Second Quarter 2016
Results
- Revenue of $569 million, a decrease of
3% from second quarter 2015.
- Carload volumes of 537.3 thousand,
unchanged from prior year.
- Operating income of $220 million, an
increase of 18% from second quarter 2015.
- Operating ratio of 61.3%, compared with
68.1% in second quarter 2015.
- Diluted earnings per share of $1.11, an
increase of 10% compared to second quarter 2015. Adjusted diluted
earnings per share of $1.22, an increase of 18% compared to second
quarter 2015.
Kansas City Southern (KCS) (NYSE:KSU) reported second quarter
2016 revenues of $569 million, a decrease of 3% from second quarter
2015. Overall, carload volumes were unchanged compared to second
quarter 2015. Excluding the estimated impacts of Mexican peso
depreciation and lower U.S. fuel prices, revenue increased 2%
compared to the second quarter of 2015.
Operating expenses in the second quarter were $349 million, 13%
lower than 2015. Excluding the estimated impacts of Mexican peso
depreciation and lower U.S. fuel prices, operating expenses
decreased 7% compared to the second quarter of 2015. In the second
quarter of 2016, the Company recognized a $34 million Mexican fuel
excise tax credit, reflecting a benefit for the first half of
2016.
Operating income for the second quarter of 2016 was $220
million, an increase of 18% from the second quarter 2015. KCS
reported a second quarter operating ratio of 61.3%, a 6.8 point
improvement from second quarter 2015. Reported net income in the
second quarter of 2016 totaled $120 million, or $1.11 per diluted
share, compared with $112 million, or $1.01 per diluted share, in
the second quarter of 2015. Excluding the impacts of foreign
exchange rate fluctuations, adjusted diluted earnings per share for
second quarter 2016 was $1.22, compared to $1.03 in second quarter
2015.
“On balance, we were pleased with our second quarter 2016
results, particularly with the positive volume trend experienced
during late May and the entire month of June,” stated Kansas City
Southern’s President and Chief Executive Patrick J. Ottensmeyer.
“KCS’ carloads were up 2% in June and ended unchanged with second
quarter a year ago largely due to continued good performance in our
Chemical & Petroleum and Agriculture & Minerals business
units and a strengthening in our Automotive business late in the
quarter.
“Our service was affected for the second consecutive quarter by
the impact of flooding in the Houston, Texas area, which resulted
in a three-week shut-down of a bridge on the route KCS utilizes for
its cross-border traffic. While bridge repairs were being made, KCS
had to detour considerable traffic onto other carriers’ routes.
Again, we thank our railroad partners for their cooperation, as
well as commend KCS transportation personnel for their efforts in
keeping our service mostly fluid in the face of significant
challenges.”
GAAP Reconciliations($ in millions,
except per share amounts)
Reconciliation of Diluted Earnings per Share to
Adjusted Diluted Earnings per Share Three Months Ended
June 30, 2016
Income BeforeIncome Taxes
Income TaxExpense
Net Income
DilutedEarningsper Share
As reported $ 173.8 $ 53.3 $ 120.5 $ 1.11 Adjustments for: Foreign
exchange loss 24.0 7.2 16.8 0.16 Foreign exchange component of
income taxes — 5.3 (5.3 ) (0.05 ) Adjusted $ 197.8
$ 65.8 132.0 Less: Noncontrolling interest (0.4 )
Adjusted net income available to common stockholders - see (a)
below $ 131.6 $ 1.22
Three Months Ended
June 30, 2015
Income BeforeIncome Taxes
Income TaxExpense
Net Income
DilutedEarningsper Share
As reported $ 162.4 $ 50.2 $ 112.2 $ 1.01 Adjustments for: Foreign
exchange loss 10.5 3.2 7.3 0.07 Foreign exchange component of
income taxes — 5.4 (5.4 ) (0.05 ) Adjusted $ 172.9
$ 58.8 114.1 Less: Noncontrolling interest (0.4 )
Adjusted net income available to common stockholders - see (a)
below $ 113.7 $ 1.03
GAAP Reconciliations (continued)($
in millions)
Revenue Change Excluding Estimated Foreign Exchange
and U.S. Fuel Price Impacts Change % Reported
revenues for the three months ended June 30, 2016 $ 568.5 Reported
revenues for the three months ended June 30, 2015 585.8
Revenue change (17.3 ) (3 %) Estimated foreign exchange
impact 16.5 Estimated U.S. fuel price impact 11.3 Revenue
change excluding foreign exchange and U.S. fuel price impacts - see
(b) below $ 10.5 2 %
Operating Expense
Change Excluding Estimated Foreign Exchange and U.S. Fuel
Price Impacts Change % Reported operating expenses for
the three months ended June 30, 2016 $ 348.6 Reported operating
expenses for the three months ended June 30, 2015 399.0
Operating expense change (50.4 ) (13 %) Estimated foreign
exchange impact 16.5 Estimated U.S. fuel price impact 7.1
Operating expense change excluding foreign exchange and U.S. fuel
price impacts - see (b) below $ (26.8) (7 %)
(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 income tax expense impacts related to
these adjustments are calculated at the applicable statutory tax
rate. (b) The Company believes revenue and operating expense
changes excluding foreign exchange and U.S. fuel price impacts are
meaningful measures as they allow investors to evaluate the
Company's performance for different periods on a more comparable
basis by excluding the impacts of fluctuations in foreign currency
exchange rates and U.S. fuel price by holding these rates constant
between the reporting periods.
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 KCSR, 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 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 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;
availability of qualified 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, 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, 2015 (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 Six Months Ended June 30,
June 30, 2016 2015 2016 2015
Revenues $ 568.5 $ 585.8 $ 1,131.2 $ 1,188.9
Operating expenses: Compensation and benefits 109.0 108.0
219.1 225.6 Purchased services 53.7 57.0 104.6 115.1 Fuel 61.6 77.5
118.4 158.5 Mexican fuel excise tax credit (34.0 ) — (34.0 ) —
Equipment costs 27.2 29.9 53.9 59.0 Depreciation and amortization
75.7 70.8 150.0 139.3 Materials and other 55.4 55.8 111.4 116.8
Lease termination costs — — — 9.6 Total
operating expenses 348.6 399.0 723.4 823.9
Operating income 219.9 186.8 407.8 365.0 Equity in net
earnings of affiliates 3.0 5.0 6.9 9.4 Interest expense (24.4 )
(17.7 ) (48.0 ) (36.3 ) Foreign exchange loss (24.0 ) (10.5 ) (27.5
) (22.1 ) Other expense, net (0.7 ) (1.2 ) (0.5 ) (2.0 ) Income
before income taxes 173.8 162.4 338.7 314.0 Income tax expense 53.3
50.2 110.1 100.6 Net income 120.5 112.2
228.6 213.4 Less: Net income attributable to noncontrolling
interest 0.4 0.4 0.7 0.8 Net income
attributable to Kansas City Southern and subsidiaries 120.1 111.8
227.9 212.6 Preferred stock dividends — — 0.1
0.1 Net income available to common stockholders $ 120.1
$ 111.8 $ 227.8 $ 212.5 Earnings
per share: Basic earnings per share $ 1.12 $ 1.01 $
2.11 $ 1.93 Diluted earnings per share $ 1.11
$ 1.01 $ 2.11 $ 1.92 Average shares
outstanding (in thousands): Basic 107,720 110,334 107,891 110,322
Potentially dilutive common shares 187 181 203
200 Diluted 107,907 110,515 108,094
110,522
Kansas City
Southern and Subsidiaries
Revenue &
Carload/Units by Commodity - Second Quarter 2016 and
2015
Revenues Carloads and Units Revenue per
(in millions) (in thousands)
Carload/Unit Second Quarter %
Second Quarter % Second Quarter % 2016 2015 Change 2016 2015 Change
2016 2015 Change Chemical & Petroleum Chemicals $ 50.6 $
53.8 (6 %) 27.2 28.6 (5 %) $ 1,860 $ 1,881 (1 %) Petroleum 40.3
32.8 23 % 22.7 17.9 27 % 1,775 1,832 (3 %) Plastics 31.5
29.4 7 % 17.8 16.3 9 % 1,770 1,804
(2 %) Total 122.4 116.0 6 % 67.7 62.8
8 % 1,808 1,847 (2 %) Industrial &
Consumer Products Forest Products 60.4 67.5 (11 %) 28.7 32.5 (12 %)
2,105 2,077 1 % Metals & Scrap 52.2 57.5 (9 %) 30.8 31.3 (2 %)
1,695 1,837 (8 %) Other 23.5 19.6 20 % 19.8
19.0 4 % 1,187 1,032 15 % Total 136.1
144.6 (6 %) 79.3 82.8 (4 %) 1,716 1,746
(2 %) Agriculture & Minerals Grain 65.2 59.0 11 %
37.5 34.6 8 % 1,739 1,705 2 % Food Products 38.3 32.3 19 % 17.8
14.6 22 % 2,152 2,212 (3 %) Ores & Minerals 4.7 6.5 (28 %) 5.5
6.8 (19 %) 855 956 (11 %) Stone, Clay & Glass 6.9 6.7
3 % 3.2 2.9 10 % 2,156 2,310 (7
%) Total 115.1 104.5 10 % 64.0 58.9 9 %
1,798 1,774 1 % Energy Utility Coal 19.3 17.6
10 % 26.2 26.4 (1 %) 737 667 10 % Coal & Petroleum Coke 9.0
10.5 (14 %) 15.2 15.1 1 % 592 695 (15 %) Frac Sand 5.8 8.7 (33 %)
4.5 5.6 (20 %) 1,289 1,554 (17 %) Crude Oil 3.1 7.4
(58 %) 3.5 4.8 (27 %) 886 1,542 (43 %)
Total 37.2 44.2 (16 %) 49.4 51.9 (5 %)
753 852 (12 %) Intermodal 91.4 97.9
(7 %) 246.2 250.0 (2 %) 371 392
(5 %) Automotive 44.6 55.0 (19 %) 30.7
30.8 — 1,453 1,786 (19 %)
TOTAL FOR COMMODITY GROUPS 546.8 562.2 (3 %) 537.3
537.2 — $ 1,018 $ 1,047 (3 %)
Other Revenue 21.7 23.6 (8 %)
TOTAL $
568.5 $ 585.8 (3 %)
Kansas City
Southern and Subsidiaries
Revenue &
Carload/Units by Commodity - Year to Date June 30, 2016 and
2015
Revenues Carloads and Units Revenue per
(in millions) (in thousands)
Carload/Unit Year to Date %
Year to Date % Year to Date % 2016 2015 Change 2016 2015 Change
2016 2015 Change Chemical & Petroleum Chemicals $ 100.9
$ 106.8 (6 %) 53.6 57.8 (7 %) $ 1,882 $ 1,848 2 % Petroleum 75.3
65.8 14 % 42.8 35.3 21 % 1,759 1,864 (6 %) Plastics 63.5
58.2 9 % 35.6 31.9 12 % 1,784 1,824
(2 %) Total 239.7 230.8 4 % 132.0 125.0
6 % 1,816 1,846 (2 %) Industrial &
Consumer Products Forest Products 125.2 136.0 (8 %) 59.2 64.9 (9 %)
2,115 2,096 1 % Metals & Scrap 106.5 118.0 (10 %) 63.5 62.6 1 %
1,677 1,885 (11 %) Other 45.8 36.6 25 % 38.5
36.4 6 % 1,190 1,005 18 % Total 277.5
290.6 (5 %) 161.2 163.9 (2 %) 1,721
1,773 (3 %) Agriculture & Minerals Grain 128.4
113.7 13 % 72.7 65.4 11 % 1,766 1,739 2 % Food Products 73.2 69.3 6
% 33.5 30.8 9 % 2,185 2,250 (3 %) Ores & Minerals 9.3 13.5 (31
%) 10.3 13.6 (24 %) 903 993 (9 %) Stone, Clay & Glass 14.2
13.6 4 % 6.4 5.9 8 % 2,219 2,305
(4 %) Total 225.1 210.1 7 % 122.9 115.7
6 % 1,832 1,816 1 % Energy Utility Coal
42.1 53.7 (22 %) 58.0 67.3 (14 %) 726 798 (9 %) Coal &
Petroleum Coke 17.2 20.3 (15 %) 29.3 28.7 2 % 587 707 (17 %) Frac
Sand 10.9 23.2 (53 %) 9.0 13.3 (32 %) 1,211 1,744 (31 %) Crude Oil
9.0 13.6 (34 %) 8.3 8.4 (1 %) 1,084
1,619 (33 %) Total 79.2 110.8 (29 %)
104.6 117.7 (11 %) 757 941 (20 %)
Intermodal 176.5 192.9 (9 %) 471.4
493.3 (4 %) 374 391 (4 %) Automotive
85.6 109.4 (22 %) 57.9 61.8 (6 %) 1,478
1,770 (16 %)
TOTAL FOR COMMODITY GROUPS
1,083.6 1,144.6 (5 %) 1,050.0 1,077.4 (3 %) $ 1,032
$ 1,062 (3 %) Other Revenue 47.6 44.3
7 %
TOTAL $ 1,131.2 $ 1,188.9 (5
%)
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160719005402/en/
KCSWilliam H. Galligan,
816-983-1551bgalligan@kcsouthern.com
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