Grain News

KC Southern Reports 2Q Net Income of $15 Million, Down From $120 Million in 2Q 2012

Date Posted: July 24, 2013

Kansas City, MO—Kansas City Southern (KCS) (NYSE:KSU) reported record second quarter 2013 revenues of $579 million.

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Overall, carload volumes were 3% higher than in second quarter 2012.

Second quarter revenue growth compared to 2012 was led by a 26% increase in Energy, a 20% increase in Automotive and a 13% increase in Intermodal revenues.

Revenues from Chemicals & Petroleum and Industrial & Consumer were also strong, growing by 11% and 4%, respectively, over 2012.

Agriculture and Minerals revenues declined by 18%, primarily due to a decrease in grain volumes resulting from severe drought conditions experienced in the Midwestern region of the United States during 2012.

Operating expenses for the second quarter were $400 million, 4% higher than the corresponding 2012 period after adjusting for a one-time benefit from the elimination of a net deferred statutory profit sharing liability in the second quarter 2012.

Operating income for the second quarter of 2013 was $179 million, 12% higher than 2012 adjusted operating income.

KCS reported a second quarter 2013 operating ratio of 69.0%, a 1.5 point improvement over the 2012 adjusted operating ratio.

Reported net income in the second quarter of 2013 totaled $15 million, or $0.14 per diluted share, compared with $120 million, or $1.09 per diluted share, in the second quarter of 2012.

Excluding the impacts of debt retirement costs, foreign exchange rate fluctuations and the one-time benefit from the elimination of a net deferred statutory profit sharing liability in second quarter 2012, adjusted diluted earnings per share for second quarter 2013 was $0.96 compared with $0.88 a year ago.

“Considering the weakness in grain volumes due to the drought in 2012, KCS reported impressive second quarter 2013 results as reflected by year-over-year increases in carloads (+ 3%), revenues (+ 6%) and adjusted earnings per share (+ 9%),” stated President and Chief Executive Officer David L. Starling.

“The combination of solid revenue growth, a steady mid-single digit improvement to pricing and continued control over operating expenses resulted in a second quarter operating ratio of 69.0%, a 1.5 point improvement over last year’s adjusted operating ratio.

"This performance speaks to the strength of KCS’ operations and the diversity of the franchise.

“Especially noteworthy was the performance of the Company’s Energy commodity group, which grew by 26%.

"Each subgroup within Energy experienced strong growth, highlighted by revenue increases of 193% in crude oil and 19% in utility coal.

"Revenue from KCS’ five strategic growth areas, namely crude oil, cross-border intermodal, automotive, frac sand and Lázaro Cárdenas, collectively grew by 28% in the second quarter and represented 19% of KCS’ second quarter 2013 freight revenues.

“In addition to the Company’s solid topline performance during the second quarter, KCS took advantage of its recent upgrade to investment grade status and a historically low interest rate environment to refinance approximately $1.2 billion of corporate debt.

"Among the benefits achieved by the refinancing was a reduction of the Company’s weighted-average coupon from 5.4% to 3.7%, the lowest among Class I railroads.

"In addition, KCS extended its weighted-average debt maturity to 14 years.

"These accomplishments, along with improved debt-to-capital, leverage and coverage ratios, significantly strengthen KCS’ balance sheet and provide the Company with expanded financial flexibility going forward.”

For more information, call 816-983-1551.

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