Kansas City Southern (KCS) (NYSE:KSU) reported revenues of
$744.0 million, an increase of 13% from third quarter 2020.
Overall, carload volumes were down 3% compared to prior year
primarily due to the following commercial impacts:
- Auto plant shutdowns driven by a global microchip
shortage;
- Service interruptions at Lázaro Cárdenas due to KCSM
right-of-way blockages resulting from teachers' protests; and
- Increased regulation of refined fuel product shipments into
Mexico resulting in supply chain disruptions.
Third Quarter 2021
Third quarter revenues were $744.0 million, an increase of 13%
primarily resulting from mix, higher fuel surcharge, and the
strengthening of the Mexican peso against the U.S. dollar.
Third quarter operating expenses were $492.1 million, including
$36.5 million in merger costs. Operating income was $251.9 million
and the reported operating ratio was 66.1%. Third quarter net
income was $156.5 million, or $1.71 per diluted share. Adjusted
third quarter operating income, operating ratio, net income, and
diluted earnings per share were as follows:
(in millions, except operating ratio and
diluted earnings per share)
Three Months Ended September
30, 2021
Operating Income
Operating Ratio
Net Income
Diluted Earnings per Share
GAAP Operating Results
$
251.9
66.1
%
$
156.5
$
1.71
Merger Costs
36.5
(4.9
)%
28.2
0.31
Other Adjustments, Net
—
—
0.3
—
Adjusted Operating Results (non-GAAP)
$
288.4
61.2
%
$
185.0
$
2.02
See following pages for reconciliations to
GAAP
“We are encouraged that despite several commercial headwinds,
our network is performing extremely well and we are delivering near
record velocity and dwell,” stated Patrick J. Ottensmeyer, KCS
president and chief executive officer. "Underlying industrial
demand is strong, and KCS has maintained resources to prioritize
customer service as volumes return to the network. As certain
supply chain disruptions are resolved and our revenue environment
improves, our network will be well-positioned to handle incremental
volume while continuing to provide premium service to our
customers.
“We are also very pleased to have announced our combination with
Canadian Pacific, creating the first single-line rail network
linking the U.S., Mexico and Canada. This historic combination will
enhance competition, create new options for customers, and support
economic growth in North America."
For more information on the transaction and the benefits it is
expected to bring to the full range of stakeholders, visit
FutureForFreight.com.
Statement Regarding Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with
U.S. GAAP, the accompanying third quarter 2021 earnings release
contains non-GAAP financial measures. KCS management believes that
certain non-GAAP financial measures used to review and in certain
cases manage the Company's business fall within the meaning of
Regulation G (Disclosure of non-GAAP financial measures) and may
provide its users of the financial information with additional
meaningful comparison when reviewing the Company's results. KCS
management uses non-GAAP information in its planning and
forecasting processes and to further analyze its own financial
trends and operational performance, as well as making financial
comparisons to prior periods presented on a similar basis.
Management believes investors and users of the Company's financial
information should consider all of the above factors when
evaluating KCS's results.
These non-GAAP measures should be viewed as a supplement and not
considered a substitute for GAAP measures. Some of KCS's non-GAAP
measures may differ from similar measures used by other companies,
even if similar terms are used to identify such measures.
GAAP Reconciliations
($ in millions, except per share
amounts)
Reconciliation of Diluted Earnings per
Share to
Adjusted Diluted Earnings per Share
Three Months Ended September
30, 2021
Income Before Income Taxes
Income Tax Expense
Net Income
Diluted Earnings per Share
As reported
$
216.7
$
60.2
$
156.5
$
1.71
Adjustments for:
Merger costs
36.5
8.3
28.2
0.31
Foreign exchange loss
0.5
0.2
0.3
—
Adjusted
$
253.7
$
68.7
185.0
Less: Noncontrolling interest and
preferred stock dividends
(0.4
)
Adjusted net income available to common
stockholders - see (a) below
$
184.6
$
2.02
GAAP Reconciliations
(continued)
($ in millions, except per share
amounts)
Three Months Ended September
30, 2020
Income Before Income Taxes
Income Tax Expense
Net Income
Diluted Earnings per Share
As reported
$
238.7
$
48.5
$
190.2
$
2.01
Adjustments for:
Restructuring charges
0.5
0.1
0.4
—
Foreign exchange gain
(7.7
)
(2.3
)
(5.4
)
(0.05
)
Foreign exchange component of income
taxes
—
(0.3
)
0.3
—
Adjusted
$
231.5
$
46.0
185.5
Less: Noncontrolling interest and
preferred stock dividends
(0.5
)
Adjusted net income available to common
stockholders - see (a) below
$
185.0
$
1.96
Reconciliation of Operating Expenses to
Adjusted
Three Months Ended
Nine Months Ended
Operating Expenses
September 30,
September 30,
2021
2020
2021
2020
Operating expenses as reported
$
492.1
$
388.1
$
2,126.3
$
1,198.5
Adjustment for merger costs
(36.5
)
—
(776.6
)
—
Adjustment for restructuring charges
—
(0.5
)
—
(17.0
)
Adjusted operating expenses - see (b)
below
$
455.6
$
387.6
$
1,349.7
$
1,181.5
Operating income as reported
$
251.9
$
271.5
$
73.2
$
740.7
Adjusted operating income - see (b)
below
288.4
272.0
849.8
757.7
Operating ratio (c) as reported
66.1
%
58.8
%
96.7
%
61.8
%
Adjusted operating ratio - see (b) and (c)
below
61.2
%
58.8
%
61.4
%
60.9
%
(a)
The Company believes adjusted diluted
earnings per share is meaningful as it allows investors to evaluate
the Company’s performance for different periods on a more
comparable basis by adjusting for the impact of changes in foreign
currency exchange rates, and items that are not directly related to
the ongoing operations of the Company. The income tax expense
impacts related to these adjustments are calculated at the
applicable statutory tax rate.
(b)
The Company believes adjusted operating
expenses, operating income and operating ratio are meaningful as
they allow investors to evaluate the Company's performance for
different periods on a more comparable basis by adjusting for items
that are not directly related to the ongoing operations of the
Company.
(c)
Operating ratio is calculated by dividing
operating expenses by revenues; or in the case of adjusted
operating ratio, adjusted operating expenses divided by
revenues.
Investor Conference Call and Webcast
KCS will also hold its third quarter 2021 earnings conference
call on Tuesday, October 19, 2021 at 8:45 a.m. eastern time.
Shareholders and other interested parties are invited to
participate via live webcast or telephone. To participate in the
live webcast and to view accompanying presentation materials,
please log into investors.kcsouthern.com immediately prior to the
presentation. To join the teleconference, please call (844)
308-6428 from the U.S., or (412) 317-5409 from all other
countries.
A replay of the presentation will be available by calling (877)
344-7529 from the U.S., (855) 669-9658 from Canada or (412)
317-0088 from all other countries and entering conference ID
10152592. The webcast replay and presentation materials will be
archived on the company’s website.
About Kansas City Southern
Headquartered in Kansas City, Mo., Kansas City Southern (KCS)
(NYSE: KSU) 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. KCS' North American rail holdings and
strategic alliances with other North American rail partners are
primary components of a unique railway system, linking the
commercial and industrial centers of the U.S., Mexico and Canada.
More information about KCS can be found at www.kcsouthern.com
Forward-Looking Information
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934, as amended and
the Private Securities Litigation Reform Act of 1995. In addition,
management may make forward-looking statements orally or in other
writing, including, but not limited to, in press releases,
quarterly earnings calls, executive presentations, in the annual
report to stockholders and in other filings with the Securities and
Exchange Commission. Readers can usually identify these
forward-looking statements by the use of such words as "may,"
"will," "should," "likely," "plans," "projects," "expects,"
"anticipates," "believes" or similar words. These statements
involve a number of risks and uncertainties. Actual results could
materially differ from those anticipated by such forward-looking
statements as a result of a number of factors or combination of
factors including, but not limited to: the merger with Canadian
Pacific Railway Limited ("CP") is subject to various closing
conditions and there can be no assurances as to whether and when it
may be completed; failure to complete the Company’s merger with CP
could negatively impact the Company’s stock price and future
business and financial results; Company’s stockholders cannot be
sure of the value of the merger consideration they will receive
from CP in the merger; lawsuits may be filed against the Company
and/or CP challenging the transactions contemplated by the merger
between, among others, the Company and CP; the shares of CP common
stock to be received by the Company’s stockholders upon completion
of the merger will have different rights from shares of the
Company’s common stock; after completion of the merger, CP may fail
to realize the projected benefits and cost savings of the merger;
public health threats or outbreaks of communicable diseases, such
as the ongoing COVID-19 pandemic (including its variants) and its
impact on KCS’s business, suppliers, consumers, customers,
employees and supply chains; rail accidents or other incidents or
accidents on KCS’s rail network or at KCS’s facilities or customer
facilities involving the release of hazardous materials, including
toxic inhalation hazards; legislative and regulatory developments
and disputes, including environmental regulations; loss of the rail
concession of Kansas City Southern’s subsidiary, Kansas City
Southern de México, S.A. de C.V.; North American and global
economic, political and social conditions; disruptions to the
Company’s technology infrastructure, including its computer
systems; increased demand and traffic congestion; the level of
trade between the United States and Asia or Mexico; fluctuations in
the peso-dollar exchange rate; natural events such as severe
weather, hurricanes and floods; the outcome of claims and
litigation involving the Company or its subsidiaries; changes in
business strategy and strategic opportunities; competition and
consolidation within the transportation industry; the business
environment in industries that produce and use items shipped by
rail; the termination of, or failure to renew, agreements with
customers, other railroads and third parties; the satisfaction of
by third parties of their obligations; fluctuation in prices or
availability of key materials, fluctuations in commodity demand; in
particular diesel fuel; access to capital; sufficiency of budgeted
capital expenditures in carrying out business plans; services
infrastructure; climate change and the market and regulatory
responses to climate change; dependency on certain key suppliers of
core rail equipment; changes in securities and capital markets;
unavailability of qualified personnel; labor difficulties,
including strikes and work stoppages; acts of terrorism or risk of
terrorist activities, war or other acts of violence; and other
factors affecting the operation of the business; and other risks
identified in this news release, in KCS's Annual Report on Form
10-K for the year ended December 31, 2020, and in other reports
filed by KCS with the Securities and Exchange Commission.
Forward-looking statements reflect the information only as of
the date on which they are made. KCS does not undertake any
obligation to update any forward-looking statements to reflect
future events, developments, or other information.
Kansas City Southern and
Subsidiaries
Consolidated Statements of
Operations
(In millions, except share and
per share amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Revenues
$
744.0
$
659.6
$
2,199.5
$
1,939.2
Operating expenses:
Compensation and benefits
133.3
117.4
391.2
354.6
Purchased services
51.4
47.3
161.0
145.2
Fuel
78.0
50.8
227.9
165.2
Equipment costs
19.6
23.9
64.8
63.9
Depreciation and amortization
90.5
89.2
273.7
267.9
Materials and other
82.8
59.0
231.1
184.7
Merger costs
36.5
—
776.6
—
Restructuring charges
—
0.5
—
17.0
Total operating expenses
492.1
388.1
2,126.3
1,198.5
Operating income
251.9
271.5
73.2
740.7
Equity in net earnings (losses) of
affiliates
3.8
(1.3
)
13.2
(0.1
)
Interest expense
(39.0
)
(39.5
)
(117.1
)
(111.8
)
Foreign exchange gain (loss)
(0.5
)
7.7
(1.0
)
(44.0
)
Other income, net
0.5
0.3
0.7
2.5
Income (loss) before income taxes
216.7
238.7
(31.0
)
587.3
Income tax expense
60.2
48.5
37.1
134.5
Net income (loss)
156.5
190.2
(68.1
)
452.8
Less: Net income attributable to
noncontrolling interest
0.3
0.4
1.2
1.5
Net income (loss) attributable to Kansas
City Southern and subsidiaries
156.2
189.8
(69.3
)
451.3
Preferred stock dividends
0.1
0.1
0.2
0.2
Net income (loss) available to common
stockholders
$
156.1
$
189.7
$
(69.5
)
$
451.1
Earnings (loss) per share:
Basic earnings (loss) per share
$
1.72
$
2.02
$
(0.76
)
$
4.76
Diluted earnings (loss) per share
$
1.71
$
2.01
$
(0.76
)
$
4.74
Average shares outstanding (in
thousands):
Basic
90,806
93,876
90,777
94,672
Effect of dilution
566
504
—
477
Diluted
91,372
94,380
90,777
95,149
Kansas City Southern and
Subsidiaries
Revenue & Carload/Units by
Commodity - Third Quarter 2021 and 2020
Revenues
Carloads and Units
Revenue per
(in millions)
(in thousands)
Carload/Unit
Third Quarter
%
Third Quarter
%
Third Quarter
%
2021
2020
Change
2021
2020
Change
2021
2020
Change
Chemical & Petroleum
Chemicals
$
71.0
$
60.1
18
%
27.0
24.3
11
%
$
2,630
$
2,473
6
%
Petroleum
93.7
95.1
(1
%)
41.8
48.5
(14
%)
2,242
1,961
14
%
Plastics
39.4
36.7
7
%
18.1
18.7
(3
%)
2,177
1,963
11
%
Total
204.1
191.9
6
%
86.9
91.5
(5
%)
2,349
2,097
12
%
Industrial & Consumer Products
Forest Products
71.6
59.6
20
%
26.7
25.3
6
%
2,682
2,356
14
%
Metals & Scrap
54.1
41.5
30
%
30.6
25.6
20
%
1,768
1,621
9
%
Other
33.3
25.3
32
%
21.7
22.8
(5
%)
1,535
1,110
38
%
Total
159.0
126.4
26
%
79.0
73.7
7
%
2,013
1,715
17
%
Agriculture & Minerals
Grain
87.0
74.6
17
%
40.4
37.8
7
%
2,153
1,974
9
%
Food Products
35.4
38.2
(7
%)
13.1
15.3
(14
%)
2,702
2,497
8
%
Ores & Minerals
7.5
5.5
36
%
9.7
7.7
26
%
773
714
8
%
Stone, Clay & Glass
9.9
7.0
41
%
3.9
3.2
22
%
2,538
2,188
16
%
Total
139.8
125.3
12
%
67.1
64.0
5
%
2,083
1,958
6
%
Energy
Utility Coal
45.8
28.9
58
%
45.6
32.9
39
%
1,004
878
14
%
Coal & Petroleum Coke
12.8
10.2
25
%
15.4
13.5
14
%
831
756
10
%
Frac Sand
4.0
2.3
74
%
3.0
2.0
50
%
1,333
1,150
16
%
Crude Oil
12.0
5.4
122
%
9.4
3.1
203
%
1,277
1,742
(27
%)
Total
74.6
46.8
59
%
73.4
51.5
43
%
1,016
909
12
%
Intermodal
86.9
89.1
(2
%)
231.6
264.7
(13
%)
375
337
11
%
Automotive
40.1
48.5
(17
%)
22.4
32.1
(30
%)
1,790
1,511
18
%
TOTAL FOR COMMODITY GROUPS
704.5
628.0
12
%
560.4
577.5
(3
%)
$
1,257
$
1,087
16
%
Other Revenue
39.5
31.6
25
%
TOTAL
$
744.0
$
659.6
13
%
Kansas City Southern and
Subsidiaries
Revenue & Carload/Units by
Commodity - Year to Date September 30, 2021 and 2020
Revenues
Carloads and Units
Revenue per
(in millions)
(in thousands)
Carload/Unit
Year to Date
%
Year to Date
%
Year to Date
%
2021
2020
Change
2021
2020
Change
2021
2020
Change
Chemical & Petroleum
Chemicals
$
196.4
$
174.8
12
%
76.4
70.1
9
%
$
2,571
$
2,494
3
%
Petroleum
361.8
261.5
38
%
161.9
131.7
23
%
2,235
1,986
13
%
Plastics
109.7
112.7
(3
%)
53.6
56.2
(5
%)
2,047
2,005
2
%
Total
667.9
549.0
22
%
291.9
258.0
13
%
2,288
2,128
8
%
Industrial & Consumer Products
Forest Products
191.9
186.3
3
%
75.0
76.9
(2
%)
2,559
2,423
6
%
Metals & Scrap
151.4
144.2
5
%
85.2
80.4
6
%
1,777
1,794
(1
%)
Other
94.3
75.5
25
%
65.5
67.8
(3
%)
1,440
1,114
29
%
Total
437.6
406.0
8
%
225.7
225.1
—
1,939
1,804
7
%
Agriculture & Minerals
Grain
250.6
216.5
16
%
116.8
106.2
10
%
2,146
2,039
5
%
Food Products
109.0
119.9
(9
%)
41.6
47.0
(11
%)
2,620
2,551
3
%
Ores & Minerals
18.8
16.6
13
%
24.7
22.4
10
%
761
741
3
%
Stone, Clay & Glass
25.7
21.2
21
%
10.6
9.2
15
%
2,425
2,304
5
%
Total
404.1
374.2
8
%
193.7
184.8
5
%
2,086
2,025
3
%
Energy
Utility Coal
108.7
75.7
44
%
122.2
87.7
39
%
890
863
3
%
Coal & Petroleum Coke
35.2
31.3
12
%
42.5
43.0
(1
%)
828
728
14
%
Frac Sand
11.6
7.8
49
%
9.0
6.6
36
%
1,289
1,182
9
%
Crude Oil
31.1
27.6
13
%
24.4
15.9
53
%
1,275
1,736
(27
%)
Total
186.6
142.4
31
%
198.1
153.2
29
%
942
930
1
%
Intermodal
259.3
241.3
7
%
714.7
689.3
4
%
363
350
4
%
Automotive
133.6
118.0
13
%
76.5
75.9
1
%
1,746
1,555
12
%
TOTAL FOR COMMODITY GROUPS
2,089.1
1,830.9
14
%
1,700.6
1,586.3
7
%
$
1,228
$
1,154
6
%
Other Revenue
110.4
108.3
2
%
TOTAL
$
2,199.5
$
1,939.2
13
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211019005245/en/
KCS: Ashley Thorne, 816-983-1530,
athorne@kcsouthern.com
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