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Press release from Business Wire

Kansas City Southern Reports Third Quarter Earnings per Share of $0.48 in spite of Hurricane Impacted Revenues

<p> <span class='bwuline'><b>Third Quarter 2010 Results</b></span> </p> <ul> <li class='bwlistitemmargb'> Reported $438.3 million in revenues, an increase of 13.5% over third quarter 2009 despite an estimated $33 million revenue loss due to Hurricane Alex </li> <li class='bwlistitemmargb'> Reported operating ratio of 73.5%, a 4.8 point improvement from third quarter 2009 </li> <li class='bwlistitemmargb'> Adjusted diluted earnings per share of $0.49 excluding a $0.01 loss for debt retirement costs in the quarter, an 81% increase over the prior year's results </li> </ul>

Tuesday, October 26, 2010

Kansas City Southern Reports Third Quarter Earnings per Share of $0.48 in spite of Hurricane Impacted Revenues08:00 EDT Tuesday, October 26, 2010 KANSAS CITY, Mo. (Business Wire) -- Kansas City Southern (KCS) (NYSE:KSU) reported third quarter 2010 revenues of $438.3 million. Revenues were reduced by widespread flooding and resultant damage to Kansas City Southern de Mexico's (KCSM) track and bridge infrastructure caused by Hurricane Alex during the month of July. Based on the initial insurance claim, the impact of the hurricane on volumes was approximately 27,000 carloads resulting in $33 million of lost revenues. Several commodity groups experienced some impact from the hurricane to varying degrees. On a reported basis, automotive revenues were up 64% over third quarter 2009 as auto production has rebounded from the lows experienced in 2009. Coal revenues increased 29% from a year ago on improved contract pricing. Intermodal revenues were also up 25% as volumes continued to grow as KCS entered new markets. Other period-over-period revenue improvements were 20% for Industrial & Consumer Products and 4% for Agriculture & Minerals. Chemical & Petroleum revenues were down 2% in comparison to a strong third quarter in 2009. Reported operating income for the third quarter was $116.0 million representing a 38% increase from a year ago. The Company reported a third quarter 2010 operating ratio of 73.5% compared with 78.3% in third quarter of 2009. Operating expenses in the third quarter increased 7% from a year ago to $322.3 million. The additional costs incurred during the quarter for hurricane damage repair and clean up were offset by the related expected insurance recovery for these costs. The operating ratio would have been approximately 150 basis points better excluding the lost revenue impact from the hurricane and a $6 million gain related to post-employment benefits. The Company has produced positive free cash flow of $126.0 million year to date, including $56.6 million in the third quarter despite the negative impacts of the hurricane causing lost revenues and incremental expenses. Reported net income available to common stockholders in the third quarter totaled $50.2 million, or $0.48 per diluted share, compared to $25.4 million, or $0.27 per diluted share in third quarter 2009. The Company estimates that the effects of Hurricane Alex on the third quarter were approximately $0.14 loss per diluted share. The impact of the gain for post-employment benefits was $0.04 per diluted share. KCS estimates a cumulative $0.09 per diluted share gain in future quarters as insurance recoveries are received and insurance claims related to the hurricane are settled, resulting in a cumulative impact of $0.05 loss per diluted share. The Company expects insurance recoveries to begin in the fourth quarter and anticipates final settlement of the claims in 2011. “Considering the impact of Hurricane Alex on our Mexican and cross-border traffic in July, KCS's third quarter financial results are impressive,” stated president and chief executive officer David L. Starling. “Given the extent of the damage, we recovered quickly from the nearly three and a half week service outage. The operating ratio for the third quarter would have been lower than that of the second quarter if not for the negative impacts of the hurricane. Traffic volumes returned to projected levels by the end of the third quarter and continue to be good in October. As we have previously stated, we believe that KCS's second half 2010 revenue growth, adjusting for the impact of Hurricane Alex, should be approximately 20 percent. The projected revenue increase combined with the continued operational improvements and cost controls poise KCS for a strong finish to 2010.” Executive Chairman Michael R. Haverty pointed to the Company's greatly improved financial position. “KCS continues to produce strong cash flows. The Company repurchased the remaining $63.7 million of its 9 3/8% notes due 2012 bringing the total amount of debt reduction in 2010 to $332 million. Including its revolver availability, KCS ended the quarter with liquidity of $289 million, the highest level in more than 10 years.” GAAP RECONCILIATIONS($ in millions, except per share amounts)     Reconciliation of Diluted Earnings per Share toAdjusted Diluted Earnings per ShareThree Months EndedSeptember 30,20102009 Diluted earnings per share $ 0.48 $ 0.27 Adjustment for debt retirement costs   0.01     -   Adjusted diluted earnings per share (a) $ 0.49   $ 0.27     Reconciliation of Free Cash Flow to Net Decreases in Cash and Cash Equivalents:Three Months EndedSeptember 30, 2010Nine Months Ended September 30, 2010 Net cash provided by operating activities $ 139.6 $ 359.9 Net cash used for investing activities (80.3 ) (225.7 ) Preferred stock dividends paid   (2.7 )   (8.2 ) Free cash flow - see (b) below 56.6 126.0 Proceeds from issuance of long-term debt 5.0 300.7 Repayment of long-term debt (73.0 ) (662.0 ) Other financing activities   (4.1 )   186.6   GAAP net decreases in cash and cash equivalents $ (15.5 ) $ (48.7 )   (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 excluding items that do not relate to the ongoing operations of the Company.   (b) The Company believes this measure provides the amount of liquidity generated by operations that can be used for the combination or any one of the following: debt reduction, capital investment and other investments. CHANGE IN ACCOUNTING PRINCIPLE Certain prior year amounts have been adjusted for the retrospective change in accounting principle for rail grinding costs. Headquartered in Kansas City, MO, Kansas City Southern 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. Kansas City Southern's North American rail holdings and strategic alliances are primary components of a NAFTA Railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada. This press release may include statements concerning potential future events involving KCS and its subsidiaries, which could materially differ from the events that actually occur. The differences could be caused by a number of factors including those factors identified in the "Risk Factors" and the "Cautionary Information" sections of KCS's Form 10-K for the most recently ended fiscal year, filed by KCS with the Securities and Exchange Commission (SEC) (Commission file no. 1-04717). KCS will not update any forward-looking statements in this press release to reflect future events or developments.Kansas City SouthernStatements of Income(In millions, except share and per share amounts)(Unaudited)         Three Months Nine Months Ended September 30, Ended September 30, 2010 2009 2010 2009 Revenues $ 438.3   $ 386.1   $ 1,336.2   $ 1,073.4     Operating expenses: Compensation and benefits 87.3 83.4 271.7 240.4 Purchased services 48.0 37.1 140.9 129.3 Fuel 61.8 49.7 191.7 133.2 Equipment costs 37.5 41.8 117.5 122.1 Depreciation and amortization 46.1 44.6 138.8 138.9 Casualties and insurance 9.1 12.0 21.2 32.2 Materials and other   32.5     33.6     103.0     102.7     Total operating expenses   322.3     302.2     984.8     898.8     Operating income 116.0 83.9 351.4 174.6   Equity in net earnings of unconsolidated affiliates 5.2 1.9 16.2 4.9 Interest expense (36.2 ) (41.2 ) (122.5 ) (128.4 ) Debt retirement costs (1.9 ) - (49.3 ) (5.9 ) Foreign exchange gain (loss) 2.0 (1.5 ) 3.2 (0.6 ) Other income, net   2.4     0.3     3.9     4.7     Income before income taxes and noncontrolling interest 87.5 43.4 202.9 49.3 Income tax expense   34.7     14.8     78.5     16.4     Net income 52.8 28.6 124.4 32.9 Noncontrolling interest   (0.1 )   0.4     (1.2 )   0.8     Net income attributable to Kansas City Southern and subsidiaries 52.9 28.2 125.6 32.1 Preferred stock dividends   2.7     2.8     8.2     8.3     Net income available to common stockholders $ 50.2   $ 25.4   $ 117.4   $ 23.8     Earnings per share: Basic earnings per share $ 0.49   $ 0.27   $ 1.18   $ 0.26     Diluted earnings per share $ 0.48   $ 0.27   $ 1.17   $ 0.26     Average shares outstanding (in thousands): Basic 102,082 94,683 99,337 92,462 Potentially dilutive common shares   7,428     560     7,485     496   Diluted   109,510     95,243     106,822     92,958     Kansas City SouthernRevenues & Carloads/Units By Commodity – Third Quarter 2010 and 2009           RevenuesCarloads and UnitsRevenue per(in millions)(in thousands)Carload/Unit Third Quarter % Third Quarter % Third Quarter % 2010   2009 Change 2010   2009 Change 2010   2009 Change Chemical & Petroleum Agri Chemicals $ 5.2 $ 5.9 (12 %) 3.3 4.6 (28 %) $ 1,576 $ 1,283 23 % Other Chemicals 37.2 38.8 (4 %) 25.2 25.5 (1 %) 1,476 1,522 (3 %) Petroleum 24.5 22.3 10 % 17.3 18.3 (5 %) 1,416 1,219 16 % Plastics   19.9   21.6 (8 %) 15.0 16.3 (8 %)   1,327   1,325 -   Total   86.8   88.6 (2 %) 60.8 64.7 (6 %)   1,428   1,369 4 %   Industrial & Consumer Products Forest Products 50.2 44.4 13 % 32.2 30.2 7 % 1,559 1,470 6 % Metals & Scrap 37.6 22.9 64 % 24.8 15.9 56 % 1,516 1,440 5 % Other   16.1   19.1 (16 %) 18.0 20.5 (12 %)   894   932 (4 %) Total   103.9   86.4 20 % 75.0 66.6 13 %   1,385   1,297 7 %   Agriculture & Minerals Grain 49.9 49.9 - 31.2 31.0 1 % 1,599 1,610 (1 %) Food Products 30.1 27.4 10 % 16.4 14.8 11 % 1,835 1,851 (1 %) Ores & Minerals 12.2 11.1 10 % 11.7 11.0 6 % 1,043 1,009 3 % Stone, Clay & Glass   5.0   5.4 (7 %) 2.9 3.9 (26 %)   1,724   1,385 24 % Total   97.2   93.8 4 % 62.2 60.7 2 %   1,563   1,545 1 %   Coal Unit Coal 55.7 42.8 30 % 64.1 71.2 (10 %) 869 601 45 % Other Coal   7.9   6.4 23 % 10.1 9.5 6 %   782   674 16 % Total   63.6   49.2 29 % 74.2 80.7 (8 %)   857   610 40 %   Intermodal   47.7   38.3 25 % 170.3 135.8 25 %   280   282 (1 %)   Automotive   23.3   14.2 64 % 16.5 14.0 18 %   1,412   1,014 39 %   TOTAL FOR COMMODITY GROUPS 422.5 370.5 14 % 459.0 422.5 9 % $ 920 $ 877 5 % Other Revenue   15.8   15.6 1 %   TOTAL $ 438.3 $ 386.1 14 %   Kansas City SouthernRevenues & Carloads/Units By Commodity – Year to Date September 30, 2010 and 2009           RevenuesCarloads and Units   Revenue per(in millions)(in thousands)Carload/Unit Year to Date % Year to Date % Year to Date % 2010 2009 Change 2010   2009 Change 2010   2009 Change Chemical & Petroleum Agri Chemicals $ 17.4 $ 16.3 7 % 11.1 12.9 (14 %) $ 1,568 $ 1,264 24 % Other Chemicals 114.2 104.2 10 % 75.5 69.9 8 % 1,513 1,491 1 % Petroleum 75.6 60.7 25 % 55.0 49.9 10 % 1,375 1,216 13 % Plastics   62.6   58.1 8 % 45.9 46.2 (1 %)   1,364   1,258 8 % Total   269.8   239.3 13 % 187.5 178.9 5 %   1,439   1,338 8 %   Industrial & Consumer Products Forest Products 148.4 124.0 20 % 95.8 87.9 9 % 1,549 1,411 10 % Metals & Scrap 115.0 70.5 63 % 76.7 51.2 50 % 1,499 1,377 9 % Other   49.5   57.2 (13 %) 54.2 58.4 (7 %)   913   979 (7 %) Total   312.9   251.7 24 % 226.7 197.5 15 %   1,380   1,274 8 %   Agriculture & Minerals Grain 164.9 139.9 18 % 102.5 95.8 7 % 1,609 1,460 10 % Food Products 98.7 72.5 36 % 52.5 42.2 24 % 1,880 1,718 9 % Ores & Minerals 39.7 30.4 31 % 36.1 33.6 7 % 1,100 905 22 % Stone, Clay & Glass   15.8   15.0 5 % 9.8 10.6 (8 %)   1,612   1,415 14 % Total   319.1   257.8 24 % 200.9 182.2 10 %   1,588   1,415 12 %   Coal Unit Coal 152.6 118.6 29 % 180.6 196.9 (8 %) 845 602 40 % Other Coal   23.3   20.7 13 % 30.7 29.7 3 %   759   697 9 % Total   175.9   139.3 26 % 211.3 226.6 (7 %)   832   615 35 %   Intermodal   139.9   101.1 38 % 492.4 366.7 34 %   284   276 3 %   Automotive   69.3   32.7 112 % 51.8 32.5 59 %   1,338   1,006 33 %   TOTAL FOR COMMODITY GROUPS 1,286.9 1,021.9 26 % 1,370.6 1,184.4 16 % $ 939 $ 863 9 % Other Revenue   49.3   51.5 (4 %)   TOTAL $ 1,336.2 $ 1,073.4 24 % Kansas City SouthernMedia Contact:William H. Galligan, (816) 983-1551bgalligan@kcsouthern.com