KANSAS CITY, Mo.--(BUSINESS WIRE)--Kansas City Southern (KCS) (NYSE:KSU) reported record revenues of $699 million, an increase of 6% from third quarter 2017. Overall, carload volumes increased 4% compared to prior year.
Revenues for the third quarter of 2018 increased in three commodity groups, led by a 17% increase in Chemicals and Petroleum due to refined product shipments to Mexico. Automotive and Intermodal each grew by 8%. Industrial and Consumer Products and Agriculture and Minerals were each flat compared to prior year, and Energy declined by 2%.
Excluding a gain on insurance recoveries related to damage and service interruptions from Hurricane Harvey in 2017, adjusted operating expenses in the third quarter of 2018 were $443 million, 5% higher than 2017. Adjusted operating income was $256 million, 9% higher than a year ago. KCS reported an adjusted third quarter operating ratio of 63.4%, a 1.0 point improvement over third quarter 2017.
Reported net income in the third quarter of 2018 was $174 million, or $1.70 per diluted share, compared with $129 million, or $1.23 per diluted share in the third quarter of 2017. Adjusted diluted earnings per share were $1.57, 16% higher than a year ago, excluding the impacts of foreign exchange, adjustments to 2017 provisional income tax benefit for the Tax Cuts and Jobs Act and a gain on insurance recoveries related to hurricane damage.
“Kansas City Southern faced a challenging third quarter, as network congestion in northern Mexico led to a difficult operating environment,” stated Kansas City Southern’s President and Chief Executive Officer Patrick J. Ottensmeyer. “However, we have taken steps that we are confident will restore our service levels and allow us to continue delivering strong and diversified franchise cross-border volume and revenue growth, led by increased refined product shipments to Mexico and strength in Intermodal and Automotive commodity groups.
“As we look to 2019, our cross-border network offers unique opportunities for volume growth from our robust Chemicals & Petroleum, Intermodal, Automotive and export Grain franchises. Moreover, the capital investments that we have made throughout our network, position us to deliver superior long-term growth and strong financial results to our stockholders.”
| GAAP Reconciliations | ||||||||||||||||||||
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($ in millions, except per share amounts) |
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| Reconciliation of Diluted Earnings per Share to | ||||||||||||||||||||
| Adjusted Diluted Earnings per Share | Three Months Ended September 30, 2018 | |||||||||||||||||||
|
Income Before |
Income Tax |
Net |
Diluted Earnings |
|||||||||||||||||
| As reported | $ | 247.0 | $ | 73.0 | $ | 174.0 | $ | 1.70 | ||||||||||||
| Adjustments for: | ||||||||||||||||||||
| Gain on insurance recoveries related to hurricane damage | (9.4 | ) | (2.2 | ) | (7.2 | ) | (0.07 | ) | ||||||||||||
| Foreign exchange gain | (9.5 | ) | (2.8 | ) | (6.7 | ) | (0.07 | ) | ||||||||||||
| Foreign exchange component of income taxes | — | (17.6 | ) | 17.6 | 0.17 | |||||||||||||||
| Tax Cuts and Jobs Act | — | 16.6 | (16.6 | ) | (0.16 | ) | ||||||||||||||
| Adjusted | $ | 228.1 | $ | 67.0 | 161.1 | |||||||||||||||
|
Less: Noncontrolling interest and preferred stock dividends |
(0.5 | ) | ||||||||||||||||||
|
Adjusted net income available to common stockholders - see (a) below |
$ | 160.6 | $ | 1.57 | ||||||||||||||||
| Three Months Ended September 30, 2017 | ||||||||||||||||||||
|
Income Before |
Income Tax |
Net |
Diluted Earnings |
|||||||||||||||||
| As reported | $ | 211.9 | $ | 82.0 | $ | 129.9 | $ | 1.23 | ||||||||||||
| Adjustments for: | ||||||||||||||||||||
| Foreign exchange gain | (0.8 | ) | (0.2 | ) | (0.6 | ) | — | |||||||||||||
| Foreign exchange component of income taxes | — | (12.9 | ) | 12.9 | 0.12 | |||||||||||||||
| Adjusted | $ | 211.1 | $ | 68.9 | 142.2 | |||||||||||||||
|
Less: Noncontrolling interest and preferred stock dividends |
(0.7 | ) | ||||||||||||||||||
|
Adjusted net income available to common stockholders - see (a) below |
$ | 141.5 | $ | 1.35 | ||||||||||||||||
| GAAP Reconciliations (continued) | ||||||||||||
|
($ in millions) |
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| Reconciliation of Operating Expenses to Adjusted | Three Months Ended | |||||||||||
| Operating Expenses | September 30, | |||||||||||
| 2018 | 2017 | |||||||||||
| Operating expenses as reported | $ | 433.6 | $ | 422.8 | ||||||||
|
Adjustment for gain on insurance recoveries related to hurricane damage |
9.4 | — | ||||||||||
| Adjusted operating expenses - see (b) below | $ | 443.0 | $ | 422.8 | ||||||||
| Operating income as reported | $ | 265.4 | $ | 233.8 | ||||||||
| Adjusted operating income - see (b) below | 256.0 | 233.8 | ||||||||||
| Operating ratio (c) as reported | 62.0 | % | 64.4 | % | ||||||||
| Adjusted operating ratio - see (b) and (c) below | 63.4 | % | 64.4 | % | ||||||||
| (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 the impact of changes in foreign currency exchange rates, the impact of adjustments to 2017 provisional income tax benefit for the Tax Cuts and Jobs Act, 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) | 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. | |
| (c) | 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 are primary components of a railway network, 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, 2017 (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 | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| Revenues | $ | 699.0 | $ | 656.6 | $ | 2,020.0 | $ | 1,922.5 | ||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Compensation and benefits | 123.5 | 129.0 | 367.4 | 371.6 | ||||||||||||||||
| Purchased services | 52.6 | 46.3 | 149.2 | 146.5 | ||||||||||||||||
| Fuel | 90.2 | 80.1 | 257.0 | 234.4 | ||||||||||||||||
| Mexican fuel excise tax credit | (9.4 | ) | (11.1 | ) | (26.6 | ) | (35.6 | ) | ||||||||||||
| Equipment costs | 33.0 | 30.9 | 95.9 | 93.3 | ||||||||||||||||
| Depreciation and amortization | 87.5 | 81.9 | 257.1 | 241.6 | ||||||||||||||||
| Materials and other | 65.6 | 65.7 | 199.5 | 186.9 | ||||||||||||||||
| Gain on insurance recoveries related to hurricane damage | (9.4 | ) | — | (9.4 | ) | — | ||||||||||||||
| Total operating expenses | 433.6 | 422.8 | 1,290.1 | 1,238.7 | ||||||||||||||||
| Operating income | 265.4 | 233.8 | 729.9 | 683.8 | ||||||||||||||||
| Equity in net earnings (losses) of affiliates | (0.2 | ) | 2.8 | 1.8 | 9.7 | |||||||||||||||
| Interest expense | (28.3 | ) | (25.2 | ) | (81.8 | ) | (74.9 | ) | ||||||||||||
| Debt retirement costs | — | — | (2.2 | ) | — | |||||||||||||||
| Foreign exchange gain | 9.5 | 0.8 | 16.3 | 61.8 | ||||||||||||||||
| Other income (expense), net | 0.6 | (0.3 | ) | 0.8 | 0.7 | |||||||||||||||
| Income before income taxes | 247.0 | 211.9 | 664.8 | 681.1 | ||||||||||||||||
| Income tax expense | 73.0 | 82.0 | 197.2 | 269.6 | ||||||||||||||||
| Net income | 174.0 | 129.9 | 467.6 | 411.5 | ||||||||||||||||
| Less: Net income attributable to noncontrolling interest | 0.4 | 0.6 | 1.3 | 1.2 | ||||||||||||||||
| Net income attributable to Kansas City Southern and subsidiaries | 173.6 | 129.3 | 466.3 | 410.3 | ||||||||||||||||
| Preferred stock dividends | 0.1 | 0.1 | 0.2 | 0.2 | ||||||||||||||||
| Net income available to common stockholders | $ | 173.5 | $ | 129.2 | $ | 466.1 | $ | 410.1 | ||||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic earnings per share | $ | 1.71 | $ | 1.24 | $ | 4.56 | $ | 3.89 | ||||||||||||
| Diluted earnings per share | $ | 1.70 | $ | 1.23 | $ | 4.55 | $ | 3.88 | ||||||||||||
| Average shares outstanding (in thousands): | ||||||||||||||||||||
| Basic | 101,658 | 104,324 | 102,106 | 105,297 | ||||||||||||||||
| Potentially dilutive common shares | 452 | 354 | 418 | 285 | ||||||||||||||||
| Diluted | 102,110 | 104,678 | 102,524 | 105,582 | ||||||||||||||||
| Kansas City Southern and Subsidiaries | ||||||||||||||||||||||||||||||||
| Revenue & Carload/Units by Commodity - Third Quarter 2018 and 2017 | ||||||||||||||||||||||||||||||||
| Revenues | Carloads and Units | Revenue per | ||||||||||||||||||||||||||||||
| (in millions) | (in thousands) | Carload/Unit | ||||||||||||||||||||||||||||||
| Third Quarter | % | Third Quarter | % | Third Quarter | % | |||||||||||||||||||||||||||
| 2018 | 2017 | Change | 2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||||||||||||||
| Chemical & Petroleum | ||||||||||||||||||||||||||||||||
| Chemicals | $ | 60.9 | $ | 57.0 | 7 | % | 26.2 | 26.4 | (1 | %) | $ | 2,324 | $ | 2,159 | 8 | % | ||||||||||||||||
| Petroleum | 64.5 | 47.6 | 36 | % | 32.8 | 23.4 | 40 | % | 1,966 | 2,034 | (3 | %) | ||||||||||||||||||||
| Plastics | 35.2 | 32.3 | 9 | % | 18.7 | 17.8 | 5 | % | 1,882 | 1,815 | 4 | % | ||||||||||||||||||||
| Total | 160.6 | 136.9 | 17 | % | 77.7 | 67.6 | 15 | % | 2,067 | 2,025 | 2 | % | ||||||||||||||||||||
| Industrial & Consumer Products | ||||||||||||||||||||||||||||||||
| Forest Products | 68.7 | 64.3 | 7 | % | 30.5 | 29.5 | 3 | % | 2,252 | 2,180 | 3 | % | ||||||||||||||||||||
| Metals & Scrap | 50.1 | 58.9 | (15 | %) | 27.7 | 30.1 | (8 | %) | 1,809 | 1,957 | (8 | %) | ||||||||||||||||||||
| Other | 33.7 | 29.3 | 15 | % | 23.1 | 22.7 | 2 | % | 1,459 | 1,291 | 13 | % | ||||||||||||||||||||
| Total | 152.5 | 152.5 | — | 81.3 | 82.3 | (1 | %) | 1,876 | 1,853 | 1 | % | |||||||||||||||||||||
| Agriculture & Minerals | ||||||||||||||||||||||||||||||||
| Grain | 68.5 | 68.6 | — | 35.4 | 36.4 | (3 | %) | 1,935 | 1,885 | 3 | % | |||||||||||||||||||||
| Food Products | 34.9 | 34.7 | 1 | % | 14.4 | 14.9 | (3 | %) | 2,424 | 2,329 | 4 | % | ||||||||||||||||||||
| Ores & Minerals | 5.4 | 5.8 | (7 | %) | 6.7 | 6.7 | — | 806 | 866 | (7 | %) | |||||||||||||||||||||
| Stone, Clay & Glass | 7.4 | 6.9 | 7 | % | 3.4 | 3.2 | 6 | % | 2,176 | 2,156 | 1 | % | ||||||||||||||||||||
| Total | 116.2 | 116.0 | — | 59.9 | 61.2 | (2 | %) | 1,940 | 1,895 | 2 | % | |||||||||||||||||||||
| Energy | ||||||||||||||||||||||||||||||||
| Utility Coal | 35.4 | 46.0 | (23 | %) | 37.3 | 49.6 | (25 | %) | 949 | 927 | 2 | % | ||||||||||||||||||||
| Coal & Petroleum Coke | 11.9 | 9.4 | 27 | % | 17.4 | 13.9 | 25 | % | 684 | 676 | 1 | % | ||||||||||||||||||||
| Frac Sand | 8.8 | 13.8 | (36 | %) | 5.6 | 8.6 | (35 | %) | 1,571 | 1,605 | (2 | %) | ||||||||||||||||||||
| Crude Oil | 17.1 | 5.3 | 223 | % | 10.1 | 4.6 | 120 | % | 1,693 | 1,152 | 47 | % | ||||||||||||||||||||
| Total | 73.2 | 74.5 | (2 | %) | 70.4 | 76.7 | (8 | %) | 1,040 | 971 | 7 | % | ||||||||||||||||||||
| Intermodal | 100.0 | 92.3 | 8 | % | 267.9 | 249.5 | 7 | % | 373 | 370 | 1 | % | ||||||||||||||||||||
| Automotive | 66.2 | 61.4 | 8 | % | 40.7 | 39.1 | 4 | % | 1,627 | 1,570 | 4 | % | ||||||||||||||||||||
| TOTAL FOR COMMODITY GROUPS | 668.7 | 633.6 | 6 | % | 597.9 | 576.4 | 4 | % | $ | 1,118 | $ | 1,099 | 2 | % | ||||||||||||||||||
| Other Revenue | 30.3 | 23.0 | 32 | % | ||||||||||||||||||||||||||||
| TOTAL | $ | 699.0 | $ | 656.6 | 6 | % | ||||||||||||||||||||||||||
| Kansas City Southern and Subsidiaries | ||||||||||||||||||||||||||||||||
| Revenue & Carload/Units by Commodity - Year to Date September 30, 2018 and 2017 | ||||||||||||||||||||||||||||||||
| Revenues | Carloads and Units | Revenue per | ||||||||||||||||||||||||||||||
| (in millions) | (in thousands) | Carload/Unit | ||||||||||||||||||||||||||||||
| Year to Date | % | Year to Date | % | Year to Date | % | |||||||||||||||||||||||||||
| 2018 | 2017 | Change | 2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||||||||||||||
| Chemical & Petroleum | ||||||||||||||||||||||||||||||||
| Chemicals | $ | 179.0 | $ | 167.6 | 7 | % | 79.0 | 81.7 | (3 | %) | $ | 2,266 | $ | 2,051 | 10 | % | ||||||||||||||||
| Petroleum | 171.3 | 137.2 | 25 | % | 84.9 | 69.9 | 21 | % | 2,018 | 1,963 | 3 | % | ||||||||||||||||||||
| Plastics | 107.8 | 97.4 | 11 | % | 55.5 | 54.2 | 2 | % | 1,942 | 1,797 | 8 | % | ||||||||||||||||||||
| Total | 458.1 | 402.2 | 14 | % | 219.4 | 205.8 | 7 | % | 2,088 | 1,954 | 7 | % | ||||||||||||||||||||
| Industrial & Consumer Products | ||||||||||||||||||||||||||||||||
| Forest Products | 203.2 | 190.0 | 7 | % | 91.1 | 88.4 | 3 | % | 2,231 | 2,149 | 4 | % | ||||||||||||||||||||
| Metals & Scrap | 157.9 | 170.5 | (7 | %) | 87.7 | 91.0 | (4 | %) | 1,800 | 1,874 | (4 | %) | ||||||||||||||||||||
| Other | 90.4 | 80.7 | 12 | % | 69.5 | 66.4 | 5 | % | 1,301 | 1,215 | 7 | % | ||||||||||||||||||||
| Total | 451.5 | 441.2 | 2 | % | 248.3 | 245.8 | 1 | % | 1,818 | 1,795 | 1 | % | ||||||||||||||||||||
| Agriculture & Minerals | ||||||||||||||||||||||||||||||||
| Grain | 209.1 | 207.9 | 1 | % | 106.6 | 109.7 | (3 | %) | 1,962 | 1,895 | 4 | % | ||||||||||||||||||||
| Food Products | 107.4 | 111.1 | (3 | %) | 44.1 | 46.9 | (6 | %) | 2,435 | 2,369 | 3 | % | ||||||||||||||||||||
| Ores & Minerals | 16.1 | 14.9 | 8 | % | 18.6 | 17.1 | 9 | % | 866 | 871 | (1 | %) | ||||||||||||||||||||
| Stone, Clay & Glass | 22.1 | 21.8 | 1 | % | 10.1 | 9.9 | 2 | % | 2,188 | 2,202 | (1 | %) | ||||||||||||||||||||
| Total | 354.7 | 355.7 | — | 179.4 | 183.6 | (2 | %) | 1,977 | 1,937 | 2 | % | |||||||||||||||||||||
| Energy | ||||||||||||||||||||||||||||||||
| Utility Coal | 88.6 | 127.8 | (31 | %) | 94.3 | 132.5 | (29 | %) | 940 | 965 | (3 | %) | ||||||||||||||||||||
| Coal & Petroleum Coke | 33.3 | 30.7 | 8 | % | 47.1 | 46.3 | 2 | % | 707 | 663 | 7 | % | ||||||||||||||||||||
| Frac Sand | 30.4 | 38.5 | (21 | %) | 19.7 | 24.5 | (20 | %) | 1,543 | 1,571 | (2 | %) | ||||||||||||||||||||
| Crude Oil | 38.7 | 17.0 | 128 | % | 24.1 | 14.7 | 64 | % | 1,606 | 1,156 | 39 | % | ||||||||||||||||||||
| Total | 191.0 | 214.0 | (11 | %) | 185.2 | 218.0 | (15 | %) | 1,031 | 982 | 5 | % | ||||||||||||||||||||
| Intermodal | 284.6 | 266.4 | 7 | % | 762.1 | 716.6 | 6 | % | 373 | 372 | — | |||||||||||||||||||||
| Automotive | 193.3 | 170.2 | 14 | % | 123.0 | 114.6 | 7 | % | 1,572 | 1,485 | 6 | % | ||||||||||||||||||||
| TOTAL FOR COMMODITY GROUPS | 1,933.2 | 1,849.7 | 5 | % | 1,717.4 | 1,684.4 | 2 | % | $ | 1,126 | $ | 1,098 | 3 | % | ||||||||||||||||||
| Other Revenue | 86.8 | 72.8 | 19 | % | ||||||||||||||||||||||||||||
| TOTAL | $ | 2,020.0 | $ | 1,922.5 | 5 | % | ||||||||||||||||||||||||||
