Second Quarter 2019 Results

• Record revenues of $714 million, an increase of 5% from prior year on flat volumes
• Operating income of $208 million. Record adjusted operating income of $259 million, excluding restructuring charges related to Precision Scheduled Railroading (“PSR”) initiatives
• Reported operating ratio of 70.9%. Adjusted operating ratio of 63.7%, compared to 64.0% in the prior year
• Reported diluted earnings per share of $1.28. Record adjusted diluted earnings per share of $1.64, 6% higher than a year ago

KANSAS CITY, Mo.--(BUSINESS WIRE)--Kansas City Southern (KCS) (NYSE:KSU) reported record revenues of $714 million, an increase of 5% from second quarter 2018. Overall, carload volumes were flat compared to prior year.

Revenue growth for the second quarter of 2019 was led by a 19% increase in Chemicals and Petroleum due to growth in shipments related to Mexico energy reform, and a 5% increase in Automotive. These increases were partially offset by revenue declines in the remaining four commodity groups. Energy revenues declined by 5%, as increased Utility Coal shipments were more than offset by declines in Frac Sand and Crude Oil. Industrial & Consumer Products and Agriculture & Minerals revenues each declined by 2%, and Intermodal revenues declined by 1%.

In the second quarter of 2019, reported operating expenses were $506 million. Excluding restructuring charges related to PSR initiatives, adjusted operating expenses were $455 million, 4% higher than 2018. Adjusted operating income was $259 million, 5% higher than a year ago. KCS reported an adjusted second quarter operating ratio of 63.7%, a 0.3 point improvement over second quarter 2018.

Reported net income in the second quarter of 2019 was $129 million, or $1.28 per diluted share, compared with $148 million, or $1.45 per diluted share in the second quarter of 2018. As presented in the following reconciliations, adjusted diluted earnings per share was $1.64, 6% higher than a year ago.

“The Company is handling the same volume as last year with fewer assets, fewer crewstarts and considerably less network congestion, driving an improvement in customer service, operating metrics and cost profile,” stated Kansas City Southern’s President and Chief Executive Officer Patrick J. Ottensmeyer. “This improvement in cost profile helped us absorb a 130 basis point headwind to our adjusted operating ratio from the loss of the Mexican Fuel Excise Tax credit, while still improving profitability versus prior year.

“I am extremely pleased with the commitment, enthusiasm and cross-functional teamwork that my Kansas City Southern colleagues have demonstrated in the early stages of executing Precision Scheduled Railroading principles. Together we are building a more consistent, reliable and resilient network that is positioned to deliver excellent customer service and strong operating leverage as volume and revenue growth improves.”

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 México, 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.

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, 2018 (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.