KANSAS CITY, Mo. — Kansas City Southern:
Fourth Quarter Highlights
— Diluted EPS of $0.41 compared with $0.03 in 2005.
— Record revenues of $442.4 million, a 14.0% increase over 2005.
— Record operating income of $88.2 million compared with $47.7 million in 2005.
— Operating ratio improves to 80.1%, a 7.6 point improvement from last year.
— Successful refinancing of $175 million of Kansas City Southern de Mexico (KCSM) notes at 7.625% replacing 10.25% notes.
Comparability – 2006 compared with 2005
— There are no adjustments in the fourth quarter 2006 as compared with the fourth quarter 2005.
— For the year 2006 compared with 2005, this press release includes adjustments made in the first and second quarters of 2005 as well as KCSM’s first quarter earnings prior to its consolidation into KCS on April 1, 2005 – see the KCS website/Investor Relations for reconciliations to GAAP.
Led by price increases and volume growth of 3.5%, Kansas City Southern (KCS) (NYSE: KSU) recorded fourth quarter 2006 revenues of $442.4 million, a 14.0% increase over fourth quarter 2005. For the year, KCS recorded total revenues of $1.7 billion, 9% greater than the previous year.
For both fourth quarter and full-year 2006, KCS revenues were led by coal, which had revenue growth of 28.3% in the quarter and 15.3% for the year, and chemical and petroleum products, which experienced revenue increases of 26.5% in the fourth quarter and 14.0% for the full year. In addition, in the fourth quarter, revenues in agriculture and minerals increased 14.0%, paper and forest products grew 12.5%, and intermodal improved 7.6%. These three business units also attained year-over-year revenue gains. Only the automotive commodity group declined reflecting a continued sluggish North American automobile market. Automotive was down 10.0% in the fourth quarter and 16.7% for the year.
Fourth quarter operating expenses were $354.2 million, an increase of only 4.1% over last year. Increased depreciation, compensation and benefits, and equipment expenses were partially offset by quarter-over-quarter decreases in purchased services and other. Fuel costs were $1.5 million higher in fourth quarter of 2006 over last year. For the full-year 2006, operating expenses of $1.4 billion decreased by 0.8% excluding non-recurring adjustments to expenses in 2005.
Operating income for the fourth quarter of 2006 was a record $88.2 million compared with $47.7 million last year, an 84.9% improvement. The fourth quarter 2006 operating ratio was 80.1%, a 7.6 point reduction from fourth quarter 2005. For full-year 2006, the operating ratio was 81.7% compared to 88.3% the preceding year excluding non-recurring adjustments to expenses in 2005.
Net income available to common shareholders in the fourth quarter totaled $35.7 million, or $0.41 per diluted share, compared with net income available to common shareholders of $2.3 million, or $0.03 per share in 2005. Full-year 2006 net income available to common shareholders was $89.4 million, or $1.08 per diluted share compared with $12.2 million net income available to common shareholders, or $0.16 per diluted share in 2005 excluding non-recurring adjustments.
Comments from the Chairman
“KCS ended 2006 on a positive note, achieving record revenues and operating income in the fourth quarter,” stated Chairman and Chief Executive Officer Michael R. Haverty. “Going into the year, we had stated publicly our goal of attaining an operating ratio for 2006 in the area of 82% with an end-of-the year run rate of approximately 80%. Our final numbers, 81.7% for the year and 80.1% for the quarter, underline the fact that KCS has remained on that plan.
“Of all the key achievements in 2006, none was more noteworthy than the speed with which the new members of our management team were able to make major contributions to strengthening the Company’s focus on the execution of our business plan and improving our internal systems. They have been key contributors to efforts aimed at strengthening communication and coordination among diverse functional areas between KCS’ rail franchises in both the U.S. and Mexico. That the lion’s share of the accomplishments occurred during the final nine months of 2006, the time frame when the new management team really came together, speaks to the abilities of the Company’s management and bodes well for the future.
“We have set an aggressive agenda in 2007 and, further, we have developed a comprehensive five-year strategic plan. While this plan establishes a number of ambitious targets, we are confident they are attainable and will lead KCS toward being a prominent player in North American freight logistics as well as significantly enhancing the value of our rail franchise. We will be sharing some elements of our strategic vision and plan with the investor community in the months ahead.”
Headquartered in Kansas City, Mo., KCS is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holding includes KCSR, serving the central and south central U.S. Its international holdings include Kansas City Southern de Mexico, 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 NAFTA Railway system, linking the commercial and industrial centers of the U.S., Canada and Mexico.