UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 14, 2015

 

 

KANSAS CITY SOUTHERN

(Exact name of company as specified in its charter)

 

 

 

DELAWARE   1-4717   44-0663509

(State or other jurisdiction

of incorporation)

 

(Commission

file number)

 

(IRS Employer

Identification Number)

427 West 12th Street, Kansas City, Missouri 64105

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:

(816) 983 - 1303

Not Applicable

(Former name or former address if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 7.01 Regulation FD Disclosure

On May 14, 2015, at the Bank of America Merrill Lynch Transportation Conference, Kansas City Southern (the “Company”) Executive Vice President and Chief Financial Officer, Michael W. Upchurch, will provide a business update. As noted in Mr. Upchurch’s presentation, the Company is withdrawing its 2015 revenue and volume guidance primarily due to the uncertainty around energy-related markets, foreign exchange impacts, and U.S. fuel prices. The Company is reiterating its operating ratio target of low-60s by 2017.

Additionally, the Company’s Board of Directors authorized a share repurchase program of up to $500 million, which management intends to deploy opportunistically. The repurchase program will be funded with currently available liquidity and/or future financing, and reflects the Company’s belief in the strength of the franchise and the future growth prospects.

A copy of Mr. Upchurch’s presentation is attached hereto as Exhibit 99.1. Interested investors not attending the conference may listen to the presentation via a simultaneous webcast on KCS’ website at www.kcsouthern.com. A link to the replay will be available following the event.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

 

Exhibit
No.

  

Description

99.1    Presentation, dated May 14, 2015, by Michael W. Upchurch, Executive Vice President and Chief Financial Officer of Kansas City Southern, at the Bank of America Merrill Lynch 2015 Transportation Conference

 

- 2 -


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Kansas City Southern
May 14, 2015 By:

/s/ Adam J. Godderz

Name: Adam J. Godderz
Title: Associate General Counsel & Corporate Secretary

 

- 3 -


Exhibit Index

 

Exhibit
No.

  

Description

99.1    Presentation, dated May 14, 2015, by Michael W. Upchurch, Executive Vice President and Chief Financial Officer of Kansas City Southern, at the Bank of America Merrill Lynch 2015 Transportation Conference

 

- 4 -



Michael W. Upchurch
Executive Vice President Finance & CFO
Kansas City Southern
Bank of America Merrill Lynch 2015 Transportation Conference
May 14
th
, 2015
Exhibit 99.1


©
2015 Kansas City Southern
2
Safe Harbor Statement
This presentation 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; interest rates; 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; credit risk of customers and counterparties and their failure to meet their
financial obligations; 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 conditions; political and economic
conditions in Mexico and the level of trade between the United States and Mexico; 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, 2014
(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. All reconciliations to GAAP can be found on the KCS website, kcsouthern.com/investors.


©
2015 Kansas City Southern
2015
OUTLOOK
3


©
2015 Kansas City Southern
Business Outlook
4
Withdrawing 2015 Revenue and Volume Guidance
Primarily due to uncertainty around energy-related markets, F/X impact and U.S. fuel price, KCS
is withdrawing its 2015 revenue and volume guidance at this time.
The Company will continue to provide disclosure on capital expenditure plans.
The Company will reevaluate providing revenue and volume guidance in early 2016.
Maintaining operating ratio goal of the low-60s by 2017


©
2015 Kansas City Southern
5
Q2 to Date Revenue and Carload Growth Well Behind Q1
Trends
* Q2 15 Revenue & Carload Growth as of  5/11/15
Impacts of
F/X
Impacts of
U.S. Fuel
Price
-4%
-
7%
-
3%
-4%
Revenue
Carloads
KCS Revenue and Carload
Growth
-11%
Utility Coal revenue down 68% due to
impacts of low natural gas prices, and
customer maintenance activity
Frac
Sand and Crude Oil negatively
impacted by lower energy prices and
spreads
Metals & Scrap down due to reduce demand
for drilling pipe, lower scrap prices, and
heavy foreign imports to North America
Service levels and tight equipment capacity
negatively impacting:
-
Grain
-
Automotive
-
Intermodal
Unfavorable
YoY
impacts of F/X and U.S. fuel
prices impacting revenue by 7%.
Impacts of recent increase in U.S. fuel price
to be seen in June/July.


©
2015 Kansas City Southern
Second Quarter Energy Segment Decline
Accelerating
6
* Q2 Revenue & Carload Growth as of  5/11/15
US Rig Count by Basin
-50%
-38%
Revenue
Carloads
KCS Energy Segment Revenue
and Carload Growth
4.00
6.00
8.00
10.00
12.00
14.00
16.00
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
110.00
Crude Price Trends
Maya -
WCS Spread
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
Henry Hub Natural Gas Spot Price
WTI Sport Price


©
2015 Kansas City Southern
7
Unregulated Customer Utility Coal down 90% from "Peak"
levels
$-
$2
$4
$6
$8
$10
$-
$10
$20
$30
$40
$50
$60
$70
$80
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Q3
14
Q4
14
Q1
15
KCS Utility Coal Revenue
Regulated Utility Coal
Non-Regulated Utility Coal
Avg. Henry Hub Natural Gas Spot Price


©
2015 Kansas City Southern
8
Service Issues are Impacting Growth
Current volume constraints
Service negatively impacting automotive, intermodal and grain
Core demand in these segments is strong
Service challenges caused by:
Lack of crews in Mexico due to higher than expected attrition
On-going maintenance and capacity enhancements by KCS and
interchange carriers in Texas on cross-border corridor and at/around
Laredo Bridge
Maintenance cycle to be completed in Q2
Multi-year capacity enhancement at Sanchez Yard continues
Equipment constraints due to reduced velocity
Delivery of 300 grain and 400 automotive railcars during the year


©
2015 Kansas City Southern
Key US Economic Indicators Have Deteriorated Since
Late ‘14
9
99.2
99.4
99.6
99.8
100
100.2
100.4
100.6
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
OECD
-
US
Leading
Indicator
46
48
50
52
54
56
58
60
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
PMI
104.4
104.6
104.8
105
105.2
105.4
105.6
105.8
106
106.2
106.4
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Industrial Production -
US
0
10
20
30
40
50
60
70
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
PMI -
New Orders


©
2015 Kansas City Southern
Challenging U.S. Rail Volume Environment in Q2
10
Source: AAR Carloads thru Week 18 / *excludes BNSF
-30.1%
1.1%
-11.2%
-55.3%
-18.9%
-25.1%
-20.2%
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
Carrier 1
Carrier 2
Carrier 3
KCS
Carrier 5
Carrier 6
Class I Average*
Coal Carloads
-0.8%
-4.2%
-0.9%
-6.1%
-1.2%
-3.5%
-2.3%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
Carrier 1
Carrier 2
Carrier 3
KCS
Carrier 5
Carrier 6
Class I Average*
Total Traffic: Class I Volume Growth
2.3%
-4.9%
1.3%
-1.7%
2.5%
0.8%
0.9%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Carrier 1
Carrier 2
Carrier 3
KCS
Carrier 5
Carrier 6
Class I Average*
Total Traffic ex. Coal
7.3%
-3.4%
4.3%
2.8%
3.3%
5.4%
4.2%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Carrier 1
Carrier 2
Carrier 3
KCS
Carrier 5
Carrier 6
Class I Average*
Intermodal Carloads


©
2015 Kansas City Southern
LONG-TERM
GROWTH
OPPORTUNITIES
11


©
2015 Kansas City Southern
Near-Sourcing Opportunities Resulting in
Foreign Direct Investment (FDI) in Mexico
12
2014 Foreign Direct
Investment (FDI) reached
$22.5 Billion
81% of FDI was registered
in states where KCS has
access
Labor cost advantages
Lower transportation costs
to North American markets
Source: KCS Market Research based on Secretaría de Economía de México.
Data includes all economic sectors. (2014 FDI)


KCS New Business
Opportunities
Global Partners
Est. Completion –
Q1
2017
Wylie Intermodal Facility
Sunoco Logistics
Open
Jefferson Rail Terminal
Open
Genesis Energy
Open
Hunt Refining
Open
Sasol Ethane Cracker
GM -
Expansion
Ford -
New Plant
VW -
Expansion
Toyota -
New Plant
Opens 2019
Audi -
New Plant
Opens Q2 2016
Kia –
New Plant
Opens Mid 2016
Mercedes/Infiniti-
New Plant 
Opens 2017
BMW –
New Plant
Opens 2019


©
2015 Kansas City Southern
14
APITAL
TRUCTURE
AND
APITAL
LLOCATION
RIORITIES
C
C
S
A
P


©
2015 Kansas City Southern
15
KCS is Announcing the Establishment of a Stock
Repurchase Program
$500 million program
Expires 6/30/17
To be executed opportunistically
Reflects management’s and Board of Director’s belief in the
strength of our franchise and our future growth prospects
To be funded with currently available liquidity and/or future
financing
Balances the interests of our shareholders and debt holders
Investment grade credit rating to be maintained
Ample capacity remains to fund growth opportunities


©
2015 Kansas City Southern
16
Balanced Approach to Investing in Business and
Returning Capital to Shareholders
Committed to superior growth profile
Original 2015 Capex –
$700 to $720 million range
New 2015 Capex -
$650 to $670 million range
Invest in
Business
Continue lease conversions
$3 million net operating income benefit in Q1 2015
Percentage of owned equipment increased from 31% at 12/31/13 to
55% at 03/31/15
Q1 15 asset purchases of $54 million
Additional
purchases
identified
to
increase
ownership
to
+/-
65%
Optimize
Capital
Structure
Board of Directors approved $500 million share repurchase program
Q1 cash dividend declared on Jan. 29, 2015; paid Apr. 8, 2015
Quarterly payout of $0.33 per share or $36.4 million
Annualized payout of $1.32 per share or $145.6 million
Shareholder
Returns


©
2015 Kansas City Southern
CONCLUSION
17


©
2015 Kansas City Southern
18
KSU Investment Highlights
Best-positioned growth story in the industry with unique
U.S.-Mexico cross-border network
Track record of strong financial and operating
performance
Well-diversified customer base and commodity mix
Excellent strategic positioning with multiple growth
drivers
Solid balance sheet with a commitment to maintaining
investment grade credit rating


©
2015 Kansas City Southern
19
Appendix
Cross-border
is defined as traffic that moves on Kansas City Southern both north and south of the U.S. / Mexico
border.  Traffic interchanged with a competing railroad at the border is not considered cross-border.
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