Kansas City Southern Reports Record Second Quarter 2017 Revenues And Earnings Per Share, And All-Time Record Quarterly Operating Income

Kansas City Southern (KCS) (NYSE:KSU) reported record second quarter 2017 revenues of $656 million, an increase of 15% from second quarter 2016. Overall, carload volumes increased 6% compared to second quarter 2016.

Operating expenses in the second quarter were $417 million, 20% higher than 2016. In the second quarter of 2016, KCS determined it could utilize a Mexican fuel excise tax credit, and recognized a year-to-date benefit, including $17 million for the first quarter of 2016.

Operating income for the second quarter of 2017 was $239 million, an increase of 9% from the second quarter 2016 and an all-time quarterly record. KCS reported a second quarter operating ratio of 63.5%, a 2.2 point increase from second quarter 2016. Reported net income in the second quarter of 2017 totaled $135 million, or $1.27 per diluted share, compared with $121 million, or $1.11 per diluted share, in the second quarter of 2016. Excluding the impacts of foreign exchange rate fluctuations, adjusted diluted earnings per share for second quarter 2017 was $1.33, compared to $1.22 in second quarter 2016.

"We are pleased to report record second quarter revenues and earnings per share, as well as an all-time record quarterly operating income," stated Kansas City Southern's President and Chief Executive Officer Patrick J. Ottensmeyer. "All three milestones highlight the overall strength of our second quarter 2017 results.

"Carloads were up in four out of six commodity groups, driving strong second quarter revenue growth of 15%. Our revenue performance featured strength in Energy, Automotive and Chemicals & Petroleum, as higher commodity prices, Mexican automotive production and the emergence of Mexican energy reform supported growth.

"Looking forward, the investments that we have made in our network and our ability to improve operational performance in a strong demand environment position our Company for continued growth."
 
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, 2017

Income BeforeIncome Taxes
   

Income TaxExpense
Net Income    

DilutedEarningsper Share
As reported $ 231.3 $ 96.6 $ 134.7 $ 1.27
Adjustments for:
Foreign exchange gain (14.2 ) (4.3 ) (9.9 ) (0.09 )
Foreign exchange component of income taxes   (16.6 ) 16.6   0.15  
Adjusted $ 217.1   $ 75.7   141.4
Less: Noncontrolling interest (0.3 )

Adjusted net income available to common stockholders - see (a) below
$ 141.1   $ 1.33  
 
 
Three Months Ended June 30, 2016

Income BeforeIncome Taxes

Income TaxExpense
Net Income

DilutedEarningsper Share
As reported $ 173.8 $ 53.3 $ 120.5 $ 1.11
Adjustments for:
Foreign exchange loss 24.0 7.2 16.8 0.16
Foreign exchange component of income taxes   5.3   (5.3 ) (0.05 )
Adjusted $ 197.8   $ 65.8   132.0
Less: Noncontrolling interest (0.4 )

Adjusted net income available to common stockholders - see (a) below
$ 131.6   $ 1.22  
  (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.
 

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; availability 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, 2016 (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     Six Months Ended
June 30, June 30,
2017     2016 2017     2016
Revenues $ 656.4   $ 568.5   $ 1,265.9   $ 1,131.2  
Operating expenses:
Compensation and benefits 125.2 109.0 242.6 219.1
Purchased services 51.4 53.7 100.2 104.6
Fuel 78.9 61.6 154.3 118.4
Mexican fuel excise tax credit (12.8 ) (34.0 ) (24.5 ) (34.0 )
Equipment costs 31.2 27.2 62.4 53.9
Depreciation and amortization 80.4 75.7 159.7 150.0
Materials and other 62.8   55.4   121.2   111.4  
Total operating expenses 417.1   348.6   815.9   723.4  
Operating income 239.3 219.9 450.0 407.8
Equity in net earnings of affiliates 2.9 3.0 6.9 6.9
Interest expense (25.0 ) (24.4 ) (49.7 ) (48.0 )
Foreign exchange gain (loss) 14.2 (24.0 ) 61.0 (27.5 )
Other income (expense), net (0.1 ) (0.7 ) 1.0   (0.5 )
Income before income taxes 231.3 173.8 469.2 338.7
Income tax expense 96.6   53.3   187.6   110.1  
Net income 134.7 120.5 281.6 228.6
Less: Net income attributable to noncontrolling interest 0.3   0.4   0.6   0.7  
Net income attributable to Kansas City Southern and subsidiaries 134.4 120.1 281.0 227.9
Preferred stock dividends     0.1   0.1  
Net income available to common stockholders $ 134.4   $ 120.1   $ 280.9   $ 227.8  
 
Earnings per share:
Basic earnings per share $ 1.27   $ 1.12   $ 2.66   $ 2.11  
Diluted earnings per share $ 1.27   $ 1.11   $ 2.65   $ 2.11  
 
Average shares outstanding ( in thousands):
Basic 105,473 107,720 105,792 107,891
Potentially dilutive common shares 285   187   250   203  
Diluted 105,758   107,907   106,042   108,094  
 
 
Kansas City Southern and Subsidiaries
Revenue & Carload/Units by Commodity - Second Quarter 2017 and 2016
 
    Revenues     Carloads and Units     Revenue per  
(in millions) (in thousands) Carload/Unit
Second Quarter % Second Quarter % Second Quarter %
2017   2016 Change 2017   2016 Change 2017   2016 Change
 
Chemical & Petroleum
Chemicals $ 56.0 $ 50.6 11 % 27.8 27.2 2 % $ 2,014 $ 1,860 8 %
Petroleum 50.8 40.3 26 % 25.5 22.7 12 % 1,992 1,775 12 %
Plastics 32.0   31.5   2 % 18.2   17.8   2 % 1,758   1,770   (1 %)
Total 138.8   122.4   13 % 71.5   67.7   6 % 1,941   1,808   7 %
 
Industrial & Consumer Products
Forest Products 62.2 60.4 3 % 29.3 28.7 2 % 2,123 2,105 1 %
Metals & Scrap 57.3 52.2 10 % 30.5 30.8 (1 %) 1,879 1,695 11 %
Other 29.1   23.5   24 % 22.9   19.8   16 % 1,271   1,187   7 %
Total 148.6   136.1   9 % 82.7   79.3   4 % 1,797   1,716   5 %
 
Agriculture & Minerals
Grain 73.1 65.2 12 % 37.6 37.5 1,944 1,739 12 %
Food Products 38.1 38.3 (1 %) 15.7 17.8 (12 %) 2,427 2,152 13 %
Ores & Minerals 4.8 4.7 2 % 5.6 5.5 2 % 857 855
Stone, Clay & Glass 7.4   6.9   7 % 3.4   3.2   6 % 2,176   2,156   1 %
Total 123.4   115.1   7 % 62.3   64.0   (3 %) 1,981   1,798   10 %
 
Energy
Utility Coal 39.0 19.3 102 % 38.4 26.2 47 % 1,016 737 38 %
Coal & Petroleum Coke 10.3 9.0 14 % 16.1 15.2 6 % 640 592 8 %
Frac Sand 14.0 5.8 141 % 8.7 4.5 93 % 1,609 1,289 25 %
Crude Oil 7.2   3.1   132 % 6.4   3.5   83 % 1,125   886   27 %
Total 70.5   37.2   90 % 69.6   49.4   41 % 1,013   753   35 %
 
Intermodal 90.6   91.4   (1 %) 243.1   246.2   (1 %) 373   371   1 %
 
Automotive 57.5   44.6   29 % 37.9   30.7   23 % 1,517   1,453   4 %
 
TOTAL FOR COMMODITY GROUPS 629.4 546.8 15 % 567.1   537.3   6 % $ 1,110   $ 1,018   9 %
 
Other Revenue 27.0   21.7   24 %
 
TOTAL $ 656.4   $ 568.5   15 %
 
 
Kansas City Southern and Subsidiaries
Revenue & Carload/Units by Commodity - Year to Date June 30, 2017 and 2016
 
    Revenues     Carloads and Units     Revenue per  
(in millions) (in thousands) Carload/Unit
Year to Date % Year to Date % Year to Date %
2017   2016 Change 2017   2016 Change 2017   2016 Change
 
Chemical & Petroleum
Chemicals $ 110.6 $ 100.9 10 % 55.3 53.6 3 % $ 2,000 $ 1,882 6 %
Petroleum 89.6 75.3 19 % 46.5 42.8 9 % 1,927 1,759 10 %
Plastics 65.1   63.5   3 % 36.4   35.6   2 % 1,788   1,784    
Total 265.3   239.7   11 % 138.2   132.0   5 % 1,920   1,816   6 %
 
Industrial & Consumer Products
Forest Products 125.7 125.2 58.9 59.2 (1 %) 2,134 2,115 1 %
Metals & Scrap 111.6 106.5 5 % 60.9 63.5 (4 %) 1,833 1,677 9 %
Other 51.4   45.8   12 % 43.7   38.5   14 % 1,176   1,190   (1 %)
Total 288.7   277.5   4 % 163.5   161.2   1 % 1,766   1,721   3 %
 
Agriculture & Minerals
Grain 139.3 128.4 8 % 73.3 72.7 1 % 1,900 1,766 8 %
Food Products 76.4 73.2 4 % 32.0 33.5 (4 %) 2,388 2,185 9 %
Ores & Minerals 9.1 9.3 (2 %) 10.4 10.3 1 % 875 903 (3 %)
Stone, Clay & Glass 14.9   14.2   5 % 6.7   6.4   5 % 2,224   2,219    
Total 239.7   225.1   6 % 122.4   122.9     1,958   1,832   7 %
 
Energy
Utility Coal 81.8 42.1 94 % 82.9 58.0 43 % 987 726 36 %
Coal & Petroleum Coke 21.3 17.2 24 % 32.4 29.3 11 % 657 587 12 %
Frac Sand 24.7 10.9 127 % 15.9 9.0 77 % 1,553 1,211 28 %
Crude Oil 11.7   9.0   30 % 10.1   8.3   22 % 1,158   1,084   7 %
Total 139.5   79.2   76 % 141.3   104.6   35 % 987   757   30 %
 
Intermodal 174.1   176.5   (1 %) 467.1   471.4   (1 %) 373   374    
 
Automotive 108.8   85.6   27 % 75.5   57.9   30 % 1,441   1,478   (3 %)
 

TOTAL FOR COMMODITY GROUPS
1,216.1 1,083.6 12 % 1,108.0   1,050.0   6 % $ 1,098   $ 1,032   6 %
 
Other Revenue 49.8   47.6   5 %
 
TOTAL $ 1,265.9   $ 1,131.2   12 %

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