered a period of moderate growth,” said Starling. “Our business strategy is targeted toward continuous improvement of our system operations.”

During the conference, Starling also addressed capital expenditures for 2011. Capex will remain at about 17.5 percent of total revenue, he said. Later this year, KCS will determine if any 2012 capital plans should be accelerated to this year because of available tax incentives, said Starling.

— Jeff Stagl