First Quarter 2019
Results
- Record first quarter revenues of $675
million, an increase of 6% from prior year on a 1% volume
decline
- Operating income of $160 million.
Record first quarter adjusted operating income of $242 million,
excluding restructuring charges related to Precision Scheduled
Railroading (“PSR”) initiatives, and including the Mexican fuel
excise tax credit
- Reported operating ratio of 76.2%.
Adjusted operating ratio of 64.2%, compared to 65.8% in the prior
year
- Reported diluted earnings per share of
$1.02. Adjusted diluted earnings per share of $1.54, 18% higher
than a year ago
Kansas City Southern (KCS) (NYSE:KSU) reported record first
quarter revenues of $675 million, an increase of 6% from first
quarter 2018. Overall, carload volumes declined by 1% compared to
prior year, driven primarily by service interruption at Lázaro
Cárdenas due to teacher protests.
Revenues for the first quarter of 2019 increased in four
commodity groups, led by a 21% increase in Chemicals and Petroleum
due to refined product shipments to Mexico. Agriculture and
Minerals grew by 8%, driven by improved network cycle times. Energy
and Industrial and Consumer Products also grew 5% and 2%,
respectively. These increases were partially offset by revenue
declines in Automotive and Intermodal of 4% and 12%, respectively,
due to auto plant shutdowns and teacher protests.
In the first quarter of 2019, reported operating expenses were
$515 million. Excluding restructuring charges related to PSR
initiatives, and including the Mexican fuel excise tax credit,
adjusted operating expenses were $433 million, 3% higher than 2018.
Adjusted operating income was $242 million, 10% higher than a year
ago. KCS reported an adjusted first quarter operating ratio of
64.2%, a 1.6 point improvement over first quarter 2018.
Reported net income in the first quarter of 2019 was $103
million, or $1.02 per diluted share, compared with $145 million, or
$1.40 per diluted share in the first quarter of 2018. As presented
in the following reconciliations, adjusted diluted earnings per
share was $1.54, 18% higher than a year ago.
“We are pleased to announce a strong start to the year with
solid revenue growth and improved operational performance,” stated
Kansas City Southern’s President and Chief Executive Officer
Patrick J. Ottensmeyer. “Although we are still in the early stages
of implementation, KCS’ transition to a precision-scheduled network
is already producing improved velocity and dwell, which is driving
improved customer service, labor and asset utilization as well as
other efficiencies.
“Our PSR initiatives support volume and revenue growth, capital
efficiency and an improved cost profile. They equally support
improved customer service, capacity and network resiliency. We have
confidence that this transition will continue to benefit all KCS
stakeholders, including customers and shareholders.”
GAAP Reconciliations
($ in millions, except per share
amounts)
Reconciliation of Diluted Earnings per Share to
Adjusted Diluted Earnings per Share Three
Months Ended March 31, 2019
Income BeforeIncome Taxes
Income TaxExpense
NetIncome
Diluted Earningsper Share
As reported $ 137.9 $ 34.7 $ 103.2 $ 1.02 Adjustments for:
Restructuring charges 67.5 17.1 50.4 0.50
Income tax accounting timing on Mexican
fuel excise tax credit
13.8 10.9 2.9 0.03 Debt retirement costs 0.6 0.2 0.4 — Foreign
exchange gain (4.6 ) (1.4 ) (3.2 ) (0.03 ) Foreign exchange
component of income taxes — (1.7 ) 1.7 0.02
Adjusted $ 215.2 $ 59.8 155.4
Less: Noncontrolling interest and
preferred stock dividends
(0.5 )
Adjusted net income available to common
stockholders - see (a) below
$ 154.9 $ 1.54
Three Months Ended
March 31, 2018
Income BeforeIncome Taxes
Income TaxExpense
NetIncome
Diluted Earningsper Share
As reported $ 221.7 $ 76.8 $ 144.9 $ 1.40 Adjustments for: Foreign
exchange gain (27.8 ) (8.3 ) (19.5 ) (0.19 ) Foreign exchange
component of income taxes — (8.9 ) 8.9 0.09
Adjusted $ 193.9 $ 59.6 134.3
Less: Noncontrolling interest and
preferred stock dividends
(0.5 )
Adjusted net income available to common
stockholders - see (a) below
$ 133.8 $ 1.30
GAAP Reconciliations
(continued)
($ in millions)
Reconciliation of Operating Expenses to
Adjusted
Three Months Ended Operating
Expenses March 31, 2019 2018
Operating expenses as reported $ 514.5 $ 419.9 Adjustment for
Mexican fuel excise tax credit - see (b) below (13.8 ) — Adjustment
for restructuring charges (67.5 ) — Adjusted operating
expenses - see (c) below $ 433.2 $ 419.9
Operating income as reported $ 160.3 $ 218.7 Adjusted operating
income - see (c) below 241.6 218.7 Operating ratio (c) as
reported 76.2 % 65.8 % Adjusted operating ratio - see (c) and (d)
below 64.2 % 65.8 % (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, changes in tax law and related income tax
accounting timing impacts, 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) As described further in
Note 3 of the consolidated financial statements in the Company's
Form 10-Q, a change in Mexican tax law resulted in the Mexican fuel
excise tax credit being recognized within income tax expense in
2019. As a result of this change, the Company believes an
adjustment for the Mexican fuel excise tax credit is meaningful as
it allows investors to evaluate the Company's performance for
different periods on a more comparable basis. (c) 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, and changes in
tax law. (d) 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 March 31, 2019 2018
Revenues $ 674.8 $ 638.6 Operating expenses:
Compensation and benefits 128.9 121.6 Purchased services 52.8 47.1
Fuel 83.0 81.3 Mexican fuel excise tax credit — (9.2 ) Equipment
costs 30.4 32.2 Depreciation and amortization 88.5 83.3 Materials
and other 63.4 63.6 Restructuring charges 67.5 —
Total operating expenses 514.5 419.9 Operating income
160.3 218.7 Equity in net earnings of affiliates 1.7 1.0 Interest
expense (28.2 ) (25.5 ) Debt retirement costs (0.6 ) — Foreign
exchange gain 4.6 27.8 Other income (expense), net 0.1 (0.3
) Income before income taxes 137.9 221.7 Income tax expense 34.7
76.8 Net income 103.2 144.9 Less: Net income
attributable to noncontrolling interest 0.4 0.4 Net
income attributable to Kansas City Southern and subsidiaries 102.8
144.5 Preferred stock dividends 0.1 0.1 Net income
available to common stockholders $ 102.7 $ 144.4
Earnings per share: Basic earnings per share $ 1.02 $
1.41 Diluted earnings per share $ 1.02 $ 1.40
Average shares outstanding (in thousands): Basic 100,500
102,574 Potentially dilutive common shares 415 402
Diluted 100,915 102,976
Kansas City
Southern and Subsidiaries Revenue & Carload/Units by
Commodity - First Quarter 2019 and 2018
Revenues Carloads and Units
Revenue per (in millions) (in
thousands)
Carload/Unit First Quarter % First Quarter %
First Quarter % 2019 2018 Change 2019 2018 Change
2019 2018 Change Chemical & Petroleum Chemicals $
60.5 $ 57.7 5 % 25.5 26.7 (4 %) $ 2,373 $ 2,161 10 % Petroleum 74.3
49.0 52 % 36.5 24.0 52 % 2,036 2,042 — Plastics 33.8 33.0
2 % 17.4 17.4 — 1,943 1,897
2 % Total 168.6 139.7 21 % 79.4 68.1
17 % 2,123 2,051 4 % Industrial &
Consumer Products Forest Products 66.4 65.3 2 % 27.9 29.6 (6 %)
2,380 2,206 8 % Metals & Scrap 57.0 53.8 6 % 30.7 29.7 3 %
1,857 1,811 3 % Other 26.4 27.2 (3 %) 21.3
22.7 (6 %) 1,239 1,198 3 % Total 149.8
146.3 2 % 79.9 82.0 (3 %) 1,875 1,784
5 % Agriculture & Minerals Grain 72.7 65.2 12 %
35.5 33.5 6 % 2,048 1,946 5 % Food Products 35.7 36.2 (1 %) 15.0
14.9 1 % 2,380 2,430 (2 %) Ores & Minerals 6.5 4.9 33 % 8.1 5.3
53 % 802 925 (13 %) Stone, Clay & Glass 8.0 7.1
13 % 3.4 3.2 6 % 2,353 2,219 6 % Total
122.9 113.4 8 % 62.0 56.9 9 % 1,982
1,993 (1 %) Energy Utility Coal 32.5 29.3 11 %
33.5 30.0 12 % 970 977 (1 %) Coal & Petroleum Coke 10.5 10.2 3
% 15.1 13.4 13 % 695 761 (9 %) Frac Sand 8.0 11.1 (28 %) 5.7 7.1
(20 %) 1,404 1,563 (10 %) Crude Oil 13.6 10.7 27 %
6.5 7.0 (7 %) 2,092 1,529 37 % Total
64.6 61.3 5 % 60.8 57.5 6 % 1,063
1,066 — Intermodal 79.9 90.9
(12 %) 220.9 243.0 (9 %) 362 374
(3 %) Automotive 57.6 59.8 (4 %) 36.6
39.8 (8 %) 1,574 1,503 5 %
TOTAL FOR
COMMODITY GROUPS 643.4 611.4 5 % 539.6 547.3 (1
%) $ 1,192 $ 1,117 7 % Other Revenue 31.4
27.2 15 %
TOTAL $ 674.8 $ 638.6
6 %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190417005191/en/
KCS:Ashley Thorne, 816-983-1530athorne@kcsouthern.com
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