(The following article by Randolph Heaster was posted on the Kansas City Star website on August 4.)
KANSAS CITY — Citing costs related to buying control of Mexico’s largest railroad, Kansas City Southern posted a loss in the 2005 second quarter despite significantly higher revenues.
For the three months ended June 30, Kansas City Southern lost $25.8 million, or 32 cents a share, on $381.1 million in revenues. During the same period last year, the company earned $7 million, or 11 cents a share, on $153.9 million in sales.
It was the first quarter that Kansas City Southern has reported results consolidating the financial figures of Grupo TFM, the holding company that operates TFM, Mexico’s largest railroad.
On April 1, Kansas City Southern bought out its joint-venture partner in TFM, acquiring a majority interest in the railroad. Kansas City Southern now owns about 76 percent of TFM.
The company said it had one-time charges of about $51 million related to the acquisition of TFM. Kansas City Southern Railway, the U.S. portion of the railroad, saw its quarterly earnings rise by 12 percent and revenues by 17 percent compared to the same quarter last year.
Kansas City Southern also owns the Texas Mexican Railway, which connects the U.S. rail operations to Mexico’s.
Michael R. Haverty, Kansas City Southern’s chairman and chief executive, said the integration of TFM’s operations and finances is a big undertaking but has proceeded smoothly.
“We are pleased with the way the transition’s going,” he said during a conference call with analysts Wednesday. “We’ve had no disruptions of any significance as a result of the ownership change.”
TFM’s revenues were up for the quarter, but the Mexican railroad’s bottom line was hurt by tax rulings, purchase accounting and other costs, according to Kansas City Southern. The company also refinanced $443.5 million of TFM’s high-interest debt during the quarter.
Meanwhile, Kansas City Southern and the Mexican government continue to be in a stalemate over two issues. The government owes Kansas City Southern a $195 million tax refund from 1997 which with interest could be worth nearly $1 billion, and the government has an option to sell its interest in TFM to Kansas City Southern.
Haverty said that in late May, the company proposed swapping the refund in exchange for the government’s interest in the railroad. The government agency did not respond, he said.
“We have pushed the issue to a higher level in the Mexican government in an effort to get this resolved,” he said. “This has gone on and on and on.”
For the first half of the year, Kansas City Southern lost $19.9 million, or 27 cents a share, on $579.3 million in revenues. During the same time last year, the company earned $8.2 million, or 13 cents a share, on $301.7 million in sales.
Kansas City Southern shares rose 24 cents in trading Wednesday on the New York Stock Exchange, closing at $23.04 a share.