Kansas City Southern Reports Record Third Quarter Results

Kansas City Southern (KCS) (NYSE:KSU) reported record revenues of $699
million, an increase of 6% from third quarter 2017. Overall, carload
volumes increased 4% compared to prior year.

Revenues for the third quarter of 2018 increased in three commodity
groups, led by a 17% increase in Chemicals and Petroleum due to refined
product shipments to Mexico. Automotive and Intermodal each grew by 8%.
Industrial and Consumer Products and Agriculture and Minerals were each
flat compared to prior year, and Energy declined by 2%.

Excluding a gain on insurance recoveries related to damage and service
interruptions from Hurricane Harvey in 2017, adjusted operating expenses
in the third quarter of 2018 were $443 million, 5% higher than 2017.
Adjusted operating income was $256 million, 9% higher than a year ago.
KCS reported an adjusted third quarter operating ratio of 63.4%, a 1.0
point improvement over third quarter 2017.

Reported net income in the third quarter of 2018 was $174 million, or
$1.70 per diluted share, compared with $129 million, or $1.23 per
diluted share in the third quarter of 2017. Adjusted diluted earnings
per share were $1.57, 16% higher than a year ago, excluding the impacts
of foreign exchange, adjustments to 2017 provisional income tax benefit
for the Tax Cuts and Jobs Act and a gain on insurance recoveries related
to hurricane damage.

“Kansas City Southern faced a challenging third quarter, as network
congestion in northern Mexico led to a difficult operating environment,”
stated Kansas City Southern’s President and Chief Executive Officer
Patrick J. Ottensmeyer. “However, we have taken steps that we are
confident will restore our service levels and allow us to continue
delivering strong and diversified franchise cross-border volume and
revenue growth, led by increased refined product shipments to Mexico and
strength in Intermodal and Automotive commodity groups.

“As we look to 2019, our cross-border network offers unique
opportunities for volume growth from our robust Chemicals & Petroleum,
Intermodal, Automotive and export Grain franchises. Moreover, the
capital investments that we have made throughout our network, position
us to deliver superior long-term growth and strong financial results to
our stockholders.”

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, 2018
			Income Before Income Taxes					Income Tax Expense					Net Income					Diluted Earnings per Share
As reported			$	247.0				$	73.0				$	174.0				$	1.70
Adjustments for:
Gain on insurance recoveries related to hurricane damage			(9.4		)			(2.2		)			(7.2		)			(0.07		)
Foreign exchange gain			(9.5		)			(2.8		)			(6.7		)			(0.07		)
Foreign exchange component of income taxes			—					(17.6		)			17.6					0.17
Tax Cuts and Jobs Act			—					16.6					(16.6		)			(0.16		)
Adjusted			$	228.1				$	67.0				161.1
Less: Noncontrolling interest and preferred stock dividends													(0.5		)
Adjusted net income available to common stockholders - see (a) below													$	160.6				$	1.57
			Three Months Ended September 30, 2017
			Income Before Income Taxes					Income Tax Expense					Net Income					Diluted Earnings per Share
As reported			$	211.9				$	82.0				$	129.9				$	1.23
Adjustments for:
Foreign exchange gain			(0.8		)			(0.2		)			(0.6		)			—
Foreign exchange component of income taxes			—					(12.9		)			12.9					0.12
Adjusted			$	211.1				$	68.9				142.2
Less: Noncontrolling interest and preferred stock dividends													(0.7		)
Adjusted net income available to common stockholders - see (a) below													$	141.5				$	1.35

GAAP Reconciliations (continued)
($ in millions)
Reconciliation of Operating Expenses to Adjusted					Three Months Ended
Operating Expenses					September 30,
					2018					2017
Operating expenses as reported					$	433.6				$	422.8
Adjustment for gain on insurance recoveries related to hurricane damage					9.4					—
Adjusted operating expenses - see (b) below					$	443.0				$	422.8
Operating income as reported					$	265.4				$	233.8
Adjusted operating income - see (b) below					256.0					233.8
Operating ratio (c) as reported					62.0		%			64.4		%
Adjusted operating ratio - see (b) and (c) below					63.4		%			64.4		%

(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 excluding the impact of changes in foreign currency exchange rates, the impact of adjustments to 2017 provisional income tax benefit for the Tax Cuts and Jobs Act, 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 excluding 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.

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 are primary components of
a railway network, linking the commercial and industrial centers of the
U.S., Mexico and Canada. More information about KCS can be found at www.kcsouthern.com.

This news release contains “forward-looking statements” within the
meaning of the securities laws concerning potential future events
involving KCS and its subsidiaries, which could materially differ from
the events that actually occur. Words such as “projects,”
“estimates,” “forecasts,” “believes,” “intends,” “expects,”
“anticipates,” and similar expressions are intended to identify many of
these forward-looking statements. Such forward-looking statements
are based upon information currently available to management and
management’s perception thereof as of the date hereof. Differences
that actually occur could be caused by a number of external factors over
which management has little or no control, including: competition and
consolidation within the transportation industry; the business
environment in industries that produce and use items shipped by rail;
loss of the rail concession of KCS’ subsidiary, Kansas City Southern de
México, S.A. de C.V.; the termination of, or failure to renew,
agreements with customers, other railroads and third parties; access to
capital; disruptions to KCS’ technology infrastructure, including its
computer systems; natural events such as severe weather, hurricanes and
floods; market and regulatory responses to climate change; legislative
and regulatory developments and disputes; rail accidents or other
incidents or accidents on KCS’ rail network or at KCS’ facilities or
customer facilities involving the release of hazardous materials,
including toxic inhalation hazards; fluctuation in prices or
availability of key materials, in particular diesel fuel; 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 risk of war; domestic and
international economic, political and social conditions; the level of
trade between the United States and Asia or Mexico; fluctuations in the
peso-dollar exchange rate; increased demand and traffic congestion; the
outcome of claims and litigation involving KCS or its subsidiaries; and
other factors affecting the operation of the business. More
detailed information about factors that could affect future events may
be found in filings by KCS with the Securities and Exchange Commission,
including KCS’ Annual Report on Form 10-K for the year ended December
31, 2017 (File No. 1-4717) and subsequent reports. Forward-looking
statements are not, and should not be relied upon as, a guarantee of
future performance or results, nor will they necessarily prove to be
accurate indications of the times at or by which any such performance or
results will be achieved. As a result, actual outcomes and
results may differ materially from those expressed in forward-looking
statements. KCS is not obligated to update any forward-looking
statements to reflect future events or developments.

Kansas City Southern and Subsidiaries
Consolidated Statements of Income
(In millions, except share and per share amounts)
(Unaudited)
			Three Months Ended										Nine Months Ended
			September 30,										September 30,
			2018					2017					2018					2017
Revenues			$	699.0				$	656.6				$	2,020.0				$	1,922.5
Operating expenses:
Compensation and benefits			123.5					129.0					367.4					371.6
Purchased services			52.6					46.3					149.2					146.5
Fuel			90.2					80.1					257.0					234.4
Mexican fuel excise tax credit			(9.4		)			(11.1		)			(26.6		)			(35.6		)
Equipment costs			33.0					30.9					95.9					93.3
Depreciation and amortization			87.5					81.9					257.1					241.6
Materials and other			65.6					65.7					199.5					186.9
Gain on insurance recoveries related to hurricane damage			(9.4		)			—					(9.4		)			—
Total operating expenses			433.6					422.8					1,290.1					1,238.7
Operating income			265.4					233.8					729.9					683.8
Equity in net earnings (losses) of affiliates			(0.2		)			2.8					1.8					9.7
Interest expense			(28.3		)			(25.2		)			(81.8		)			(74.9		)
Debt retirement costs			—					—					(2.2		)			—
Foreign exchange gain			9.5					0.8					16.3					61.8
Other income (expense), net			0.6					(0.3		)			0.8					0.7
Income before income taxes			247.0					211.9					664.8					681.1
Income tax expense			73.0					82.0					197.2					269.6
Net income			174.0					129.9					467.6					411.5
Less: Net income attributable to noncontrolling interest			0.4					0.6					1.3					1.2
Net income attributable to Kansas City Southern and subsidiaries			173.6					129.3					466.3					410.3
Preferred stock dividends			0.1					0.1					0.2					0.2
Net income available to common stockholders			$	173.5				$	129.2				$	466.1				$	410.1
Earnings per share:
Basic earnings per share			$	1.71				$	1.24				$	4.56				$	3.89
Diluted earnings per share			$	1.70				$	1.23				$	4.55				$	3.88
Average shares outstanding (in thousands):
Basic			101,658					104,324					102,106					105,297
Potentially dilutive common shares			452					354					418					285
Diluted			102,110					104,678					102,524					105,582

Kansas City Southern and Subsidiaries
Revenue & Carload/Units by Commodity - Third Quarter 2018 and 2017
			Revenues											Carloads and Units									Revenue per
			(in millions)											(in thousands)									Carload/Unit
			Third Quarter								%			Third Quarter						%			Third Quarter								%
			2018				2017				Change			2018			2017			Change			2018				2017				Change
Chemical & Petroleum
Chemicals			$	60.9			$	57.0			7	%		26.2			26.4			(1	%)		$	2,324			$	2,159			8	%
Petroleum			64.5				47.6				36	%		32.8			23.4			40	%		1,966				2,034				(3	%)
Plastics			35.2				32.3				9	%		18.7			17.8			5	%		1,882				1,815				4	%
Total			160.6				136.9				17	%		77.7			67.6			15	%		2,067				2,025				2	%
Industrial & Consumer Products
Forest Products			68.7				64.3				7	%		30.5			29.5			3	%		2,252				2,180				3	%
Metals & Scrap			50.1				58.9				(15	%)		27.7			30.1			(8	%)		1,809				1,957				(8	%)
Other			33.7				29.3				15	%		23.1			22.7			2	%		1,459				1,291				13	%
Total			152.5				152.5				—			81.3			82.3			(1	%)		1,876				1,853				1	%
Agriculture & Minerals
Grain			68.5				68.6				—			35.4			36.4			(3	%)		1,935				1,885				3	%
Food Products			34.9				34.7				1	%		14.4			14.9			(3	%)		2,424				2,329				4	%
Ores & Minerals			5.4				5.8				(7	%)		6.7			6.7			—			806				866				(7	%)
Stone, Clay & Glass			7.4				6.9				7	%		3.4			3.2			6	%		2,176				2,156				1	%
Total			116.2				116.0				—			59.9			61.2			(2	%)		1,940				1,895				2	%
Energy
Utility Coal			35.4				46.0				(23	%)		37.3			49.6			(25	%)		949				927				2	%
Coal & Petroleum Coke			11.9				9.4				27	%		17.4			13.9			25	%		684				676				1	%
Frac Sand			8.8				13.8				(36	%)		5.6			8.6			(35	%)		1,571				1,605				(2	%)
Crude Oil			17.1				5.3				223	%		10.1			4.6			120	%		1,693				1,152				47	%
Total			73.2				74.5				(2	%)		70.4			76.7			(8	%)		1,040				971				7	%
Intermodal			100.0				92.3				8	%		267.9			249.5			7	%		373				370				1	%
Automotive			66.2				61.4				8	%		40.7			39.1			4	%		1,627				1,570				4	%
TOTAL FOR COMMODITY GROUPS			668.7				633.6				6	%		597.9			576.4			4	%		$	1,118			$	1,099			2	%
Other Revenue			30.3				23.0				32	%
TOTAL			$	699.0			$	656.6			6	%

Kansas City Southern and Subsidiaries
Revenue & Carload/Units by Commodity - Year to Date September 30, 2018 and 2017
			Revenues											Carloads and Units									Revenue per
			(in millions)											(in thousands)									Carload/Unit
			Year to Date								%			Year to Date						%			Year to Date								%
			2018				2017				Change			2018			2017			Change			2018				2017				Change
Chemical & Petroleum
Chemicals			$	179.0			$	167.6			7	%		79.0			81.7			(3	%)		$	2,266			$	2,051			10	%
Petroleum			171.3				137.2				25	%		84.9			69.9			21	%		2,018				1,963				3	%
Plastics			107.8				97.4				11	%		55.5			54.2			2	%		1,942				1,797				8	%
Total			458.1				402.2				14	%		219.4			205.8			7	%		2,088				1,954				7	%
Industrial & Consumer Products
Forest Products			203.2				190.0				7	%		91.1			88.4			3	%		2,231				2,149				4	%
Metals & Scrap			157.9				170.5				(7	%)		87.7			91.0			(4	%)		1,800				1,874				(4	%)
Other			90.4				80.7				12	%		69.5			66.4			5	%		1,301				1,215				7	%
Total			451.5				441.2				2	%		248.3			245.8			1	%		1,818				1,795				1	%
Agriculture & Minerals
Grain			209.1				207.9				1	%		106.6			109.7			(3	%)		1,962				1,895				4	%
Food Products			107.4				111.1				(3	%)		44.1			46.9			(6	%)		2,435				2,369				3	%
Ores & Minerals			16.1				14.9				8	%		18.6			17.1			9	%		866				871				(1	%)
Stone, Clay & Glass			22.1				21.8				1	%		10.1			9.9			2	%		2,188				2,202				(1	%)
Total			354.7				355.7				—			179.4			183.6			(2	%)		1,977				1,937				2	%
Energy
Utility Coal			88.6				127.8				(31	%)		94.3			132.5			(29	%)		940				965				(3	%)
Coal & Petroleum Coke			33.3				30.7				8	%		47.1			46.3			2	%		707				663				7	%
Frac Sand			30.4				38.5				(21	%)		19.7			24.5			(20	%)		1,543				1,571				(2	%)
Crude Oil			38.7				17.0				128	%		24.1			14.7			64	%		1,606				1,156				39	%
Total			191.0				214.0				(11	%)		185.2			218.0			(15	%)		1,031				982				5	%
Intermodal			284.6				266.4				7	%		762.1			716.6			6	%		373				372				—
Automotive			193.3				170.2				14	%		123.0			114.6			7	%		1,572				1,485				6	%
TOTAL FOR COMMODITY GROUPS			1,933.2				1,849.7				5	%		1,717.4			1,684.4			2	%		$	1,126			$	1,098			3	%
Other Revenue			86.8				72.8				19	%
TOTAL			$	2,020.0			$	1,922.5			5	%

View source version on businesswire.com: https://www.businesswire.com/news/home/20181019005070/en/

Source: Business Wire
(October 19, 2018 - 8:00 AM EDT)

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