Kansas City Southern (KCS) (NYSE:KSU) reported revenues of
$547.9 million, a decrease of 23% from second quarter 2019.
Overall, carload volumes were down 21% compared to prior year.
Second Quarter 2020
Second quarter revenues were $547.9 million, a decrease of 23%
primarily as a result of an overall decline in demand due to
COVID-19.
Second quarter operating expenses were $367.5 million, including
$10.5 million of restructuring charges primarily related to the
voluntary separation program implemented in the quarter. Operating
income was $180.4 million and the reported operating ratio was
67.1%; on an adjusted basis, operating ratio was 65.2%. Second
quarter net income was $110.3 million, or $1.16 per diluted share.
Adjusted second quarter operating income, operating ratio, net
income and diluted earnings per share were as follows:
(in millions, except operating ratio and
diluted earnings per share)
Three Months Ended June 30,
2020
Operating Income
Operating Ratio
Net Income
Diluted Earnings per Share
GAAP Operating Results
$
180.4
67.1
%
$
110.3
$
1.16
Restructuring Charges
10.5
(1.9
%)
7.7
0.08
Other Adjustments, Net
—
—
(8.3
)
(0.09
)
Adjusted Operating Results (non-GAAP)
$
190.9
65.2
%
$
109.7
$
1.15
See following pages for reconciliations to
GAAP
Due to the general economic uncertainty created by the global
COVID-19 pandemic, KCS is not providing guidance on revenue,
volume, operating ratio or earnings per share. Previously provided
2020 capital expenditure guidance remains $425.0 million or below.
Guidance for 2021 and 2022 capital expenditures remains at ~17% of
revenue. The Company is on track to deliver $500.0 million or more
of free cash flow in 2020. See the following pages for a
reconciliation of historical free cash flow.
“Kansas City Southern demonstrated excellent execution during an
extremely challenging quarter,” stated President and Chief
Executive Officer, Patrick J. Ottensmeyer. “Our network experienced
a rapid decline in volumes followed by an unprecedented rebound,
forcing us to quickly adjust our service model to match customer
demand while optimizing our cost structure.
“I would like to thank the men and women of Kansas City Southern
who work tirelessly under challenging circumstances to deliver
essential freight transportation and keep the U.S. and Mexican
economies running. Their efforts have allowed KCS to continue
providing consistent and reliable service to our customers.
“Precision Scheduled Railroading is producing sustainable
improvements to customer service and operations, and has been a key
contributor to the Company’s strong cost performance this quarter.
Although visibility into second half volumes and revenue remains
limited, the Company is focused on retaining the efficiencies
gained during the second quarter, and reiterates its outlook to
deliver at least $500 million free cash flow in 2020. We are
confident in our operational execution, and believe KCS will emerge
from these challenging times even better positioned to deliver
superior growth and shareholder returns.”
Statement Regarding Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with
U.S. GAAP, the accompanying second quarter 2020 earnings release
contains non-GAAP financial measures. KCS management believes that
certain non-GAAP financial measures used to review and in certain
cases manage the Company's business fall within the meaning of
Regulation G (Disclosure of non-GAAP financial measures) and may
provide its users of the financial information with additional
meaningful comparison when reviewing the Company's results. KCS
management uses non-GAAP information in its planning and
forecasting processes and to further analyze its own financial
trends and operational performance, as well as making financial
comparisons to prior periods presented on a similar basis.
Management believes investors and users of the Company's financial
information should consider all of the above factors when
evaluating KCS's results.
These non-GAAP measures should be viewed as a supplement and not
considered a substitute for GAAP measures. Some of KCS's non-GAAP
measures may differ from similar measures used by other companies,
even if similar terms are used to identify such measures.
GAAP Reconciliations
($ in millions, except per share amounts)
Reconciliation of Diluted Earnings per
Share to
Adjusted Diluted Earnings per
Share
Three Months Ended June 30,
2020
Income Before Income Taxes
Income Tax Expense
Net Income
Diluted Earnings per Share
As reported
$
151.1
$
40.8
$
110.3
$
1.16
Adjustments for:
Restructuring charges
10.5
2.8
7.7
0.08
Foreign exchange gain
(7.8
)
(2.3
)
(5.5
)
(0.06
)
Foreign exchange component of income
taxes
—
2.8
(2.8
)
(0.03
)
Adjusted
$
153.8
$
44.1
109.7
Less: Noncontrolling interest and
preferred stock
dividends
(0.6
)
Adjusted net income available to
common
stockholders - see (a) below
$
109.1
$
1.15
Three Months Ended June 30,
2019
Income Before Income Taxes
Income Tax Expense
Net Income
Diluted Earnings per Share
As reported
$
188.2
$
59.1
$
129.1
$
1.28
Adjustments for:
Restructuring charges
51.0
13.2
37.8
0.38
Foreign exchange gain
(8.3
)
(2.5
)
(5.8
)
(0.06
)
Foreign exchange component of income
taxes
—
(4.0
)
4.0
0.04
Adjusted
$
230.9
$
65.8
165.1
Less: Noncontrolling interest and
preferred stock
dividends
(0.4
)
Adjusted net income available to
common
stockholders - see (a) below
$
164.7
$
1.64
GAAP Reconciliations (continued)
($ in millions)
Reconciliation of Operating Expenses to
Adjusted
Three Months Ended
Six Months Ended
Operating Expenses
June 30,
June 30,
2020
2019
2020
2019
Operating expenses as reported
$
367.5
$
506.0
$
810.4
$
1,020.5
Adjustment for restructuring charges
(10.5
)
(51.0
)
(16.5
)
(118.5
)
Adjusted operating expenses - see (b)
below
$
357.0
$
455.0
$
793.9
$
902.0
Operating income as reported
$
180.4
$
208.0
$
469.2
$
368.3
Adjusted operating income - see (b)
below
190.9
259.0
485.7
486.8
Operating ratio (c) as reported
67.1
%
70.9
%
63.3
%
73.5
%
Adjusted operating ratio - see (b) and (c)
below
65.2
%
63.7
%
62.0
%
64.9
%
Free Cash Flow
Six Months Ended
June 30,
2020
2019
Net cash provided by operating
activities
$
525.5
$
541.2
Net cash used for investing activities
(299.2
)
(374.1
)
Free cash flow - see (d) below
$
226.3
$
167.1
(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, 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 adjusting for 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.
(d)
The Company believes free cash flow is a useful measure of
liquidity as it demonstrates the Company's ability to generate cash
for debt obligations, dividend payments, share repurchases, and
other strategic opportunities. Free cash flow is considered a
non-GAAP financial measure under SEC Regulation G and Regulation
S-K Item 10(e). As such, free cash flow does not have any
standardized meaning prescribed by GAAP and therefore, may not be
comparable to similar measures presented by other companies. Free
cash flow is defined as cash provided by operating activities less
cash used in investing activities. A reconciliation for the
Company's target free cash flow for 2020 is not provided because,
as a forward-looking statement, it is not available without
unreasonable efforts. The Company believes the information provided
is useful to investors as a measure of liquidity that can be
considered together with the Company's historical disclosures of
this measure.
Investor Conference Call and Webcast
KCS will also hold its second quarter 2020 earnings conference
call on Friday, July 17, 2020 at 8:45 a.m. eastern time.
Shareholders and other interested parties are invited to
participate via live webcast or telephone. To participate in the
live webcast and to view accompanying presentation materials,
please log into investors.kcsouthern.com immediately prior to the
presentation. To join the teleconference, please call (844)
308-6428 from the U.S., or (412) 317-5409 from all other
countries.
A replay of the presentation will be available by calling (877)
344-7529 from the U.S., (855) 669-9658 from Canada or (412)
317-0088 from all other countries and entering conference ID
10144659. The webcast replay and presentation materials will be
archived on the company’s website.
About Kansas City Southern
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
Forward-Looking Information
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934, as amended and
the Private Securities Litigation Reform Act of 1995. In addition,
management may make forward-looking statements orally or in other
writing, including, but not limited to, in press releases,
quarterly earnings calls, executive presentations, in the annual
report to stockholders and in other filings with the Securities and
Exchange Commission. Readers can usually identify these
forward-looking statements by the use of such words as "may,"
"will," "should," "likely," "plans," "projects," "expects,"
"anticipates," "believes" or similar words. These statements
involve a number of risks and uncertainties. Actual results could
materially differ from those anticipated by such forward-looking
statements as a result of a number of factors or combination of
factors including, but not limited: public health threats or
outbreaks of communicable diseases, such as the ongoing COVID-19
pandemic and its impact on KCS’s business, suppliers, consumers,
customers, employees and supply chains; rail accidents or other
incidents or accidents on KCS’s rail network or at KCS’s facilities
or customer facilities involving the release of hazardous
materials, including toxic inhalation hazards; legislative and
regulatory developments and disputes, including environmental
regulations; loss of the rail concession of Kansas City Southern’s
subsidiary, Kansas City Southern de México, S.A. de C.V.; domestic
and international economic, political and social conditions;
disruptions to the Company’s technology infrastructure, including
its computer systems; increased demand and traffic congestion; the
level of trade between the United States and Asia or Mexico;
fluctuations in the peso-dollar exchange rate; natural events such
as severe weather, hurricanes and floods; the outcome of claims and
litigation involving the Company or its subsidiaries; competition
and consolidation within the transportation industry; the business
environment in industries that produce and use items shipped by
rail; the termination of, or failure to renew, agreements with
customers, other railroads and third parties; fluctuation in prices
or availability of key materials, in particular diesel fuel; access
to capital; climate change and the market and regulatory responses
to climate change; 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 other acts of violence; and other
factors affecting the operation of the business; and other risks
identified in this news release, in KCS's Annual Report on Form
10-K for the year ended December 31, 2019, and in other reports
filed by KCS with the Securities and Exchange Commission.
Forward-looking statements reflect the information only as of
the date on which they are made. KCS does not undertake any
obligation to update any forward-looking statements to reflect
future events, developments, or other information.
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,
2020
2019
2020
2019
Revenues
$
547.9
$
714.0
$
1,279.6
$
1,388.8
Operating expenses:
Compensation and benefits
103.8
128.3
237.2
257.2
Purchased services
44.6
56.7
97.9
109.5
Fuel
39.5
87.7
114.4
170.7
Equipment costs
18.1
26.3
40.0
56.7
Depreciation and amortization
89.3
87.7
178.7
176.2
Materials and other
61.7
68.3
125.7
131.7
Restructuring charges
10.5
51.0
16.5
118.5
Total operating expenses
367.5
506.0
810.4
1,020.5
Operating income
180.4
208.0
469.2
368.3
Equity in net earnings (losses) of
affiliates
0.2
(0.2
)
1.2
1.5
Interest expense
(38.1
)
(28.0
)
(72.3
)
(56.2
)
Debt retirement costs
—
—
—
(0.6
)
Foreign exchange gain (loss)
7.8
8.3
(51.7
)
12.9
Other income, net
0.8
0.1
2.2
0.2
Income before income taxes
151.1
188.2
348.6
326.1
Income tax expense
40.8
59.1
86.0
93.8
Net income
110.3
129.1
262.6
232.3
Less: Net income attributable to
noncontrolling interest
0.6
0.4
1.1
0.8
Net income attributable to Kansas City
Southern and subsidiaries
109.7
128.7
261.5
231.5
Preferred stock dividends
—
—
0.1
0.1
Net income available to common
stockholders
$
109.7
$
128.7
$
261.4
$
231.4
Earnings per share:
Basic earnings per share
$
1.16
$
1.29
$
2.75
$
2.31
Diluted earnings per share
$
1.16
$
1.28
$
2.74
$
2.30
Average shares outstanding (in
thousands):
Basic
94,476
100,028
95,070
100,264
Potentially dilutive common shares
417
394
464
405
Diluted
94,893
100,422
95,534
100,669
Kansas City Southern and
Subsidiaries
Revenue & Carload/Units by
Commodity - Second Quarter 2020 and 2019
Revenues
Carloads and Units
Revenue per
(in millions)
(in thousands)
Carload/Unit
Second Quarter
%
Second Quarter
%
Second Quarter
%
2020
2019
Change
2020
2019
Change
2020
2019
Change
Chemical & Petroleum
Chemicals
$
52.2
$
61.6
(15
%)
21.2
25.4
(17
%)
$
2,462
$
2,425
2
%
Petroleum
70.6
90.0
(22
%)
36.7
42.9
(14
%)
1,924
2,098
(8
%)
Plastics
35.7
36.7
(3
%)
17.7
18.6
(5
%)
2,017
1,973
2
%
Total
158.5
188.3
(16
%)
75.6
86.9
(13
%)
2,097
2,167
(3
%)
Industrial & Consumer Products
Forest Products
57.8
63.2
(9
%)
24.2
26.8
(10
%)
2,388
2,358
1
%
Metals & Scrap
40.4
59.9
(33
%)
22.6
30.4
(26
%)
1,788
1,970
(9
%)
Other
22.4
27.2
(18
%)
21.2
22.0
(4
%)
1,057
1,236
(14
%)
Total
120.6
150.3
(20
%)
68.0
79.2
(14
%)
1,774
1,898
(7
%)
Agriculture & Minerals
Grain
64.1
73.2
(12
%)
33.0
35.9
(8
%)
1,942
2,039
(5
%)
Food Products
39.0
34.7
12
%
15.2
14.2
7
%
2,566
2,444
5
%
Ores & Minerals
5.3
5.8
(9
%)
7.0
8.0
(13
%)
757
725
4
%
Stone, Clay & Glass
6.0
8.7
(31
%)
2.5
3.7
(32
%)
2,400
2,351
2
%
Total
114.4
122.4
(7
%)
57.7
61.8
(7
%)
1,983
1,981
—
Energy
Utility Coal
23.2
27.5
(16
%)
25.6
30.4
(16
%)
906
905
—
Coal & Petroleum Coke
9.5
10.1
(6
%)
14.5
14.4
1
%
655
701
(7
%)
Frac Sand
1.7
6.7
(75
%)
1.5
4.7
(68
%)
1,133
1,426
(21
%)
Crude Oil
4.9
9.6
(49
%)
2.5
5.2
(52
%)
1,960
1,846
6
%
Total
39.3
53.9
(27
%)
44.1
54.7
(19
%)
891
985
(10
%)
Intermodal
63.5
92.6
(31
%)
191.0
244.6
(22
%)
332
379
(12
%)
Automotive
15.6
70.9
(78
%)
11.6
42.7
(73
%)
1,345
1,660
(19
%)
TOTAL FOR COMMODITY GROUPS
511.9
678.4
(25
%)
448.0
569.9
(21
%)
$
1,143
$
1,190
(4
%)
Other Revenue
36.0
35.6
1
%
TOTAL
$
547.9
$
714.0
(23
%)
Kansas City Southern and
Subsidiaries
Revenue & Carload/Units by
Commodity - Year to Date June 30, 2020 and 2019
Revenues
Carloads and Units
Revenue per
(in millions)
(in thousands)
Carload/Unit
Year to Date
%
Year to Date
%
Year to Date
%
2020
2019
Change
2020
2019
Change
2020
2019
Change
Chemical & Petroleum
Chemicals
$
114.7
$
122.1
(6
%)
45.8
50.9
(10
%)
$
2,504
$
2,399
4
%
Petroleum
166.4
164.3
1
%
83.2
79.4
5
%
2,000
2,069
(3
%)
Plastics
76.0
70.5
8
%
37.5
36.0
4
%
2,027
1,958
4
%
Total
357.1
356.9
—
166.5
166.3
—
2,145
2,146
—
Industrial & Consumer Products
Forest Products
126.7
129.6
(2
%)
51.6
54.7
(6
%)
2,455
2,369
4
%
Metals & Scrap
102.7
116.9
(12
%)
54.8
61.1
(10
%)
1,874
1,913
(2
%)
Other
50.2
53.6
(6
%)
45.0
43.3
4
%
1,116
1,238
(10
%)
Total
279.6
300.1
(7
%)
151.4
159.1
(5
%)
1,847
1,886
(2
%)
Agriculture & Minerals
Grain
141.9
145.9
(3
%)
68.4
71.4
(4
%)
2,075
2,043
2
%
Food Products
81.7
70.4
16
%
31.7
29.2
9
%
2,577
2,411
7
%
Ores & Minerals
11.1
12.3
(10
%)
14.7
16.1
(9
%)
755
764
(1
%)
Stone, Clay & Glass
14.2
16.7
(15
%)
6.0
7.1
(15
%)
2,367
2,352
1
%
Total
248.9
245.3
1
%
120.8
123.8
(2
%)
2,060
1,981
4
%
Energy
Utility Coal
46.8
60.0
(22
%)
54.8
63.9
(14
%)
854
939
(9
%)
Coal & Petroleum Coke
21.1
20.6
2
%
29.5
29.5
—
715
698
2
%
Frac Sand
5.5
14.7
(63
%)
4.6
10.4
(56
%)
1,196
1,413
(15
%)
Crude Oil
22.2
23.2
(4
%)
12.8
11.7
9
%
1,734
1,983
(13
%)
Total
95.6
118.5
(19
%)
101.7
115.5
(12
%)
940
1,026
(8
%)
Intermodal
152.2
172.5
(12
%)
424.6
465.5
(9
%)
358
371
(4
%)
Automotive
69.5
128.5
(46
)
%
43.8
79.3
(45
%)
1,587
1,620
(2
%)
TOTAL FOR COMMODITY GROUPS
1,202.9
1,321.8
(9
%)
1,008.8
1,109.5
(9
%)
$
1,192
$
1,191
—
Other Revenue
76.7
67.0
14
%
TOTAL
$
1,279.6
$
1,388.8
(8
%)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200717005065/en/
KCS: Ashley Thorne, 816-983-1530,
athorne@kcsouthern.com
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