Kansas City Southern Reports Record Fourth Quarter and Full-Year 2014

Kansas City Southern (KCS) (NYSE:KSU) reported record fourth quarter 2014 revenues of $643 million. Overall, carload volumes were 5% higher than in fourth quarter 2013.

Compared to 2013, fourth quarter revenue growth was led by a 13% increase in Automotive and a 9% increase in both Chemicals & Petroleum and Energy. Intermodal was also strong, with revenues growing by 8% in the fourth quarter of 2014. Industrial & Consumer revenue grew 1% and Agriculture & Minerals revenue declined by 5% compared to the prior year, primarily due to a decline in grain shipments when compared to the exceptionally strong fourth quarter of 2013. Also, the impact of lower U.S. fuel prices and the depreciating peso reduced revenue growth by approximately 2% compared to the fourth quarter of 2013.

Operating income for the fourth quarter of 2014 was $214 million compared with $196 million a year ago, a 9% increase. KCS reported a fourth quarter 2014 operating ratio of 66.7%, a 1.4 point improvement from fourth quarter 2013. Operating expenses in the fourth quarter were $429 million compared with $420 million in the corresponding 2013 period, a 2% increase.

Reported net income in the fourth quarter of 2014 totaled $142 million, or $1.28 per diluted share, compared with $114 million, or $1.03 per diluted share, in the fourth quarter of 2013. Excluding debt retirement costs and the impacts of foreign exchange rate fluctuations, adjusted diluted earnings per share for fourth quarter 2014 was $1.27 compared to $1.03 in 2013. The adjusted effective income tax rate in the fourth quarter of 2014 was 30.2% compared to 37.0% in the fourth quarter of 2013.

For the full year of 2014, revenue was a record $2.6 billion, up 9% over 2013. Carloads for 2014 were 2.3 million, an increase of 5% over the prior year.

After adjusting for lease termination costs, full-year operating income was $847 million. Full-year 2014 adjusted operating income increased 15% over prior year’s operating income. The Company’s 2014 adjusted operating ratio was 67.1% compared with the operating ratio of 68.8% in 2013, a 1.7 point improvement.

Reported net income in 2014 totaled $504 million, or $4.55 per diluted share, compared with $353 million, or $3.18 per diluted share, in 2013. Excluding lease termination and debt retirement costs and the impacts of foreign exchange rate fluctuations, adjusted diluted earnings per share for 2014 was $4.82 compared to $3.98 in 2013. The adjusted effective income tax rate for 2014 was 32.6% compared to 34.7% in 2013.

“Kansas City Southern achieved record financial results with growth in all six commodity groups in 2014,” stated President and Chief Executive Officer David L. Starling. “Strong volume growth in our Agriculture & Minerals and Automotive commodity groups contributed to a record adjusted operating ratio of 67.1%, a reduction of 1.7 points over the prior year’s operating ratio.

“KCS met its stated target of high-single digit year-over-year revenue growth, coming in 9% higher than 2013. The Company reported adjusted diluted earnings per share of $4.82, which marks the fifth consecutive year KCS has recorded a double-digit percentage increase in its adjusted diluted earnings per share.

“Looking ahead to 2015, we believe KCS is well-positioned to maintain its growth momentum driven by a strengthening economy and unique franchise opportunities. We expect to see positive developments in a wide-range of commodity groups, including automotive, intermodal, and chemical & petroleum products. And, while there is significant volatility in the energy markets, KCS anticipates volume growth in crude oil traffic originating in Canada and terminating at various Gulf locations. These exciting growth areas provide visibility to continued growth over the next decade.”

Headquartered in Kansas City, Mo., Kansas City Southern 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. Kansas City Southern’s North American rail holdings and strategic alliances are primary components of a NAFTA Railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada.

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 of this news release. 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; interest rates; 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; 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 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; availability of qualified 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; 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, 2013 (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 in this news release to reflect future events or developments.