(The following article by Randolph Heaster was posted on the Kansas City Star website on July 30.)
KANSAS CITY — Improving operations and a stronger economy propelled Kansas City Southern to a profit and higher revenues for its second quarter.
Kansas City Southern Railway and Grupo TFM posted higher revenues from the same period last year. TFM, Mexico’s biggest railroad, is jointly operated by Kansas City Southern and Grupo TMM, a Mexican transportation company. The two companies currently are in a dispute over the sale of majority interest in TFM to Kansas City Southern.
For the three months that ended June 30, Kansas City Southern earned $7 million for common-share holders, or 11 cents a share, on $153.9 million in revenues. Including preferred stock dividends, Kansas City Southern’s net income was $9.2 million. The company said $2.9 million in net earnings came from its interest in Grupo TFM.
During the same time last year, Kansas City Southern lost $1.8 million for common-share holders, or 3 cents a share, on $146.3 million in revenues. The net loss was $500,000 when including preferred stock dividends.
For the first six months of 2004, Kansas City Southern earned $8.2 million for common-share holders, or 13 cents a share, on $301.7 million in revenues. During the same time last year, the company earned $11.7 million for common-share holders, or 19 cents a share, on $286.5 million in revenues.
In the first half of 2003, Kansas City Southern included an $8.9 million gain based on an accounting change.
Freight volumes were up more than 5 percent for Kansas City Southern Railway while the company has kept a rein on operating expenses, executives said during a conference call Thursday with analysts.
Michael R. Haverty, Kansas City Southern’s chairman and chief executive officer, said the installation of a new computer system for Kansas City Southern Railway’s operations two years ago is beginning to show results. “Assets are moving much better,” Haverty said. “The economy is doing better, and that’s another reason KCSR is doing well.”
Haverty said that revenue gains between 4 percent and 5 percent are achievable for the remainder of the year, and that the company has added equipment to prepare for the busiest months ahead.
Negotiations between Kansas City Southern and TMM over the sale of TFM continue, Haverty said. He declined to reveal specifics. In April, the two companies agreed to halt the arbitration process while attempting to settle the dispute that began last year when TMM’s chairman and biggest shareholder rejected a previously negotiated sale of its interest in TFM for $412 million in cash and stock.
Kansas City Southern currently owns 37 percent of TFM and is seeking to increase its stake to 80 percent. The Mexican government owns the remaining 20 percent. Kansas City Southern wants to combine its U.S. rail operations with TFM and rename the carrier Nafta Rail.
TMM is in the process of a financial restructuring intended to keep the company out of bankruptcy. TMM’s bondholders are in the process of approving an exchange agreement for new bonds. TMM said it is confident the approval will be given next month.
Kansas City Southern shares Thursday closed up 43 cents at $14.73.