(Kansas City Southern issued the following news release on July 29.)
KANSAS CITY, Mo. — Kansas City Southern (KCS or Company) (NYSE:KSU) reported consolidated net income of $ 9.2 million, or $0.11 per diluted share, for the second quarter of 2004, compared to a net loss of $0.5 million, or ($0.03) per diluted share for the second quarter of 2003. The results were driven by The Kansas City Southern Railway Company’s (KCSR) and Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.’s (Grupo TFM) improved operating and financial results.
KCS reported consolidated net income of $12.6 million, or $0.13 per diluted share, for the 6 months ended June 30, 2004. This compares to $4.2 million, or $0.05 per diluted share, in 2003, exclusive of a one-time $8.9 million benefit related to the cumulative effect of a required change in accounting (Statement of Financial Accounting Standards No. 143 “Accounting for Asset Retirement Obligations,” SFAS 143) that was recorded in the first quarter of 2003.
Second Quarter
Second quarter revenues for KCSR were $152.9 million, an increase of $8.3 million (5.7%) over second quarter 2003. Four of KCSR’s five commodity groups posted substantial quarter-over-quarter revenue increases. Overall yields also increased, led by Agriculture & Minerals which posted a 6.2% yield gain.
KCSR revenues from Chemical & Petroleum products increased by $3.2 million (10.3%) in the second quarter of 2004 over comparable 2003, led by strong growth in petroleum products and industrial gases. Agriculture & Minerals continued to be a consistently strong revenue producer with a quarter-over-quarter increase of $2.8 million (10.2%) driven by strong export and domestic grain volumes. Intermodal & Automotive second quarter 2004 revenues grew by $1.6 million (10.8%) over the comparable 2003 period due to significant growth in intermodal volumes and increases in intermodal haulage business. Second quarter 2004 coal revenues grew $1.2 million (5.3%) over second quarter 2003 due to increased volumes. Strong increases in lumber and paper traffic were offset by reduced military shipments and log and chip volumes, resulting in a very slight quarter-over-quarter decline (0.4%) in the Paper & Forest products group, the only group not to show a substantial gain.
Second quarter 2004 KCSR costs and expenses increased by $4.1 million over second quarter 2003. Lower equipment costs ($3.8 million), depreciation ($3.0 million), and material and supplies ($0.8 million) were more than offset by increases in compensation costs ($4.4 million), from price pressure on fuel ($3.0 million), and from casualties and insurance ($2.6 million).
KCSR’s 2004 second quarter operating income was $23.1 million, compared to $18.9 million the previous year, a $4.2 million, or 22%, quarter-over-quarter increase. KCSR’s operating ratio for the second quarter of 2004 improved by two points, to 84.9% from second quarter 2003.
Grupo TFM’s second quarter 2004 revenues were $184.9 million, a 4.7% increase over second quarter 2003. Costs and expenses in second quarter 2004 were $148.2 million, $4.4 million higher than in 2003, which included higher locomotive fuel costs of $3.8 million. Operating income increased 12% to $36.8 million from $32.8 million. Equity earnings from Grupo TFM, the parent company of TFM which operates the primary rail corridor between Mexico City and the United States, increased $5.2 million to $2.9 million from second quarter 2003. Grupo TFM’s operating ratio improved to 80.1% in the second quarter 2004 versus 81.4% in the prior year. The Company reports its equity in Grupo TFM under U.S. GAAP, while Grupo TFM reports under International Financial Reporting Standards (IFRS).
Year-to-Date
Year-to-date 2004 revenues for KCSR increased $16.5 million (5.8%) to $299.9 million from 2003. KCSR’s year-to-date 2004 costs and expenses decreased $1.8 million compared to 2003, driven by $6.1 million in lower depreciation expense and $4.8 million in lower equipment costs, partially offset by $4.6 million in increased compensation costs and $5.1 million in higher fuel costs.
KCSR’s 2004 year-to-date operating income was $46.6 million, or a 65% increase ($18.3 million), compared to $28.3 million in 2003. KCSR’s year-to-date operating ratio improved more than 5 1/2 points to 84.4% from 90.0% for the corresponding 2003 period.
The Company’s equity earnings from Grupo TFM for the six-month period ended June 30, 2004, decreased slightly ($0.4 million) despite TFM’s improved operating performance, due principally to reduced deferred tax benefits net of current tax provisions (calculated under U.S. GAAP), and a less favorable period-over-period exchange rate due to a 5.2% devaluation of the Mexican peso versus the U.S. dollar. These factors more than offset a 2.9% increase in Grupo TFM’s operating income, driven by a $7.3 million increase in revenues year-over-year. Grupo TFM’s operating ratio improved to 81.1% in the first half of 2004 versus 81.3% in the first half of 2003.
Comments from the Chairman
Michael R. Haverty, KCS’s Chairman, President and Chief Executive Officer stated, “KCSR has now had five consecutive quarters of positive quarter-over-quarter revenue growth comparisons. During that time, KCSR has significantly improved its operating metrics and customer service. There are still more opportunities at KCSR to increase revenues throughout the remainder of this year, and there are areas in which further reduction in costs will be targeted.
It has now been two full years since MCS, KCSR’s computer operating platform, was installed. The results have been exceptional in providing a powerful tool to more efficiently handle every aspect of the transportation service plan. During the second quarter 2004, MCS was installed on the Texas Mexican Railway (Tex-Mex), providing greater operational integration of KCSR and Tex-Mex. Over the last 18 months, KCSR has reduced its equipment costs by approximately $16 million.
“The increase in Grupo TFM’s revenues in the second quarter was encouraging. Cross border traffic interchange volumes and revenues between Grupo TFM and KCSR continue to increase, which speaks to the growing cooperation of the railroads as well as a strengthening North American economy. Like KCSR, Grupo TFM is committed to growing its top line and keeping its operating expenses under control.
“As KCSR moves into the peak transport season in North America, it is positioned to handle increased volume and maintain high levels of customer service. We believe TFM is, as well. The Company looks forward to an even stronger second half.”
KCS is comprised of, among others, The Kansas City Southern Railway Company (“KCSR”) and equity investments in Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (Grupo TFM), Southern Capital Corporation (“Southern Capital”) and Panama Canal Railway Company (“PCRC”).