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Kansas City Southern's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Stocks in this article: KSU

David Starling

Thank you. Good morning and thank you for joining us for Kansas City Southern’s second quarter earnings presentation. Joining me today will be Dave Ebbrecht, EVP of Operations; Pat Ottensmeyer, EVP of Sales and Marketing; and Mike Upchurch, EVP and Chief Financial Officer. Also joining us by phone this morning is José Zozaya, President and Executive Representative of KCM from Mexico.

If you go to Page 5 on the overview, I’m going to keep my opening remarks brief and let Dave and Pat and Mike get into the specifics of the second quarter. However, I would like to say our profit in the face of the lower than anticipated utility coal carloads, some foreign exchange headwinds, and an uncertain economy, KCS had a good quarter and in certain areas a very good quarter. That we set second quarter records for revenues, carloads and operating incomes speaks to the overall strength of the KCS Rail franchise and underlines the fact that our growth story is very much intact, and that our key growth areas gained significant momentum.

For example, look at our cross-border intermodal business. In 2011, cross-border intermodal carloads increased by 56%. We were very impressed by that until the first quarter of 2012 when carloads increased by 78%. Again, we were impressed with this growth until the second quarter when the year-over-year volume growth hit 106%. It’s very exciting to see the percentage growth nearly double from 56 to 106% as the base actually gets larger.

This growth is extremely important for us for a number of reasons. First, it validates what we have said for a while now – there’s a huge market for a premium intermodal product between the U.S. and Mexico, and that market will continue to grow. KCS is in the enviable position of being the only railroad that had single-line service on both sides of the border and controlled the primary gateway between the U.S. and Mexico. We’ve invested in our network to ensure we can provide the service necessary to successfully convert a large percentage of the business from truck to rail. Now that the infrastructure is in place and our truck and rail partners are fully engaged, we’re seeing the results. And what is especially exciting, we’re still at the very beginning of what promises to be many years of expansion growth.

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