Third Quarter 2018
Results
- Record revenues of $699 million, an
increase of 6% from prior year on 4% volume growth
- Reported operating income of $265
million, 14% higher than prior year. Record adjusted operating
income of $256 million, excluding a gain on insurance recoveries
related to hurricane damage
- Reported operating ratio of 62.0%,
compared to 64.4% in third quarter 2017. Adjusted operating ratio
of 63.4%
- Reported diluted earnings per share of
$1.70, an increase of 38% from prior year. Adjusted diluted
earnings per share of $1.57, 16% higher than a year ago
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 $1.57, 16% higher than a year ago,
excluding the impacts of foreign exchange, adjustments to 2017
provisional income tax benefit for the Tax Cuts and Jobs Act and a
gain on insurance recoveries related to hurricane damage.
“Kansas City Southern faced a challenging third quarter, as
network congestion in northern Mexico led to a difficult operating
environment,” stated Kansas City Southern’s President and Chief
Executive Officer Patrick J. Ottensmeyer. “However, we have taken
steps that we are confident will restore our service levels and
allow us to continue delivering strong and diversified franchise
cross-border volume and revenue growth, led by increased refined
product shipments to Mexico and strength in Intermodal and
Automotive commodity groups.
“As we look to 2019, our cross-border network offers unique
opportunities for volume growth from our robust Chemicals &
Petroleum, Intermodal, Automotive and export Grain franchises.
Moreover, the capital investments that we have made throughout our
network, position us to deliver superior long-term growth and
strong financial results to our stockholders.”
GAAP Reconciliations
($ in millions, except per share
amounts)
Reconciliation of Diluted Earnings per Share to
Adjusted Diluted Earnings per
Share Three Months Ended September 30, 2018
Income BeforeIncome Taxes
Income TaxExpense
NetIncome
Diluted Earningsper 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
Three Months Ended
September 30, 2017
Income BeforeIncome Taxes
Income TaxExpense
NetIncome
Diluted Earningsper Share
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)
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 %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181019005070/en/
KCSAshley Thorne, 816-983-1530athorne@kcsouthern.com
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