Fourth Quarter 2018
Results
- Record fourth quarter revenues of $694
million, an increase of 5% from fourth quarter 2017
- Reported operating income of $256
million. Record fourth quarter adjusted operating income of $248
million, excluding a gain on insurance recoveries related to
hurricane damage
- Reported operating ratio of 63.1%,
compared to 64.0% in fourth quarter 2017. Adjusted operating ratio
of 64.3%
- Reported diluted earnings per share of
$1.59. Record fourth quarter adjusted diluted earnings per share of
$1.56, 13% higher than a year ago
Kansas City Southern (KCS) (NYSE:KSU) reported record fourth
quarter 2018 revenues of $694 million, an increase of 5% from
fourth quarter 2017 while carload volumes remained flat compared to
prior year.
Reported operating expenses in the fourth quarter of 2018 were
$438 million. Excluding a gain on insurance recoveries related to
damage and service interruptions from Hurricane Harvey in 2017,
adjusted operating expenses were $446 million, 6% higher than 2017.
Adjusted operating income was $248 million, 4% higher than a year
ago. KCS reported an adjusted fourth quarter operating ratio of
64.3%, 30 basis points higher than prior year.
Reported net income in the fourth quarter of 2018 was $162
million, or $1.59 per diluted share. As presented in the following
reconciliations, adjusted diluted earnings per share was a fourth
quarter record $1.56, 13% higher than a year ago.
For the full year of 2018, KCS achieved record revenues,
adjusted operating income and adjusted diluted earnings per share.
Revenue was $2.7 billion, up 5% from 2017, on 2% carload growth.
Full year 2018 operating income was $986 million. Excluding a gain
on insurance recoveries, adjusted operating income was $968
million, a 5% increase over prior year. The Company’s 2018 adjusted
operating ratio was 64.3%, unchanged from 2017.
Reported net income in 2018 was $629 million, or $6.13 per
diluted share. As presented in the following reconciliations,
adjusted diluted earnings per share was a record $5.97, 14% higher
than a year ago.
“While we delivered record revenues, adjusted operating income
and adjusted earnings per share, 2018 did not meet our own
expectations for financial or operational performance,” stated
President and Chief Executive Officer Patrick J. Ottensmeyer. “In
addition, we did not meet the expectations of our customers or
shareowners, particularly in the areas of customer service and
growth.
“KCS has entered 2019 with a renewed and heightened focus on
operational excellence. Throughout the year, we will implement
principles of the Precision Scheduled Railroading (PSR) methodology
that are most applicable to our network. We expect this focus on
operational excellence and PSR principles to help drive improvement
in asset utilization, cost and capital efficiency and customer
satisfaction.
“As we look forward, our confidence in topline growth and
operational improvement is strong, supporting our outlook for an
operating ratio of 60% to 61% by the year 2021.”
GAAP Reconciliations
($ in millions, except per share
amounts)
Reconciliation of Diluted Earnings per Share to
Adjusted Diluted
Earnings per Share Three Months Ended December 31, 2018
Income BeforeIncome Taxes
Income TaxExpense
NetIncome
DilutedEarningsper Share
As reported $ 222.1 $ 60.3 $ 161.8 $ 1.59 Adjustments for:
Gain on insurance recoveries related to
hurricane damage
(8.5 ) (2.0 ) (6.5 ) (0.06 ) Foreign exchange loss 8.5 2.6 5.9 0.05
Foreign exchange component of income taxes — 2.5 (2.5
) (0.02 ) Adjusted $ 222.1 $ 63.4 158.7 Less:
Noncontrolling interest (0.7 )
Adjusted net income available to common
stockholders - see (a) below
$ 158.0 $ 1.56
Three Months Ended December
31, 2017
Income BeforeIncome Taxes
Income Tax(Benefit)Expense
NetIncome
DilutedEarningsper Share
As reported $ 193.2 $ (359.2 ) $ 552.4 $ 5.33 Adjustments for:
Foreign exchange loss 20.1 6.1 14.0 0.14 Foreign exchange component
of income taxes — 8.2 (8.2 ) (0.08 ) Tax Cuts and Jobs Act —
414.4 (414.4 ) (4.01 ) Adjusted $ 213.3 $ 69.5
143.8 Less: Noncontrolling interest (0.7 )
Adjusted net income available to common
stockholders - see (a) below
$ 143.1 $ 1.38
GAAP Reconciliations
(continued)
($ in millions, except per share
amounts)
Reconciliation of Diluted Earnings per Share to
Adjusted Diluted Earnings per
Share Year Ended December 31, 2018
Income BeforeIncome Taxes
Income TaxExpense
NetIncome
DilutedEarningsper Share
As reported $ 886.9 $ 257.5 $ 629.4 $ 6.13 Adjustments for:
Gain on insurance recoveries related to
hurricane damage
(17.9 ) (4.2 ) (13.7 ) (0.13 ) Debt retirement costs 2.2 0.7 1.5
0.02 Foreign exchange gain (7.8 ) (2.3 ) (5.5 ) (0.05 ) Foreign
exchange component of income taxes — (21.7 ) 21.7 0.21 Tax Cuts and
Jobs Act — 20.9 (20.9 ) (0.21 ) Adjusted $ 863.4
$ 250.9 612.5
Less: Noncontrolling interest and
preferred stock dividends
(2.2 )
Adjusted net income available to common
stockholders - see (a) below
$ 610.3 $ 5.97
Year Ended December 31,
2017
Income BeforeIncome Taxes
Income Tax(Benefit)Expense
NetIncome
DilutedEarningsper Share
As reported $ 874.3 $ (89.6 ) $ 963.9 $ 9.16 Adjustments for:
Foreign exchange gain (41.7 ) (12.5 ) (29.2 ) (0.28 ) Foreign
exchange component of income taxes — (31.6 ) 31.6 0.30 Tax Cuts and
Jobs Act — 413.0 (413.0 ) (3.93 ) Adjusted $ 832.6
$ 279.3 553.3
Less: Noncontrolling interest and
preferred stock dividends
(2.1 )
Adjusted net income available to common
stockholders - see (a) below
$ 551.2 $ 5.25
GAAP Reconciliations
(continued)
($ in millions)
Reconciliation of Operating Expenses to Adjusted
Three Months Ended Years
Ended Operating Expenses December 31, December
31, 2018 2017 2018
2017 Operating expenses as reported $ 437.6 $ 422.6 $
1,727.7 $ 1,661.3
Adjustment for gain on insurance
recoveries related to hurricane damage
8.5 — 17.9 — Adjusted operating
expenses - see (b) below $ 446.1 $ 422.6 $ 1,745.6
$ 1,661.3 Operating income as reported $ 256.4
$ 237.8 $ 986.3 $ 921.6 Adjusted operating income - see (b) below
247.9 237.8 968.4 921.6 Operating ratio (c) as reported 63.1
% 64.0 % 63.7 % 64.3 % Adjusted operating ratio - see (b) and (c)
below 64.3 % 64.0 % 64.3 % 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 excluding the
impact of changes in foreign currency exchange rates, the impact of
and adjustments to the 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 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, 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
Years Ended December 31, December 31,
2018 2017 2018
2017 Revenues $ 694.0 $ 660.4 $ 2,714.0
$ 2,582.9 Operating expenses: Compensation and benefits
128.3 122.2 495.7 493.8 Purchased services 51.5 47.2 200.7 193.7
Fuel 91.2 81.7 348.2 316.1 Mexican fuel excise tax credit (11.1 )
(8.5 ) (37.7 ) (44.1 ) Equipment costs 30.2 35.9 126.1 129.2
Depreciation and amortization 89.6 79.3 346.7 320.9 Materials and
other 66.4 64.8 265.9 251.7 Gain on insurance recoveries related to
hurricane damage (8.5 ) — (17.9 ) — Total operating
expenses 437.6 422.6 1,727.7 1,661.3
Operating income 256.4 237.8 986.3 921.6 Equity in net earnings of
affiliates 0.8 1.8 2.6 11.5 Interest expense (28.2 ) (25.3 ) (110.0
) (100.2 ) Debt retirement costs — — (2.2 ) — Foreign exchange gain
(loss) (8.5 ) (20.1 ) 7.8 41.7 Other income (expense), net 1.6
(1.0 ) 2.4 (0.3 ) Income before income taxes 222.1
193.2 886.9 874.3 Income tax expense (benefit) 60.3 (359.2 )
257.5 (89.6 ) Net income 161.8 552.4 629.4 963.9 Less: Net
income attributable to noncontrolling interest 0.7 0.7
2.0 1.9 Net income attributable to Kansas City
Southern and subsidiaries 161.1 551.7 627.4 962.0 Preferred stock
dividends — — 0.2 0.2 Net income
available to common stockholders $ 161.1 $ 551.7 $
627.2 $ 961.8 Earnings per share: Basic
earnings per share $ 1.59 $ 5.35 $ 6.16 $ 9.18
Diluted earnings per share $ 1.59 $ 5.33 $
6.13 $ 9.16 Average shares outstanding (in
thousands): Basic 101,098 103,038 101,852 104,728 Potentially
dilutive common shares 418 393 418 312
Diluted 101,516 103,431 102,270 105,040
Kansas City Southern and Subsidiaries
Revenue & Carload/Units by Commodity - Fourth Quarter 2018
and 2017
Revenues Carloads and Units
Revenue per (in millions) (in thousands)
Carload/Unit
Fourth Quarter % Fourth Quarter % Fourth Quarter % 2018 2017 Change
2018 2017 Change 2018 2017 Change Chemical & Petroleum
Chemicals $ 57.3 $ 57.5 — 24.5 26.2 (6 %) $ 2,339 $ 2,195 7 %
Petroleum 70.6 48.8 45 % 35.4 24.7 43 % 1,994 1,976 1 % Plastics
36.1 31.4 15 % 18.6 16.8 11 % 1,941
1,869 4 % Total 164.0 137.7 19 % 78.5
67.7 16 % 2,089 2,034 3 %
Industrial & Consumer Products Forest Products 64.8 65.8 (2 %)
28.7 30.5 (6 %) 2,258 2,157 5 % Metals & Scrap 50.3 52.8 (5 %)
26.3 29.1 (10 %) 1,913 1,814 5 % Other 24.4 28.5 (14
%) 21.6 24.5 (12 %) 1,130 1,163 (3 %)
Total 139.5 147.1 (5 %) 76.6 84.1 (9 %)
1,821 1,749 4 % Agriculture & Minerals
Grain 80.8 70.2 15 % 37.5 36.3 3 % 2,155 1,934 11 % Food Products
38.3 40.0 (4 %) 15.4 15.7 (2 %) 2,487 2,548 (2 %) Ores &
Minerals 4.8 5.0 (4 %) 6.2 5.6 11 % 774 893 (13 %) Stone, Clay
& Glass 7.8 6.5 20 % 3.4 3.1 10 %
2,294 2,097 9 % Total 131.7 121.7 8 %
62.5 60.7 3 % 2,107 2,005 5 %
Energy Utility Coal 28.7 38.5 (25 %) 31.3 43.2 (28 %) 917 891 3 %
Coal & Petroleum Coke 11.0 10.1 9 % 16.3 16.1 1 % 675 627 8 %
Frac Sand 7.0 13.3 (47 %) 4.5 8.2 (45 %) 1,556 1,622 (4 %) Crude
Oil 18.6 7.9 135 % 11.3 6.2 82 % 1,646
1,274 29 % Total 65.3 69.8 (6 %) 63.4
73.7 (14 %) 1,030 947 9 %
Intermodal 98.2 97.4 1 % 268.3 258.5 4
% 366 377 (3 %) Automotive 59.9 60.6
(1 %) 38.9 40.9 (5 %) 1,540 1,482
4 %
TOTAL FOR COMMODITY GROUPS 658.6 634.3 4 %
588.2 585.6 — $ 1,120 $ 1,083 3
% Other Revenue 35.4 26.1 36 %
TOTAL $ 694.0 $ 660.4 5 %
Kansas City Southern and Subsidiaries Revenue &
Carload/Units by Commodity - Years Ended December 31, 2018 and
2017
Revenues Carloads and Units Revenue
per (in millions) (in thousands)
Carload/Unit Years
Ended % Years Ended % Years Ended % 2018 2017 Change 2018 2017
Change 2018 2017 Change Chemical & Petroleum Chemicals $
236.3 $ 225.1 5 % 103.5 107.9 (4 %) $ 2,283 $ 2,086 9 % Petroleum
241.9 186.0 30 % 120.3 94.6 27 % 2,011 1,966 2 % Plastics 143.9
128.8 12 % 74.1 71.0 4 % 1,942
1,814 7 % Total 622.1 539.9 15 % 297.9
273.5 9 % 2,088 1,974 6 % Industrial
& Consumer Products Forest Products 268.0 255.8 5 % 119.8 118.9
1 % 2,237 2,151 4 % Metals & Scrap 208.2 223.3 (7 %) 114.0
120.1 (5 %) 1,826 1,859 (2 %) Other 114.8 109.2 5 %
91.1 90.9 — 1,260 1,201 5 %
Total 591.0 588.3 — 324.9 329.9
(2 %) 1,819 1,783 2 % Agriculture &
Minerals Grain 289.9 278.1 4 % 144.1 146.0 (1 %) 2,012 1,905 6 %
Food Products 145.7 151.1 (4 %) 59.5 62.6 (5 %) 2,449 2,414 1 %
Ores & Minerals 20.9 19.9 5 % 24.8 22.7 9 % 843 877 (4 %)
Stone, Clay & Glass 29.9 28.3 6 % 13.5
13.0 4 % 2,215 2,177 2 % Total 486.4
477.4 2 % 241.9 244.3 (1 %) 2,011 1,954
3 % Energy Utility Coal 117.3 166.3 (29 %) 125.6
175.7 (29 %) 934 946 (1 %) Coal & Petroleum Coke 44.3 40.8 9 %
63.4 62.4 2 % 699 654 7 % Frac Sand 37.4 51.8 (28 %) 24.2 32.7 (26
%) 1,545 1,584 (2 %) Crude Oil 57.3 24.9 130 % 35.4
20.9 69 % 1,619 1,191 36 % Total 256.3
283.8 (10 %) 248.6 291.7 (15 %) 1,031
973 6 % Intermodal 382.8 363.8 5
% 1,030.4 975.1 6 % 372 373 —
Automotive 253.2 230.8 10 % 161.9 155.5
4 % 1,564 1,484 5 %
TOTAL FOR
COMMODITY GROUPS 2,591.8 2,484.0 4 % 2,305.6 2,270.0
2 % $ 1,124 $ 1,094 3 % Other Revenue
122.2 98.9 24 %
TOTAL $ 2,714.0
$ 2,582.9 5 %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190118005072/en/
KCSAshley Thorne, 816-983-1530athorne@kcsouthern.com
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