Kansas City Southern Reports Record First Quarter Revenues and Strong Results

First Quarter 2019 Results

  • Record first quarter revenues of $675 million, an increase of 6% from
    prior year on a 1% volume decline
  • Operating income of $160 million. Record first quarter adjusted
    operating income of $242 million, excluding restructuring charges
    related to Precision Scheduled Railroading (“PSR”) initiatives, and
    including the Mexican fuel excise tax credit
  • Reported operating ratio of 76.2%. Adjusted operating ratio of 64.2%,
    compared to 65.8% in the prior year
  • Reported diluted earnings per share of $1.02. Adjusted diluted
    earnings per share of $1.54, 18% higher than a year ago

KANSAS CITY, Mo.–(BUSINESS WIRE)–Kansas City Southern (KCS) (NYSE:KSU) reported record first quarter
revenues of $675 million, an increase of 6% from first quarter 2018.
Overall, carload volumes declined by 1% compared to prior year, driven
primarily by service interruption at Lázaro Cárdenas due to teacher
protests.

Revenues for the first quarter of 2019 increased in four commodity
groups, led by a 21% increase in Chemicals and Petroleum due to refined
product shipments to Mexico. Agriculture and Minerals grew by 8%, driven
by improved network cycle times. Energy and Industrial and Consumer
Products also grew 5% and 2%, respectively. These increases were
partially offset by revenue declines in Automotive and Intermodal of 4%
and 12%, respectively, due to auto plant shutdowns and teacher protests.

In the first quarter of 2019, reported operating expenses were $515
million. Excluding restructuring charges related to PSR initiatives, and
including the Mexican fuel excise tax credit, adjusted operating
expenses were $433 million, 3% higher than 2018. Adjusted operating
income was $242 million, 10% higher than a year ago. KCS reported an
adjusted first quarter operating ratio of 64.2%, a 1.6 point improvement
over first quarter 2018.

Reported net income in the first quarter of 2019 was $103 million, or
$1.02 per diluted share, compared with $145 million, or $1.40 per
diluted share in the first quarter of 2018. As presented in the
following reconciliations, adjusted diluted earnings per share was
$1.54, 18% higher than a year ago.

We are pleased to announce a strong start to the year with solid
revenue growth and improved operational performance,” stated Kansas City
Southern’s President and Chief Executive Officer Patrick J. Ottensmeyer.
Although we are still in the early stages of implementation, KCS’
transition to a precision-scheduled network is already producing
improved velocity and dwell, which is driving improved customer service,
labor and asset utilization as well as other efficiencies.

Our PSR initiatives support volume and revenue growth, capital
efficiency and an improved cost profile. They equally support improved
customer service, capacity and network resiliency. We have confidence
that this transition will continue to benefit all KCS stakeholders,
including customers and shareholders.”

GAAP Reconciliations

($ in millions, except per share amounts)

 
Reconciliation of Diluted Earnings per Share to    
Adjusted Diluted Earnings per Share Three Months Ended March 31, 2019

Income Before
Income Taxes

   

Income Tax
Expense

   

Net
Income

   

Diluted Earnings
per Share

As reported $ 137.9 $ 34.7 $ 103.2 $ 1.02
Adjustments for:
Restructuring charges 67.5 17.1 50.4 0.50

Income tax accounting timing on Mexican fuel excise tax credit

13.8 10.9 2.9 0.03
Debt retirement costs 0.6 0.2 0.4
Foreign exchange gain (4.6 ) (1.4 ) (3.2 ) (0.03 )
Foreign exchange component of income taxes   (1.7 ) 1.7   0.02  
Adjusted $ 215.2   $ 59.8   155.4

Less: Noncontrolling interest and preferred stock dividends

(0.5 )

Adjusted net income available to common stockholders – see (a)
below

$ 154.9   $ 1.54  
 
 
Three Months Ended March 31, 2018

Income Before
Income Taxes

Income Tax
Expense

Net
Income

Diluted Earnings
per Share

As reported $ 221.7 $ 76.8 $ 144.9 $ 1.40
Adjustments for:
Foreign exchange gain (27.8 ) (8.3 ) (19.5 ) (0.19 )
Foreign exchange component of income taxes   (8.9 ) 8.9   0.09  
Adjusted $ 193.9   $ 59.6   134.3

Less: Noncontrolling interest and preferred stock dividends

(0.5 )

Adjusted net income available to common stockholders – see (a)
below

$ 133.8   $ 1.30  
 
GAAP Reconciliations (continued)

($ in millions)

 

Reconciliation of Operating Expenses to Adjusted

        Three Months Ended
Operating Expenses March 31,
2019     2018
Operating expenses as reported $ 514.5 $ 419.9
Adjustment for Mexican fuel excise tax credit – see (b) below (13.8 )
Adjustment for restructuring charges (67.5 )  
Adjusted operating expenses – see (c) below $ 433.2   $ 419.9  
 
Operating income as reported $ 160.3 $ 218.7
Adjusted operating income – see (c) below 241.6 218.7
 
Operating ratio (c) as reported 76.2 % 65.8 %
Adjusted operating ratio – see (c) and (d) below 64.2 % 65.8 %
(a)   The Company believes adjusted diluted earnings per share is
meaningful as it allows investors to evaluate the Company’s
performance for different periods on a more comparable basis by
adjusting for the impact of changes in foreign currency exchange
rates, changes in tax law and related income tax accounting timing
impacts, and items that are not directly related to the ongoing
operations of the Company. The income tax expense impacts related to
these adjustments are calculated at the applicable statutory tax
rate.
 
(b) As described further in Note 3 of the consolidated financial
statements in the Company’s Form 10-Q, a change in Mexican tax law
resulted in the Mexican fuel excise tax credit being recognized
within income tax expense in 2019. As a result of this change, the
Company believes an adjustment for the Mexican fuel excise tax
credit is meaningful as it allows investors to evaluate the
Company’s performance for different periods on a more comparable
basis.
 
(c) The Company believes adjusted operating expenses, operating income
and operating ratio are meaningful as they allow investors to
evaluate the Company’s performance for different periods on a more
comparable basis by adjusting for items that are not directly
related to the ongoing operations of the Company, and changes in tax
law.
 
(d) Operating ratio is calculated by dividing operating expenses by
revenues; or in the case of adjusted operating ratio, adjusted
operating expenses divided by revenues.
 

Headquartered in Kansas City, Mo., Kansas City Southern (KCS) (NYSE:
KSU) is a transportation holding company that has railroad investments
in the U.S., Mexico and Panama. Its primary U.S. holding is The Kansas
City Southern Railway Company, serving the central and south central
U.S. Its international holdings include Kansas City Southern de Mexico,
S.A. de C.V., serving northeastern and central Mexico and the port
cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent
interest in Panama Canal Railway Company, providing ocean-to-ocean
freight and passenger service along the Panama Canal. KCS’ North
American rail holdings and strategic alliances with other North American
rail partners are primary components of a unique railway system, linking
the commercial and industrial centers of the U.S., Mexico and Canada.
More information about KCS can be found at www.kcsouthern.com.

This news release contains “forward-looking statements” within the
meaning of the securities laws concerning potential future events
involving KCS and its subsidiaries, which could materially differ from
the events that actually occur.
Words such as “projects,”
“estimates,” “forecasts,” “believes,” “intends,” “expects,”
“anticipates,” and similar expressions are intended to identify many of
these forward-looking statements.
Such forward-looking statements
are based upon information currently available to management and
management’s perception thereof as of the date hereof.
Differences
that actually occur could be caused by a number of external factors over
which management has little or no control, including: competition and
consolidation within the transportation industry; the business
environment in industries that produce and use items shipped by rail;
loss of the rail concession of KCS’ subsidiary, Kansas City Southern de
México, S.A. de C.V.; the termination of, or failure to renew,
agreements with customers, other railroads and third parties; access to
capital; disruptions to KCS’ technology infrastructure, including its
computer systems; natural events such as severe weather, hurricanes and
floods; market and regulatory responses to climate change; legislative
and regulatory developments and disputes; rail accidents or other
incidents or accidents on KCS’ rail network or at KCS’ facilities or
customer facilities involving the release of hazardous materials,
including toxic inhalation hazards; fluctuation in prices or
availability of key materials, in particular diesel fuel; dependency on
certain key suppliers of core rail equipment; changes in securities and
capital markets; unavailability of qualified personnel; labor
difficulties, including strikes and work stoppages; acts of terrorism or
risk of terrorist activities; war or risk of war; domestic and
international economic, political and social conditions; the level of
trade between the United States and Asia or Mexico; fluctuations in the
peso-dollar exchange rate; increased demand and traffic congestion; the
outcome of claims and litigation involving KCS or its subsidiaries; and
other factors affecting the operation of the business.
More
detailed information about factors that could affect future events may
be found in filings by KCS with the Securities and Exchange Commission,
including KCS’ Annual Report on Form 10-K for the year ended December
31, 2018 (File No. 1-4717) and subsequent reports.
Forward-looking
statements are not, and should not be relied upon as, a guarantee of
future performance or results, nor will they necessarily prove to be
accurate indications of the times at or by which any such performance or
results will be achieved.
As a result, actual outcomes and
results may differ materially from those expressed in forward-looking
statements.
KCS is not obligated to update any forward-looking
statements to reflect future events or developments.

 
Kansas City Southern and Subsidiaries
Consolidated Statements of Income
(In millions, except share and per share amounts)
(Unaudited)
        Three Months Ended
March 31,
2019     2018
Revenues $ 674.8   $ 638.6  
Operating expenses:
Compensation and benefits 128.9 121.6
Purchased services 52.8 47.1
Fuel 83.0 81.3
Mexican fuel excise tax credit (9.2 )
Equipment costs 30.4 32.2
Depreciation and amortization 88.5 83.3
Materials and other 63.4 63.6
Restructuring charges 67.5    
Total operating expenses 514.5   419.9  
Operating income 160.3 218.7
Equity in net earnings of affiliates 1.7 1.0
Interest expense (28.2 ) (25.5 )
Debt retirement costs (0.6 )
Foreign exchange gain 4.6 27.8
Other income (expense), net 0.1   (0.3 )
Income before income taxes 137.9 221.7
Income tax expense 34.7   76.8  
Net income 103.2 144.9
Less: Net income attributable to noncontrolling interest 0.4   0.4  
Net income attributable to Kansas City Southern and subsidiaries 102.8 144.5
Preferred stock dividends 0.1   0.1  
Net income available to common stockholders $ 102.7   $ 144.4  
 
Earnings per share:
Basic earnings per share $ 1.02   $ 1.41  
Diluted earnings per share $ 1.02   $ 1.40  
 
Average shares outstanding (in thousands):
Basic 100,500 102,574
Potentially dilutive common shares 415   402  
Diluted 100,915   102,976  
 
 
Kansas City Southern and Subsidiaries
Revenue & Carload/Units by Commodity – First Quarter 2019 and 2018
 
    Revenues       Carloads and Units       Revenue per  
(in millions) (in thousands) Carload/Unit
First Quarter % First Quarter % First Quarter %
2019   2018 Change 2019   2018 Change 2019   2018 Change
 
Chemical & Petroleum
Chemicals $ 60.5 $ 57.7 5 % 25.5 26.7 (4 %) $ 2,373 $ 2,161 10 %
Petroleum 74.3 49.0 52 % 36.5 24.0 52 % 2,036 2,042
Plastics 33.8   33.0   2 % 17.4   17.4     1,943   1,897   2 %
Total 168.6   139.7   21 % 79.4   68.1   17 % 2,123   2,051   4 %
 
Industrial & Consumer Products
Forest Products 66.4 65.3 2 % 27.9 29.6 (6 %) 2,380 2,206 8 %
Metals & Scrap 57.0 53.8 6 % 30.7 29.7 3 % 1,857 1,811 3 %
Other 26.4   27.2   (3 %) 21.3   22.7   (6 %) 1,239   1,198   3 %
Total 149.8   146.3   2 % 79.9   82.0   (3 %) 1,875   1,784   5 %
 
Agriculture & Minerals
Grain 72.7 65.2 12 % 35.5 33.5 6 % 2,048 1,946 5 %
Food Products 35.7 36.2 (1 %) 15.0 14.9 1 % 2,380 2,430 (2 %)
Ores & Minerals 6.5 4.9 33 % 8.1 5.3 53 % 802 925 (13 %)
Stone, Clay & Glass 8.0   7.1   13 % 3.4   3.2   6 % 2,353   2,219   6 %
Total 122.9   113.4   8 % 62.0   56.9   9 % 1,982   1,993   (1 %)
 
Energy
Utility Coal 32.5 29.3 11 % 33.5 30.0 12 % 970 977 (1 %)
Coal & Petroleum Coke 10.5 10.2 3 % 15.1 13.4 13 % 695 761 (9 %)
Frac Sand 8.0 11.1 (28 %) 5.7 7.1 (20 %) 1,404 1,563 (10 %)
Crude Oil 13.6   10.7   27 % 6.5   7.0   (7 %) 2,092   1,529   37 %
Total 64.6   61.3   5 % 60.8   57.5   6 % 1,063   1,066    
 
Intermodal 79.9   90.9   (12 %) 220.9   243.0   (9 %) 362   374   (3 %)
 
Automotive 57.6   59.8   (4 %) 36.6   39.8   (8 %) 1,574   1,503   5 %
 
TOTAL FOR COMMODITY GROUPS 643.4 611.4 5 % 539.6   547.3   (1 %) $ 1,192   $ 1,117   7 %
 
Other Revenue 31.4   27.2   15 %
 
TOTAL $ 674.8   $ 638.6   6 %

Contacts

KCS:
Ashley Thorne, 816-983-1530
athorne@kcsouthern.com