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Press release from Business Wire

Kansas City Southern Reports Record Revenues and Record Second Quarter Carloads

<p> <span class='bwuline'><b>Second Quarter 2013 Results</b></span> </p> <ul> <li class='bwlistitemmargb'> Revenues of $579 million, an increase of 6% over second quarter 2012 on a 3% increase in carloads. </li> <li class='bwlistitemmargb'> Operating income of $179 million, 12% higher than adjusted operating income in second quarter 2012. </li> <li class='bwlistitemmargb'> Operating ratio of 69.0%, a 1.5 point improvement over the adjusted operating ratio in second quarter 2012. </li> <li class='bwlistitemmargb'> Diluted earnings per share of $0.14 compared with diluted earnings per share of $1.09 in second quarter 2012. Adjusted diluted earnings per share of $0.96 for second quarter 2013 increased 9% over adjusted diluted earnings per share of $0.88 in the second quarter 2012. </li> </ul>

Friday, July 19, 2013

Kansas City Southern Reports Record Revenues and Record Second Quarter Carloads

08:00 EDT Friday, July 19, 2013

KANSAS CITY, Mo. (Business Wire) -- Kansas City Southern (KCS) (NYSE:KSU) reported record second quarter 2013 revenues of $579 million. Overall, carload volumes were 3% higher than in second quarter 2012.

Second quarter revenue growth compared to 2012 was led by a 26% increase in Energy, a 20% increase in Automotive and a 13% increase in Intermodal revenues. Revenues from Chemicals & Petroleum and Industrial & Consumer were also strong, growing by 11% and 4%, respectively, over 2012. Agriculture and Minerals revenues declined by 18%, primarily due to a decrease in grain volumes resulting from severe drought conditions experienced in the Midwestern region of the United States during 2012.

Operating expenses for the second quarter were $400 million, 4% higher than the corresponding 2012 period after adjusting for a one-time benefit from the elimination of a net deferred statutory profit sharing liability in the second quarter 2012. Operating income for the second quarter of 2013 was $179 million, 12% higher than 2012 adjusted operating income. KCS reported a second quarter 2013 operating ratio of 69.0%, a 1.5 point improvement over the 2012 adjusted operating ratio.

Reported net income in the second quarter of 2013 totaled $15 million, or $0.14 per diluted share, compared with $120 million, or $1.09 per diluted share, in the second quarter of 2012. Excluding the impacts of debt retirement costs, foreign exchange rate fluctuations and the one-time benefit from the elimination of a net deferred statutory profit sharing liability in second quarter 2012, adjusted diluted earnings per share for second quarter 2013 was $0.96 compared with $0.88 a year ago.

“Considering the weakness in grain volumes due to the drought in 2012, KCS reported impressive second quarter 2013 results as reflected by year-over-year increases in carloads (+ 3%), revenues (+ 6%) and adjusted earnings per share (+ 9%),” stated President and Chief Executive Officer David L. Starling. “The combination of solid revenue growth, a steady mid-single digit improvement to pricing and continued control over operating expenses resulted in a second quarter operating ratio of 69.0%, a 1.5 point improvement over last year's adjusted operating ratio. This performance speaks to the strength of KCS' operations and the diversity of the franchise.

“Especially noteworthy was the performance of the Company's Energy commodity group, which grew by 26%. Each subgroup within Energy experienced strong growth, highlighted by revenue increases of 193% in crude oil and 19% in utility coal. Revenue from KCS' five strategic growth areas, namely crude oil, cross-border intermodal, automotive, frac sand and Lázaro Cárdenas, collectively grew by 28% in the second quarter and represented 19% of KCS' second quarter 2013 freight revenues.

“In addition to the Company's solid topline performance during the second quarter, KCS took advantage of its recent upgrade to investment grade status and a historically low interest rate environment to refinance approximately $1.2 billion of corporate debt. Among the benefits achieved by the refinancing was a reduction of the Company's weighted-average coupon from 5.4% to 3.7%, the lowest among Class I railroads. In addition, KCS extended its weighted-average debt maturity to 14 years. These accomplishments, along with improved debt-to-capital, leverage and coverage ratios, significantly strengthen KCS' balance sheet and provide the Company with expanded financial flexibility going forward.”

GAAP Reconciliations

($ in millions, except per share amounts)

  Three Months Ended    
Reconciliation of Operating Expenses to Adjusted Operating Expenses: June 30,
2013   2012
Operating expenses as reported $ 400.0 $ 341.5
Adjustment for elimination of net deferred statutory profit

sharing liability

  -     43.0  
Adjusted operating expenses - see (a) below $ 400.0   $ 384.5  
 
Operating income as reported $ 179.3 $ 203.8
Adjusted operating income - see (a) below 179.3 160.8
 
Operating ratio (b) as reported 69.0 % 62.6 %
Adjusted operating ratio - see (a) and (b) below 69.0 % 70.5 %
 

Reconciliation of Diluted Earnings per Share to
Adjusted Diluted Earnings per Share:

Three Months Ended June 30, 2013

Income
Before
Income
Taxes

Income
Tax
Expense

Net
Income

Diluted
Earnings
per Share

As reported $ 29.9 $ 14.2 $ 15.7 $ 0.14
Adjustments for:
Debt retirement costs 111.4 33.7 77.7 0.70
Foreign exchange loss 22.2 6.7 15.5 0.14
Foreign exchange component of income taxes   -     2.3     (2.3 )   (0.02 )
Adjusted $ 163.5   $ 56.9   $ 106.6
Less: Noncontrolling interest (i) (ii)   0.3  
Adjusted net income attributable to

Kansas City Southern and subsidiaries - see (c) below

$ 106.3   $ 0.96  
Adjusted effective income tax rate - see (c) below   34.8 %
(ii)/(i)
 

Reconciliation of Diluted Earnings per Share to
Adjusted Diluted Earnings per Share (continued):

       
Three Months Ended June 30, 2012

Income
Before
Income
Taxes

Income
Tax
Expense

Net
Income

Diluted
Earnings
per Share

As reported $ 174.0 $ 53.1 $ 120.9 $ 1.09
Adjustments for:
Debt retirement costs 5.1 2.0 3.1 0.03
Elimination of net deferred statutory profit sharing liability (43.0 ) (12.9 ) (30.1 ) (0.27 )
Foreign exchange loss 3.5 1.0 2.5 0.02
Foreign exchange component of income taxes   -     (1.0 )   1.0     0.01  
Adjusted $ 139.6   $ 42.2   $ 97.4
Less: Noncontrolling interest (i) (ii)   0.5  
Adjusted net income attributable to

Kansas City Southern and subsidiaries - see (c) below

$ 96.9   $ 0.88  
Adjusted effective income tax rate - see (c) below   30.2 %
(ii)/(i)
(a)   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 excluding items that are not directly related to the ongoing operations of the Company.
(b) Operating ratio is calculated by dividing operating expenses by revenues; or in the case of adjusted operating ratio, adjusted operating expenses divided by revenues.
(c) The Company believes adjusted diluted earnings per share and the related adjusted effective income tax rate are meaningful as these measures allow investors to evaluate the Company's performance for different periods on a more comparable basis by excluding the impact of changes in foreign currency exchange rates and items that are not directly related to the ongoing operations of the Company.
 

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 México, 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 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 of this news release. 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; interest rates; 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; credit risk of customers and counterparties and their failure to meet their financial obligations; legislative and regulatory developments and disputes; rail accidents or other incidents or accidents along KCS' rail network, 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; loss of key personnel; labor difficulties, including strikes and work stoppages; insufficiency of insurance to cover lost revenue, profits or other damages; acts of terrorism or risk of terrorist activities; war or risk of war; domestic and international economic conditions; political and economic conditions in Mexico and the level of trade between the United States and Mexico; 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, 2012 (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 in this news release to reflect future events or developments.

 

Kansas City Southern

Consolidated Statements of Income

(In millions, except share and per share amounts)
(Unaudited)
  Three Months Ended   Six Months Ended
June 30, June 30,
2013   2012 2013   2012
Revenues $ 579.3   $ 545.3   $ 1,132.1   $ 1,092.8  
Operating expenses:
Compensation and benefits 110.1 105.8 217.0 215.1
Purchased services 50.9 60.3 103.2 114.7
Fuel 93.0 86.9 183.9 175.2
Equipment costs 38.6 41.1 80.5 81.4
Depreciation and amortization 54.7 48.7 107.8 97.1
Materials and other 52.7 41.7 97.5 90.7
Elimination of deferred statutory profit sharing liability, net   (43.0 )   (43.0 )
Total operating expenses 400.0   341.5   789.9   731.2  
Operating income 179.3 203.8 342.2 361.6
Equity in net earnings of unconsolidated affiliates 3.5 4.9 9.0 10.7
Interest expense (19.2 ) (25.3 ) (42.9 ) (52.5 )
Debt retirement costs (111.4 ) (5.1 ) (111.4 ) (18.0 )
Foreign exchange gain (loss) (22.2 ) (3.5 ) (8.7 ) 0.4
Other income (expense), net (0.1 ) (0.8 ) 0.2   (0.7 )
Income before income taxes 29.9 174.0 188.4 301.5
Income tax expense 14.2   53.1   68.5   105.3  
Net income 15.7 120.9 119.9 196.2
Less: Net income attributable to noncontrolling interest 0.3   0.5   0.7   0.8  
Net income attributable to Kansas City Southern and subsidiaries 15.4 120.4 119.2 195.4
Preferred stock dividends     0.1   0.1  
Net income available to common stockholders $ 15.4   $ 120.4   $ 119.1   $ 195.3  
 
Earnings per share:
Basic earnings per share $ 0.14   $ 1.10   $ 1.08   $ 1.78  
Diluted earnings per share $ 0.14   $ 1.09   $ 1.08   $ 1.77  
 
Average shares outstanding (in thousands):
Basic 109,968 109,689 109,936 109,657
Potentially dilutive common shares 355   367   356   371  
Diluted 110,323   110,056   110,292   110,028  
 
 

Kansas City Southern

Revenue & Carloads/Units by Commodity - Second Quarter 2013 and 2012

                 
Revenues Carloads and Units Revenue per
(in millions) (in thousands) Carload/Unit
Second Quarter % Second Quarter % Second Quarter %
2013 2012 Change 2013 2012 Change 2013 2012 Change
 
Chemical & Petroleum
Chemicals $ 52.7 $ 48.1 10 % 28.6 27.8 3 % $ 1,843 $ 1,730 7 %
Petroleum 29.5 25.1 18 % 17.7 17.2 3 % 1,667 1,459 14 %
Plastics 26.8   24.8   8 % 16.1   15.9   1 % 1,665   1,560   7 %
Total 109.0   98.0   11 % 62.4   60.9   2 % 1,747   1,609   9 %
 
Industrial & Consumer Products
Forest Products 65.2 61.5 6 % 31.2 31.4 (1 %) 2,090 1,959 7 %
Metals & Scrap 57.2 56.1 2 % 31.7 30.6 4 % 1,804 1,833 (2 %)
Other 19.7   19.6   1 % 20.7   21.6   (4 %) 952   907   5 %
Total 142.1   137.2   4 % 83.6   83.6     1,700   1,641   4 %
 
Agriculture & Minerals
Grain 42.2 59.3 (29 %) 26.7 33.4 (20 %) 1,581 1,775 (11 %)
Food Products 32.5 35.2 (8 %) 14.6 15.4 (5 %) 2,226 2,286 (3 %)
Ores & Minerals 5.3 4.8 10 % 5.3 5.0 6 % 1,000 960 4 %
Stone, Clay & Glass 6.7   6.7     3.3   3.4   (3 %) 2,030   1,971   3 %
Total 86.7   106.0   (18 %) 49.9   57.2   (13 %) 1,737   1,853   (6 %)
 
Energy
Utility Coal 52.7 44.2 19 % 48.1 47.1 2 % 1,096 938 17 %
Coal & Petroleum Coke 9.9 8.0 24 % 14.9 10.9 37 % 664 734 (10 %)
Frac Sand 14.5 12.9 12 % 6.8 6.4 6 % 2,132 2,016 6 %
Crude Oil 8.2   2.8   193 % 4.5   1.7   165 % 1,822   1,647   11 %
Total 85.3   67.9   26 % 74.3   66.1   12 % 1,148   1,027   12 %
 
Intermodal 86.6   76.4   13 % 238.8   228.0   5 % 363   335   8 %
 
Automotive 47.5   39.6   20 % 25.9   24.1   7 % 1,834   1,643   12 %
 
TOTAL FOR COMMODITY GROUPS 557.2 525.1 6 % 534.9   519.9   3 % $ 1,042   $ 1,010   3 %
 
Other Revenue 22.1   20.2   9 %
 
TOTAL $ 579.3   $ 545.3   6 %
 
 

Kansas City Southern

Revenue & Carload/Units by Commodity - Year to Date June 30, 2013 and 2012

                 
Revenues Carloads and Units Revenue per
(in millions) (in thousands) Carload/Unit
Year to Date % Year to Date % Year to Date %
2013 2012 Change 2013 2012 Change 2013 2012 Change
 
Chemical & Petroleum
Chemicals $ 102.6 $ 98.1 5 % 55.8 56.1 (1 %) $ 1,839 $ 1,749 5 %
Petroleum 56.6 51.3 10 % 34.8 34.1 2 % 1,626 1,504 8 %
Plastics 52.2   50.5   3 % 31.3   32.2   (3 %) 1,668   1,568   6 %
Total 211.4   199.9   6 % 121.9   122.4     1,734   1,633   6 %
 
Industrial & Consumer Products
Forest Products 130.0 126.4 3 % 63.2 65.4 (3 %) 2,057 1,933 6 %
Metals & Scrap 118.8 113.8 4 % 65.6 63.7 3 % 1,811 1,786 1 %
Other 37.5   35.6   5 % 40.1   39.6   1 % 935   899   4 %
Total 286.3   275.8   4 % 168.9   168.7     1,695   1,635   4 %
 
Agriculture & Minerals
Grain 81.2 122.6 (34 %) 51.3 69.1 (26 %) 1,583 1,774 (11 %)
Food Products 63.0 70.6 (11 %) 28.0 31.1 (10 %) 2,250 2,270 (1 %)
Ores & Minerals 10.6 11.2 (5 %) 10.6 10.9 (3 %) 1,000 1,028 (3 %)
Stone, Clay & Glass 12.9   13.5   (4 %) 6.4   6.8   (6 %) 2,016   1,985   2 %
Total 167.7   217.9   (23 %) 96.3   117.9   (18 %) 1,741   1,848   (6 %)
 
Energy
Utility Coal 99.5 94.4 5 % 95.5 99.1 (4 %) 1,042 953 9 %
Coal & Petroleum Coke 19.5 16.1 21 % 28.6 21.4 34 % 682 752 (9 %)
Frac Sand 28.3 24.3 16 % 13.6 12.8 6 % 2,081 1,898 10 %
Crude Oil 14.3   4.1   249 % 7.6   2.5   204 % 1,882   1,640   15 %
Total 161.6   138.9   16 % 145.3   135.8   7 % 1,112   1,023   9 %
 
Intermodal 166.4   144.5   15 % 465.9   436.1   7 % 357   331   8 %
 
Automotive 96.6   77.1   25 % 53.0   47.1   13 % 1,823   1,637   11 %
 
TOTAL FOR COMMODITY GROUPS 1,090.0 1,054.1 3 % 1,051.3   1,028.0   2 % $ 1,037   $ 1,025   1 %
 
Other Revenue 42.1   38.7   9 %
 
TOTAL $ 1,132.1   $ 1,092.8   4 %

Kansas City Southern
William H. Galligan, 816-983-1551
bgalligan@kcsouthern.com

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