Third Quarter 2016
Results
- Revenue of $605 million, a decrease of
4% from third quarter 2015
- Carload volumes of 562 thousand, a
decrease of 4% from prior year
- Operating income of $200 million, a
decrease of 9% from third quarter 2015
- Operating ratio of 66.9%, compared with
65.2% in third quarter 2015
- Diluted earnings per share of $1.12, a
decrease of 7% compared to third quarter 2015. Adjusted diluted
earnings per share of $1.12, a decrease of 7% compared to third
quarter 2015
Kansas City Southern (KCS) (NYSE:KSU) reported third quarter
2016 revenues of $605 million, a decrease of 4% from third quarter
2015. Overall carload volumes decreased 4% compared to third
quarter 2015. Excluding the estimated impacts of Mexican peso
depreciation and lower U.S. fuel prices, revenue would have
decreased by 1% compared to the third quarter of 2015.
Third quarter 2016 revenues declined in four commodity groups,
partially offset by small increases in two others (Agriculture
& Minerals and Chemical & Petroleum). Intermodal revenue
declined 7%, largely attributable to service disruptions on our
Mexican network. Energy revenue declined 15% as the effects of
reduced U.S. drilling operations continue to be seen in both crude
oil & frac sand movements.
Operating expenses in the third quarter were $405 million, 2%
lower than 2015. Excluding the estimated impacts of Mexican peso
depreciation and lower U.S. fuel prices, operating expenses
increased 2% compared to the third quarter of 2015. In the third
quarter of 2016, the Company recognized a $16 million Mexican fuel
excise tax credit. Additionally, in the third quarter of 2016, the
Company recorded a year-to-date adjustment to increase the
incentive compensation level for the year.
Operating income for the third quarter of 2016 was $200 million,
a decrease of 9% from the third quarter 2015. KCS reported a third
quarter operating ratio of 66.9%, a 1.7 point increase from third
quarter 2015. Reported net income in the third quarter of 2016
totaled $121 million, or $1.12 per diluted share, compared with
$132 million, or $1.20 per diluted share, in the third quarter of
2015. Excluding the impacts of foreign exchange rate fluctuations,
adjusted diluted earnings per share for third quarter 2016 was
$1.12, compared to $1.21 in third quarter 2015.
“Kansas City Southern faced a challenging third quarter as
extraneous events, including flooding outages and service
disruptions on our Mexican network, resulted in additional
operating costs,” stated Kansas City Southern’s President and Chief
Executive Officer Patrick J. Ottensmeyer. “In spite of these
events, KCS’ third quarter carloads grew 5% sequentially with
strength seen in both the Automotive and Energy commodity groups.
Overall, the Company remains committed to growth and we continue to
invest and prepare for the many long-term opportunities on the
horizon.”
GAAP Reconciliations ($ in millions, except
per share amounts) Reconciliation of Diluted Earnings
per Share to Adjusted Diluted Earnings per Share
Three Months Ended September 30, 2016 Income Before Income
Taxes Income Tax Expense Net Income Diluted Earnings
per Share As reported $ 158.3 $ 37.3 $ 121.0 $ 1.12 Adjustments
for: Foreign exchange loss 19.8 5.9 13.9 0.13 Foreign exchange
component of income taxes — 14.1 (14.1 ) (0.13 )
Adjusted $ 178.1 $ 57.3 120.8
Less: Noncontrolling interest and
preferred stock dividends
(0.5 )
Adjusted net income available to common
stockholders - see (a) below
$ 120.3 $ 1.12
Three Months Ended September 30, 2015 Income Before Income
Taxes Income Tax Expense Net Income Diluted Earnings per Share As
reported $ 171.9 $ 40.0 $ 131.9 $ 1.20 Adjustments for: Foreign
exchange loss 30.0 9.0 21.0 0.19 Foreign exchange component of
income taxes — 19.6 (19.6 ) (0.18 ) Adjusted $ 201.9
$ 68.6 133.3
Less: Noncontrolling interest and
preferred stock dividends
(0.4 )
Adjusted net income available to common
stockholders - see (a) below
$ 132.9 $ 1.21
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 September 30, 2016 $ 604.5
Reported revenues for the three months ended September 30, 2015
631.9 Revenue change (27.4 ) (4 %) Estimated foreign
exchange impact 12.5 Estimated U.S. fuel price impact 6.6
Revenue change excluding foreign exchange
and U.S. fuel price impacts - see (b) below
$ (8.3 ) (1 %)
Operating Expense Change Excluding
Estimated Foreign Exchange and U.S. Fuel Price Impacts
Change % Reported operating expenses for the three months
ended September 30, 2016 $ 404.7 Reported operating expenses for
the three months ended September 30, 2015 412.0 Operating
expense change (7.3 ) (2 %) Estimated foreign exchange
impact 12.4 Estimated U.S. fuel price impact 2.5
Operating expense change excluding foreign
exchange and U.S. fuel price impacts - see (b) below
$ 7.6 2 % (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 Nine Months Ended
September 30, September 30, 2016
2015 2016 2015 Revenues $ 604.5
$ 631.9 $ 1,735.7 $ 1,820.8 Operating
expenses: Compensation and benefits 127.9 112.7 347.0 338.3
Purchased services 54.5 57.0 159.1 172.1 Fuel 67.6 78.5 186.0 237.0
Mexican fuel excise tax credit (15.6 ) — (49.6 ) — Equipment costs
32.0 31.2 85.9 90.2 Depreciation and amortization 76.9 71.4 226.9
210.7 Materials and other 61.4 61.2 172.8 178.0 Lease termination
costs — — — 9.6 Total operating
expenses 404.7 412.0 1,128.1 1,235.9
Operating income 199.8 219.9 607.6 584.9 Equity in net earnings of
affiliates 3.5 5.0 10.4 14.4 Interest expense (25.2 ) (21.9 ) (73.2
) (58.2 ) Foreign exchange loss (19.8 ) (30.0 ) (47.3 ) (52.1 )
Other expense, net — (1.1 ) (0.5 ) (3.1 ) Income before
income taxes 158.3 171.9 497.0 485.9 Income tax expense 37.3
40.0 147.4 140.6 Net income 121.0 131.9 349.6
345.3 Less: Net income attributable to noncontrolling interest 0.4
0.3 1.1 1.1 Net income attributable to
Kansas City Southern and subsidiaries 120.6 131.6 348.5 344.2
Preferred stock dividends 0.1 0.1 0.2 0.2
Net income available to common stockholders $ 120.5 $
131.5 $ 348.3 $ 344.0 Earnings per
share: Basic earnings per share $ 1.12 $ 1.20 $ 3.23
$ 3.12 Diluted earnings per share $ 1.12 $
1.20 $ 3.23 $ 3.12 Average shares
outstanding (in thousands): Basic 107,621 109,692 107,800 110,109
Potentially dilutive common shares 191 209 199
203 Diluted 107,812 109,901 107,999
110,312
Kansas City
Southern and Subsidiaries
Revenue &
Carload/Units by Commodity - Third Quarter 2016 and
2015
Revenues Carloads and Units Revenue per (in
millions) (in thousands)
Carload/Unit Third Quarter % Third
Quarter % Third Quarter % 2016 2015 Change 2016 2015 Change 2016
2015 Change Chemical & Petroleum Chemicals $ 53.7 $ 55.9
(4 %) 27.8 30.0 (7 %) $ 1,932 $ 1,863 4 % Petroleum 35.8 35.8 —
19.3 20.6 (6 %) 1,855 1,738 7 % Plastics 34.8 31.3 11
% 18.7 17.6 6 % 1,861 1,778 5 % Total
124.3 123.0 1 % 65.8 68.2 (4 %) 1,889
1,804 5 % Industrial & Consumer Products
Forest Products 64.4 69.5 (7 %) 29.7 32.4 (8 %) 2,168 2,145 1 %
Metals & Scrap 53.5 58.4 (8 %) 30.8 32.8 (6 %) 1,737 1,780 (2
%) Other 22.6 22.3 1 % 18.7 19.0 (2 %)
1,209 1,174 3 % Total 140.5 150.2 (6 %)
79.2 84.2 (6 %) 1,774 1,784 (1 %)
Agriculture & Minerals Grain 64.8 60.6 7 % 36.1 35.8 1 %
1,795 1,693 6 % Food Products 36.4 35.9 1 % 16.5 16.3 1 % 2,206
2,202 — Ores & Minerals 4.9 6.7 (27 %) 5.9 7.3 (19 %) 831 918
(9 %) Stone, Clay & Glass 7.3 7.4 (1 %) 3.2
3.2 — 2,281 2,313 (1 %) Total
113.4 110.6 3 % 61.7 62.6 (1 %) 1,838
1,767 4 % Energy Utility Coal 43.6 42.7 2 %
52.9 53.5 (1 %) 824 798 3 % Coal & Petroleum Coke 10.7 9.9 8 %
17.3 16.3 6 % 618 607 2 % Frac Sand 6.0 9.3 (35 %) 4.6 5.7 (19 %)
1,304 1,632 (20 %) Crude Oil 2.5 11.8 (79 %) 3.1
8.3 (63 %) 806 1,422 (43 %) Total 62.8
73.7 (15 %) 77.9 83.8 (7 %) 806
879 (8 %) Intermodal 88.6 95.2 (7 %)
240.6 252.7 (5 %) 368 377 (2 %)
Automotive 51.4 54.6 (6 %) 36.5 31.9 14
% 1,408 1,712 (18 %)
TOTAL FOR COMMODITY
GROUPS 581.0 607.3 (4 %) 561.7 583.4 (4 %) $
1,034 $ 1,041 (1 %) Other Revenue 23.5
24.6 (4 %)
TOTAL $ 604.5 $ 631.9
(4 %)
Kansas City
Southern and Subsidiaries
Revenue &
Carload/Units by Commodity - Year to Date September 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 $ 154.6 $ 162.7 (5
%) 81.4 87.8 (7 %) $ 1,899 $ 1,853 2 % Petroleum 111.1 101.6 9 %
62.1 55.9 11 % 1,789 1,818 (2 %) Plastics 98.3 89.5
10 % 54.3 49.5 10 % 1,810 1,808 —
Total 364.0 353.8 3 % 197.8 193.2
2 % 1,840 1,831 — Industrial
& Consumer Products Forest Products 189.6 205.5 (8 %) 88.9 97.3
(9 %) 2,133 2,112 1 % Metals & Scrap 160.0 176.4 (9 %) 94.3
95.4 (1 %) 1,697 1,849 (8 %) Other 68.4 58.9 16 %
57.2 55.4 3 % 1,196 1,063 13 % Total
418.0 440.8 (5 %) 240.4 248.1 (3 %)
1,739 1,777 (2 %) Agriculture & Minerals
Grain 193.2 174.3 11 % 108.8 101.2 8 % 1,776 1,722 3 % Food
Products 109.6 105.2 4 % 50.0 47.1 6 % 2,192 2,234 (2 %) Ores &
Minerals 14.2 20.2 (30 %) 16.2 20.9 (22 %) 877 967 (9 %) Stone,
Clay & Glass 21.5 21.0 2 % 9.6 9.1
5 % 2,240 2,308 (3 %) Total 338.5 320.7
6 % 184.6 178.3 4 % 1,834 1,799 2 %
Energy Utility Coal 85.7 96.4 (11 %) 110.9 120.8 (8 %) 773
798 (3 %) Coal & Petroleum Coke 27.9 30.2 (8 %) 46.6 45.0 4 %
599 671 (11 %) Frac Sand 16.9 32.5 (48 %) 13.6 19.0 (28 %) 1,243
1,711 (27 %) Crude Oil 11.5 25.4 (55 %) 11.4
16.7 (32 %) 1,009 1,521 (34 %) Total 142.0
184.5 (23 %) 182.5 201.5 (9 %) 778
916 (15 %) Intermodal 265.1 288.1
(8 %) 712.0 746.0 (5 %) 372 386
(4 %) Automotive 137.0 164.0 (16 %) 94.4
93.7 1 % 1,451 1,750 (17 %)
TOTAL FOR COMMODITY GROUPS 1,664.6 1,751.9 (5 %) 1,611.7
1,660.8 (3 %) $ 1,033 $ 1,055 (2 %)
Other Revenue 71.1 68.9 3 %
TOTAL $ 1,735.7 $ 1,820.8 (5 %)
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161018005557/en/
KCS:William H. Galligan,
816-983-1551bgalligan@kcsouthern.com
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