Kansas City Southern
First Quarter 2012 Earnings Presentation
April 24, 2012
Kansas City Southern First Quarter 2012 Earnings Presentation - - PowerPoint PPT Presentation
Update: On May 18, 2012, management presented at the Bank of America Merrill Lynch Global Transportation Conference. The materials presented at that conference update some of the information contained in these slides. Please review the
April 24, 2012
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This presentation 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. The words “projects,” “estimates,” “forecasts,” “believes,” “intends,” “expects,” “anticipates,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are based upon information currently available to management and management’s perception thereof as of the date of this presentation. 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 consume rail freight; revocation of the rail concession of KCS’s subsidiary, Kansas City Southern de México, S.A. de C.V.; the termination, or failure to renew, agreements with customers, other railroads and third parties; interest rates; access to capital; disruptions to KCS’s technology infrastructure, including its computer systems; natural events such as severe weather, hurricanes and floods; market and regulatory responses to climate change; credit risk of customers and counterparties and their failure to meet their financial obligations; legislative and regulatory developments and disputes; rail accidents or other incidents or accidents along KCS’s rail network, 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; loss of key personnel; labor difficulties, including strikes and work stoppages; insufficiency of insurance to cover lost revenue, profits or other damages; acts of terrorism or risk of terrorist activities; war or risk of war; domestic and international economic conditions; political and economic conditions in Mexico and the level of trade between the United States and Mexico; the outcome of claims and litigation involving KCS or its subsidiaries; and other factors affecting the operation of the business. More detailed information about these factors may be found in filings by KCS with the Securities and Exchange Commission, including KCS’s Annual Report on Form 10-K for the year ended December 31, 2011 (File No. 1-4717) and subsequent Quarterly Reports on Form 10-Q. 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 in this presentation to reflect future events or developments. All reconciliations to GAAP can be found on the KCS website, kcsouthern.com/investors.
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* All reconciliations to GAAP can be found on the KCS website in the Investors section.
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single digit range
(depending on fx impact)
2011
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30 30 20 20 20
1,600,000 2,000,000 2,400,000 2,800,000 400 450 500 550 600
2011 2012 2013 2014 2015 Carload Projections - Consensus Growth Rates Road Locomotives - End of Period
Locomotive Purchases 2011 - 2015 Road Locomotives Carload Projections with Consensus Growth Rates Linear (Carload Projections with Consensus Growth Rates)
(D)
(D) See definitions in the appendix to this presentation.
40 90 140 190 240 290 340 390 440 490 540 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112
$ in millions Linehaul Revenue Ops Costs Linear (Linehaul Revenue)
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Q109 “Ops” Leverage of $147M Q112 “Ops” Leverage of $276M – Ops Costs up 15% over past 3 yrs against Linehaul Revenue growth of 49% (D) See definitions in the appendix to this presentation.
(D)
All reconciliations to GAAP can be found on the KCS website in the Investors section.
Operations costs contain transportation, mechanical, engineering, equipment costs, and other operations
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* Q3 2010 carloads per employee adjusted for Hurricane Alex.
6,080 6,124 6,089 70 72 72 68 60 61 69 71 73 77 79 80 78 82 85 85 83
50 55 60 65 70 75 80 85 90 6,000 6,200 6,400 6,600
Carloads per Employee Headcount Headcount Carloads per Employee Seasonal Decline in Carloads Drives Q4 to Q1 Dip
15 25 35 45 55 65 75
350,000 400,000 450,000 500,000 550,000 5 10 15 20 25 30
Carloads System Dwell
Avg System Dwell Carloads 350,000 400,000 450,000 500,000 550,000 15 20 25 30 35
Carloads System Velocity
Avg System Velocity Carloads
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Dwell
* Q3 2010 adjusted for Hurricane Alex. (D) See definitions in the appendix to this presentation.
(D) (D)
Velocity Car Efficiency
320,000 370,000 420,000 470,000 520,000 35,000 40,000 45,000 50,000 55,000
Carloads Avg Cars On-Line per Day
Cars On-line Carloads
Slow Order Miles
(D)
Miles
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Q4 08
+$16 +$14 $489 $548 +$17 ($6) +$18 16
$ in millions
Q1 2012
$72 $71 +$1 17
replaces Coal
drive Utility Coal decline
Coal decreases
progressing
Minor Business Units as a Percentage of Q1 2012 Energy Revenue Q1 2011 to Q1 2012 – Revenue Change
Q1 2012 Energy Revenue - $71m
71% 11% 2% 16% Utility Coal Coal/Pet Coke Crude Oil Frac Sand
$ in millions
($6) ($1) +$5
4% 3%
18% 14% 8% 13% 11% 5% 6% 5% 6% 17% 14%
26% 21%
Chemical & Petroleum Industrial & Consumer Agriculture & Minerals Energy Intermodal Automotive
Carloads RPU Revenue
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Q1 2012 Q1 2011 Variance Reported Revenues (in millions) $547.5 $488.6 12% Carloads (in thousands) 508.1 474.1 7% Average RPU $1,041 $992 5%
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(D) Revenue Increases 28%
(D)
(D) See definitions in the appendix to this presentation.
0% 5% 10% 15% 20% 25% 30% $60 $80 $100 $120 $140
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12
% of Revenue
Cross Border Revenue Hurricane Adjustment % Total Revenue
+87% +78% 5,274 9,369 Q1 11 Q1 12
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(D) See definitions in the appendix to this presentation.
(D) Intermodal
$4,600 $8,610 Q1 11 Q1 12
(D) Intermodal
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34,012 43,463 Q1 2011 Q1 2012
+28% $12,276 $15,515 Q1 2011 Q1 2012
($ in thousands)
+26%
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+ Single digit revenue growth expected during period. = Flat revenue growth expected during period. ++ Double digit revenue growth expected during period.
82% 84% 86% 88% 90% 92% 94% 96% 98% 100% Service meets my needs Easy to do business with A value to my company I would recommend
2011 Total Spring Fall Winter
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– Key indices continue to signal growth in U.S. carloads – Mexico’s GDP expected to be 3% - 4% for 2012
– Intermodal truck to rail conversion – Positive ripple effect related to Mexican automotive production
– Mexico near sourcing – Port Arthur Crude shipments – Lázaro Cárdenas port expansion – Export coal
– Negative impact on Utility Coal – Positive impact on other Energy business and ethane based production
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* All reconciliations to GAAP can be found on the KCS website in the Investors section.
($ in millions, except EPS Diluted)
Q1 2012 Q1 2011
Revenues $547.5 $488.6 Operating Expenses 389.7 360.8 Operating Income 157.8 127.8 Equity Earnings 5.8 3.6 Interest Expense (27.2) (33.1) Foreign Exchange Gain (Loss) 3.9 (0.1) Debt Retirement Costs & Other (12.8) 1.7 Pre-tax Income 127.5 99.9 Income Tax Expense (52.2) (35.8) Net Income $75.3 $64.1 Reported EPS Diluted $0.68 $0.58 Adjusted EPS Diluted* $0.75 $0.58 Average Diluted Share Count (in thousands) 109,996 109,751
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$109.3 $54.4 $88.3 $38.3 $48.4 $51.0 $100.4 $48.1 $79.5 $41.4 $45.7 $45.7 Comp & Benefits Purchased Services Fuel Equipment D&A Materials & Other
Q1 12 Q1 11
$ in millions
Total Operating Expenses $ in millions Q1 2011 Expense $361 Volume Sensitive 17 Fuel Price Increases 10 Inflation 9 FX (7) Q1 2012 Expense $390
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Compensation & Benefits $ in millions
Q1 2011 Expense $100 Wage Inflation / Volume Sensitive 5 Other 4 Q1 2012 Expense $109
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– Cash component has been paid to employees every year and will continue to be paid – Depreciation, amortization, FX, etc. created timing differences (similar to income taxes) that have accumulated to approximately $40m as of 12/31/2011
– 2012 expected cash payment is 37% higher than 2011 cash payment – Annual cash PTU payments have ranged from $4k MXP to $16k MXP – Reduces variability due to economic conditions and one-time items such as debt retirement costs
recorded as a contra expense in operating expenses
Compensation & Benefits expense
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Fuel Expense $ in millions
Q1 2011 Expense $80 Price 10 Volume 4 FX & Efficiency (6) Q1 2012 Expense $88
$2.15 $2.63 $2.84
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Equipment Costs
$ in millions
Q1 2011 Expense $41 Car Hire/Volume 3 Locomotive Lease Buyouts (4) Other (2) Q1 2012 Expense $38
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FX Rates
MXP/USD
Y/E 2011 14.0
3/31/12 Actual & Y/E 2012 Estimate
12.8
Estimated Full Year Tax Rate
40-42%
40.9% 1.7% 0.5% (2.6%) 6.3% 35.0%
Statutory Rate State Taxes (Net) Other Lower Foreign Tax Rate Foreign Exchange 1Q12 ETR
27.1% 1.5% (0.5%) (3.2%) (5.7%) 35.0%
Statutory Rate State Taxes (Net) Other Lower Foreign Tax Rate Foreign Exchange 2011 ETR
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All reconciliations to GAAP can be found on the KCS website in the Investors section.
advantage of accelerated depreciation (~3% of revenue)
*Calculations of FFO-to-Debt and Debt-to-EBITDA are based on S&P’s and Moody’s methodologies respectively
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Q1 2012 Q1 2011
Volumes 111,426
85,438
Total Revenues (in millions) $15.7
$12.1
Operating Ratio 46.1%
56.6%
10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 110,000 120,000
Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11 Q1 12
Quarterly Container Volume
* PCRC is a 50% equity investment.
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limit and tend to disrupt timetables and time-sensitive shipments.
total cars online.
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