Kansas City Southern Reports Record Third Quarter Results

Third Quarter 2019 Results

  • Record revenues of $747.7 million, an increase of 7% from prior year on flat volumes
  • Operating income of $282.0 million. Record adjusted operating income of $294.0 million up 15% over prior year, excluding restructuring charges related to Precision Scheduled Railroading (“PSR”) initiatives and a gain on insurance recoveries related to hurricane damage a year ago
  • Reported operating ratio of 62.3%. Adjusted operating ratio of 60.7%, compared to 63.4% in the prior year
  • Reported diluted earnings per share of $1.81. Record adjusted diluted earnings per share of $1.94, 24% higher than a year ago

KANSAS CITY, Mo.--()--Kansas City Southern (KCS) (NYSE:KSU) reported record revenues of $747.7 million, an increase of 7% from third quarter 2018. Overall, carload volumes were flat compared to prior year.

Revenue growth for the third quarter of 2019 was led by a 21% increase in Chemicals and Petroleum due primarily to increased refined fuel products and liquid petroleum gas shipments to Mexico. Agriculture and Minerals revenues grew 15%, driven primarily by improved cycle times. Industrial and Consumer Products and Intermodal revenues also increased by 2% and 1%, respectively. These increases were partially offset by revenue declines in the remaining two commodity groups. Energy revenues declined by 11%, as increased Utility Coal shipments were more than offset by declines in Frac Sand and Crude Oil; Automotive revenues declined by 2%.

In the third quarter of 2019, reported operating expenses were $465.7 million. Excluding restructuring charges related to PSR initiatives and a gain on insurance recoveries related to hurricane damage a year ago, adjusted operating expenses were $453.7 million, 2% higher than 2018. Adjusted operating income was $294.0 million, 15% higher than a year ago. KCS reported an adjusted third quarter operating ratio of 60.7%, a 2.70 point improvement over third quarter 2018.

Reported net income in the third quarter of 2019 was $180.6 million, or $1.81 per diluted share, compared with $174.0 million, or $1.70 per diluted share in the third quarter of 2018. As presented in the following reconciliations, adjusted diluted earnings per share was $1.94, 24% higher than a year ago.

Kansas City Southern posted all-time record financial results in the third quarter 2019, including adjusted operating income growth of 15% and an adjusted operating ratio of 60.7%” stated President and Chief Executive Officer Patrick J. Ottensmeyer. “These results are a testament to our employees’ hard work, and dedication to improving operational performance and customer service.

We are very pleased with our progress towards implementing PSR principles. Notwithstanding this exceptional performance, we expect to continue optimizing our cost profile while delivering superior customer service and shareholder value.”

GAAP Reconciliations

($ in millions, except per share amounts)

 

Reconciliation of Diluted Earnings per Share to

 

 

 

Adjusted Diluted Earnings per Share

Three Months Ended September 30, 2019

 

Income
Before
Income
Taxes

 

Income Tax
Expense

 

Net Income

 

Diluted
Earnings per
Share

As reported

$

254.8

 

$

74.2

 

$

180.6

 

$

1.81

Adjustments for:

 

 

 

 

 

 

 

Restructuring charges

12.0

 

3.2

 

8.8

 

0.09

Foreign exchange loss

3.4

 

1.0

 

2.4

 

0.02

Foreign exchange component of income taxes

 

(2.3)

 

2.3

 

0.02

Adjusted

$

270.2

 

$

76.1

 

194.1

 

 

Less: Noncontrolling interest and preferred stock

 

 

 

 

 

 

 

dividends

 

 

 

 

(0.5)

 

 

Adjusted net income available to common

 

 

 

 

 

 

 

stockholders - see (a) below

 

 

 

 

$

193.6

 

$

1.94

 

 

Three Months Ended September 30, 2018

 

Income
Before
Income
Taxes

 

Income Tax
Expense

 

Net Income

 

Diluted
Earnings per
Share

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

GAAP Reconciliations (continued)

($ in millions)

 

Reconciliation of Operating Expenses to Adjusted

Three Months Ended

 

Nine Months Ended

Operating Expenses

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

Operating expenses as reported

$

465.7

 

$

433.6

 

$

1,486.2

 

$

1,290.1

Adjustment for restructuring charges

(12.0)

 

 

(130.5)

 

Adjustment for gain on insurance recoveries related to

 

 

 

 

 

 

 

hurricane damage

 

9.4

 

 

9.4

Adjusted operating expenses - see (b) below

$

453.7

 

$

443.0

 

$

1,355.7

 

$

1,299.5

 

 

 

 

 

 

 

 

Operating income as reported

$

282.0

 

$

265.4

 

$

650.3

 

$

729.9

Adjusted operating income - see (b) below

294.0

 

256.0

 

780.8

 

720.5

 

 

 

 

 

 

 

 

Operating ratio (c) as reported

62.3%

 

 

62.0%

 

 

69.6%

 

 

63.9%

 

Adjusted operating ratio - see (b) and (c) below

60.7%

 

 

63.4%

 

 

63.5%

 

 

64.3%

 

 

(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, 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 adjusting for 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 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

 

Nine Months Ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

Revenues

$

 

747.7

 

$

 

699.0

 

$

 

2,136.5

 

$

 

2,020.0

Operating expenses:

 

 

 

 

 

 

 

Compensation and benefits

 

134.8

 

 

123.5

 

 

392.0

 

 

367.4

Purchased services

 

53.4

 

 

52.6

 

 

162.9

 

 

149.2

Fuel

 

87.1

 

 

90.2

 

 

257.8

 

 

257.0

Mexican fuel excise tax credit

 

 

(9.4)

 

 

 

(26.6)

Equipment costs

 

25.1

 

 

33.0

 

 

81.8

 

 

95.9

Depreciation and amortization

 

86.5

 

 

87.5

 

 

262.7

 

 

257.1

Materials and other

 

66.8

 

 

65.6

 

 

198.5

 

 

199.5

Restructuring charges

 

12.0

 

 

 

130.5

 

Gain on insurance recoveries related to hurricane damage

 

 

(9.4)

 

 

 

(9.4)

Total operating expenses

 

465.7

 

 

433.6

 

 

1,486.2

 

 

1,290.1

Operating income

 

282.0

 

 

265.4

 

 

650.3

 

 

729.9

Equity in net earnings (losses) of affiliates

 

2.1

 

 

(0.2)

 

 

3.6

 

 

1.8

Interest expense

 

(27.9)

 

 

(28.3)

 

 

(84.1)

 

 

(81.8)

Debt retirement costs

 

 

 

(0.6)

 

 

(2.2)

Foreign exchange gain (loss)

 

(3.4)

 

 

9.5

 

 

9.5

 

 

16.3

Other income, net

 

2.0

 

 

0.6

 

 

2.2

 

 

0.8

Income before income taxes

 

254.8

 

 

247.0

 

 

580.9

 

 

664.8

Income tax expense

 

74.2

 

 

73.0

 

 

168.0

 

 

197.2

Net income

 

180.6

 

 

174.0

 

 

412.9

 

 

467.6

Less: Net income attributable to noncontrolling interest

 

0.4

 

 

0.4

 

 

1.2

 

 

1.3

Net income attributable to Kansas City Southern and subsidiaries

 

180.2

 

 

173.6

 

 

411.7

 

 

466.3

Preferred stock dividends

 

0.1

 

 

0.1

 

 

0.2

 

 

0.2

Net income available to common stockholders

$

 

180.1

 

$

 

173.5

 

$

 

411.5

 

$

 

466.1

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

Basic earnings per share

$

 

1.81

 

$

 

1.71

 

$

 

4.12

 

$

 

4.56

Diluted earnings per share

$

 

1.81

 

$

 

1.70

 

$

 

4.10

 

$

 

4.55

 

 

 

 

 

 

 

 

Average shares outstanding (in thousands):

 

 

 

 

 

 

 

Basic

 

99,296

 

 

101,658

 

 

99,939

 

 

102,106

Potentially dilutive common shares

 

403

 

 

452

 

 

405

 

 

418

Diluted

 

99,699

 

 

102,110

 

 

100,344

 

 

102,524

 

 

 

 

 

 

 

 

Kansas City Southern and Subsidiaries

Revenue & Carload/Units by Commodity - Third Quarter 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

Carloads and Units

 

 

 

Revenue per

 

 

 

(in millions)

 

 

 

(in thousands)

 

 

 

Carload/Unit

 

 

 

Third Quarter

 

%

 

Third Quarter

 

%

 

Third Quarter

 

%

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemical & Petroleum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals

$

 

65.5

 

$

 

60.9

 

8%

 

 

25.7

 

26.2

 

(2%)

 

 

$

 

2,549

 

$

 

2,324

 

10%

 

Petroleum

 

89.1

 

 

64.5

 

38%

 

 

42.2

 

32.8

 

29%

 

 

 

2,111

 

 

1,966

 

7%

 

Plastics

 

39.6

 

 

35.2

 

13%

 

 

19.5

 

18.7

 

4%

 

 

 

2,031

 

 

1,882

 

8%

 

Total

 

194.2

 

 

160.6

 

21%

 

 

87.4

 

77.7

 

12%

 

 

 

2,222

 

 

2,067

 

7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial & Consumer Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forest Products

 

64.3

 

 

68.7

 

(6%)

 

 

26.6

 

30.5

 

(13%)

 

 

 

2,417

 

 

2,252

 

7%

 

Metals & Scrap

 

59.6

 

 

50.1

 

19%

 

 

30.5

 

27.7

 

10%

 

 

 

1,954

 

 

1,809

 

8%

 

Other

 

32.0

 

 

33.7

 

(5%)

 

 

24.3

 

23.1

 

5%

 

 

 

1,317

 

 

1,459

 

(10%)

 

Total

 

155.9

 

 

152.5

 

2%

 

 

81.4

 

81.3

 

 

 

 

1,915

 

 

1,876

 

2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture & Minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grain

 

78.3

 

 

68.5

 

14%

 

 

37.9

 

35.4

 

7%

 

 

 

2,066

 

 

1,935

 

7%

 

Food Products

 

40.0

 

 

34.9

 

15%

 

 

15.7

 

14.4

 

9%

 

 

 

2,548

 

 

2,424

 

5%

 

Ores & Minerals

 

6.7

 

 

5.4

 

24%

 

 

8.9

 

6.7

 

33%

 

 

 

753

 

 

806

 

(7%)

 

Stone, Clay & Glass

 

8.7

 

 

7.4

 

18%

 

 

3.5

 

3.4

 

3%

 

 

 

2,486

 

 

2,176

 

14%

 

Total

 

133.7

 

 

116.2

 

15%

 

 

66.0

 

59.9

 

10%

 

 

 

2,026

 

 

1,940

 

4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utility Coal

 

35.1

 

 

35.4

 

(1%)

 

 

38.6

 

37.3

 

3%

 

 

 

909

 

 

949

 

(4%)

 

Coal & Petroleum Coke

 

11.3

 

 

11.9

 

(5%)

 

 

13.6

 

17.4

 

(22%)

 

 

 

831

 

 

684

 

21%

 

Frac Sand

 

7.4

 

 

8.8

 

(16%)

 

 

5.3

 

5.6

 

(5%)

 

 

 

1,396

 

 

1,571

 

(11%)

 

Crude Oil

 

11.2

 

 

17.1

 

(35%)

 

 

7.2

 

10.1

 

(29%)

 

 

 

1,556

 

 

1,693

 

(8%)

 

Total

 

65.0

 

 

73.2

 

(11%)

 

 

64.7

 

70.4

 

(8%)

 

 

 

1,005

 

 

1,040

 

(3%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intermodal

 

100.5

 

 

100.0

 

1%

 

 

260.2

 

267.9

 

(3%)

 

 

 

386

 

 

373

 

3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automotive

 

64.8

 

 

66.2

 

(2%)

 

 

39.2

 

40.7

 

(4%)

 

 

 

1,653

 

 

1,627

 

2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL FOR COMMODITY GROUPS

 

714.1

 

 

668.7

 

7%

 

 

598.9

 

597.9

 

 

 

$

 

1,192

 

$

 

1,118

 

7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Revenue

 

33.6

 

 

30.3

 

11%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

$

 

747.7

 

$

 

699.0

 

7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kansas City Southern and Subsidiaries

Revenue & Carload/Units by Commodity - Year to Date September 30, 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

Carloads and Units

 

 

 

Revenue per

 

 

 

(in millions)

 

 

 

(in thousands)

 

 

 

Carload/Unit

 

 

 

Year to Date

 

%

 

Year to Date

 

%

 

Year to Date

 

%

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemical & Petroleum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemicals

$

 

187.6

 

$

 

179.0

 

5%

 

 

76.6

 

79.0

 

(3%)

 

 

$

 

2,449

 

$

 

2,266

 

8%

 

Petroleum

 

253.4

 

 

171.3

 

48%

 

 

121.6

 

84.9

 

43%

 

 

 

2,084

 

 

2,018

 

3%

 

Plastics

 

110.1

 

 

107.8

 

2%

 

 

55.5

 

55.5

 

 

 

 

1,984

 

 

1,942

 

2%

 

Total

 

551.1

 

 

458.1

 

20%

 

 

253.7

 

219.4

 

16%

 

 

 

2,172

 

 

2,088

 

4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial & Consumer Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forest Products

 

193.9

 

 

203.2

 

(5%)

 

 

81.3

 

91.1

 

(11%)

 

 

 

2,385

 

 

2,231

 

7%

 

Metals & Scrap

 

176.5

 

 

157.9

 

12%

 

 

91.6

 

87.7

 

4%

 

 

 

1,927

 

 

1,800

 

7%

 

Other

 

85.6

 

 

90.4

 

(5%)

 

 

67.6

 

69.5

 

(3%)

 

 

 

1,266

 

 

1,301

 

(3%)

 

Total

 

456.0

 

 

451.5

 

1%

 

 

240.5

 

248.3

 

(3%)

 

 

 

1,896

 

 

1,818

 

4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture & Minerals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grain

 

224.2

 

 

209.1

 

7%

 

 

109.3

 

106.6

 

3%

 

 

 

2,051

 

 

1,962

 

5%

 

Food Products

 

110.4

 

 

107.4

 

3%

 

 

44.9

 

44.1

 

2%

 

 

 

2,459

 

 

2,435

 

1%

 

Ores & Minerals

 

19.0

 

 

16.1

 

18%

 

 

25.0

 

18.6

 

34%

 

 

 

760

 

 

866

 

(12%)

 

Stone, Clay & Glass

 

25.4

 

 

22.1

 

15%

 

 

10.6

 

10.1

 

5%

 

 

 

2,396

 

 

2,188

 

10%

 

Total

 

379.0

 

 

354.7

 

7%

 

 

189.8

 

179.4

 

6%

 

 

 

1,997

 

 

1,977

 

1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utility Coal

 

95.1

 

 

88.6

 

7%

 

 

102.5

 

94.3

 

9%

 

 

 

928

 

 

940

 

(1%)

 

Coal & Petroleum Coke

 

31.9

 

 

33.3

 

(4%)

 

 

43.1

 

47.1

 

(8%)

 

 

 

740

 

 

707

 

5%

 

Frac Sand

 

22.1

 

 

30.4

 

(27%)

 

 

15.7

 

19.7

 

(20%)

 

 

 

1,408

 

 

1,543

 

(9%)

 

Crude Oil

 

34.4

 

 

38.7

 

(11%)

 

 

18.9

 

24.1

 

(22%)

 

 

 

1,820

 

 

1,606

 

13%

 

Total

 

183.5

 

 

191.0

 

(4%)

 

 

180.2

 

185.2

 

(3%)

 

 

 

1,018

 

 

1,031

 

(1%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intermodal

 

273.0

 

 

284.6

 

(4%)

 

 

725.7

 

762.1

 

(5%)

 

 

 

376

 

 

373

 

1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automotive

 

193.3

 

 

193.3

 

 

 

118.5

 

123.0

 

(4%)

 

 

 

1,631

 

 

1,572

 

4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL FOR COMMODITY GROUPS

 

2,035.9

 

 

1,933.2

 

5%

 

 

1,708.4

 

1,717.4

 

(1%)

 

 

$

 

1,192

 

$

 

1,126

 

6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Revenue

 

100.6

 

 

86.8

 

16%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

$

 

2,136.5

 

$

 

2,020.0

 

6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contacts

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

Contacts

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