(Kansas City Southern issues the following on October 28.)
KANSAS CITY, Mo. — Kansas City Southern (KCS) (NYSE:KSU) reported record third quarter revenues of $491.5 million, a 10.7% increase over third quarter 2007. The revenue growth was primarily related to a continued strong pricing environment. Carloadings were down 0.9% as compared to third quarter 2007 as a result of hurricanes disrupting service and refinery production during September. The financial impact to KCS of the two hurricanes that struck the Gulf Coast during the third quarter 2008 was more than one full point on the operating ratio or approximately $0.07 per diluted share.
Third Quarter Highlights
* Record revenues of $491.5 million, a 10.7% increase over 2007
* Record operating income of $111.0 million compared with $98.2 million in 2007, a 13.0% increase
* Operating ratio of 77.4%, a 0.5-point improvement over the prior year period
* Diluted EPS of $0.52
For the third quarter, KCS revenue growth was led by the coal sector which had revenue growth of 13.2% driven by increased volumes of 0.7%. Agriculture and Minerals experienced revenue increases of 12.3% quarter-over-quarter. In addition, in the third quarter, revenues in Industrial and Consumer Products, which includes forest products, metals and scrap and other commodities, increased 11.8% driven by a strong market for metal shipments. Chemical and Petroleum Products revenues grew at 10.5%, and Intermodal revenue grew 15.8%. Automotive, a key component of Kansas City Southern de Mexico’s (KCSM) commodity mix, was down 13.4% due to the soft economy and decreased demand for new vehicles.
Third quarter operating expenses were $380.5 million, an increase of 10.0% over the prior year period. Fuel was the primary driver of increases in the quarter and up 35% over the same prior year period. Excluding the impact of fuel expense, operating expenses were up 4.0%.
Operating income for the third quarter of 2008 was a record $111.0 million compared with $98.2 million last year, a 13.0% improvement. The third quarter 2008 operating ratio was 77.4%, a 0.5 point improvement compared with third quarter 2007.
KCS recorded a foreign exchange loss of $7.5 million. This compares to a loss of $1.9 million in third quarter 2007. The loss is attributable to the strengthening U.S. dollar against the Mexican peso and had the effect of reducing diluted earnings per share by $0.05 during the third quarter 2008 as compared to a loss of $0.01 in same quarter last year.
Net income available to common shareholders in the third quarter totaled $48.9 million, or $0.52 per diluted share, compared with $41.8 million, and $0.48 per diluted share, respectively, in third quarter 2007.
Comments from the Chairman
“The fact that KCS was able to report strong third quarter earnings despite having to withstand the impact of two hurricanes that struck the Gulf Coast in rapid succession is a tribute to the competence and dedication of our employees and the underlying strength of our business,” stated Chairman and Chief Executive Officer Michael R. Haverty.
“The financial impact to KCS of Hurricanes Gustav and Ike equated to over one full point on our operating ratio which translates into approximately $0.07 per diluted share. Just prior to the hurricanes, KCS volumes were up 1.5% in the third quarter compared to last year, indicative of the Company’s growing business opportunities. Unfortunately, the storms took 15 refineries and chemical facilities out of service temporarily. In addition, KCS’ U.S. – Mexico cross border traffic was totally shut down for eight days as a result of Union Pacific’s track in southeastern Texas, over which KCS operates, being out of service due to hurricane-related issues. After the cross border route was reopened, traffic was limited for an additional week due to the congestion resulting from the backlog of business.
“Given these challenges, in addition to those posed by a slowing economy, it is notable that KCS recorded double-digit, 10.7%, revenue gains for the quarter, a 13.0% increase in operating income, a 17.0% improvement in net income, and a 0.5 point improvement in operating ratio to 77.4%. This illustrates the benefit of KCS’ diversified business mix in both the U.S. and Mexico, and our ability to deliver improved operational results even in less than ideal conditions.”
Headquartered in Kansas City, Missouri, Kansas City Southern 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. Kansas City Southern’s North American rail holdings and strategic alliances are primary components of a NAFTA Railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada.