Investor Relations General Book - Investor Relations – Kansas City

Transcription

1/27/2016
Kansas City Southern
Investor Relations General Book
Last Updated – January 22, 2016
©2016 Kansas City Southern
Safe Harbor Statement
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. 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; interest rates; access to capital; disruption s 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; depend ency 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, 2014 (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 time s
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. All reconciliations to GAAP can be found on the KCS website,
kcsouthern.com/investors.
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KCS offers a compelling investment thesis
• Best-positioned growth story in the industry with unique
U.S.-Mexico cross-border network and the most
profitable rail franchise in Mexico
• Well-diversified customer base and commodity mix
• Excellent strategic positioning with multiple growth
drivers
• Track record of strong financial and operating
performance
• Solid balance sheet with a commitment to maintaining
investment grade credit rating
3
KCS has delivered steadily improving key financial
metrics
Carloads/Units – 2% CAGR
Revenues - 4% CAGR
(in millions)
(in thousands)
$3,000
2,500
2,274
$2,577
2,112
$2,419
$2,369
$2,500
$2,239
2,165
2,217
2,014
2,000
$2,098
$2,000
1,500
$1,500
$1,000
1,000
2011
2012
2013
2014
2015
2011
Adjusted Operating Ratio*
5.7 Point Improvement
2012
2013
2014
2015
Adjusted Diluted Earnings per Share*
12% CAGR
80%
$6.00
72.1%
69.9%
70%
68.8%
$4.82
$5.00
67.1%
$4.49
66.4%
$3.98
$4.00
$3.00
60%
$3.56
$2.90
$2.00
50%
2011
2012
2013
2014
2015
$1.00
2011
2012
2013
2014
2015
* All reconciliations to GAAP can be found on the KCS website in the Investors section.
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KCS Rail Network
 Founded in 1887
 More than 6,500 track miles
 Seamless cross-border network
 Service to 12 Gulf ports and 1
Pacific Ocean port
 Service to more than 140 transload
centers and 11 intermodal ramps
 181 interchange points with other
railroads, including all U.S. and
Mexico Class I railroads
5
©2015
©2016
Kansas
Kansas
City
City
Southern
Southern
Kansas City Southern History
Incorporated
Became Kansas City
Southern Railway
Company
1890
1887
Took over the MidSouth
Rail Corporation, which
extended KCSR's service
territory to Meridian, MS;
Counce, TN; Tuscaloosa
and Birmingham, AL
Invested in the Panama
Canal Railway Company
1939
1900
40 mile line began
operation in 1890 as
an interline
connection
1997
1994
Acquisition of
Louisiana &
Arkansas railway,
connecting Kansas
City and New
Orleans
2005
1998
KCS acquired
Mexrail and TFM
Expansion to E. St.
Louis and Springfield
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2015 Revenue Mix
Industrial & Consumer Products
24%
Other
3%
Automotive
9%
20%
Chemical &
Petroleum
10%
Energy
18%
16%
Agriculture &
Minerals
Intermodal
7
KCS has multiple growth drivers and has
demonstrated strong financial performance
•
KCS links the heart of Mexico’s manufacturing region with all Class I Rails, offering a
single connection from Mexico to all major markets in the U.S. and Canada
•
Uniquely-positioned to participate in Mexico’s growing economy and near-sourcing
phenomenon
•
Strategic access to growing auto manufacturing industry in Mexico and well-positioned to
move finished vehicles into the United States
•
Single-line intermodal service between U.S. and Mexico offers unique opportunity for
long-term truck to rail conversion
•
Sole rail provider to the port of Lázaro Cárdenas
•
Access to Port Arthur, TX., Eagle Ford and Permian Basin offers unique leverage to
energy markets
•
KCS has a proven track record of strong financial and operating performance, and a
solid balance sheet with a commitment to maintaining investment grade credit rating
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KCS Well Positioned For Medium To Long-Term Growth
Pathway to Low 60’s OR inPricing
2017
Volumes
• 2015/16 macroeconomic & energy challenges
• Superior growth outlook over next 5 years
• Automotive facilities in Mexico
• Intermodal - Port of Lázaro, Wylie,
cross-border
• Petro chemical market
• Gulf crude destinations
• Mexican energy reform
Cost Control
• Continued operations productivity improvement
• Maintenance agreement renegotiation
• Lease conversions continue
• Fuel / energy management investments
• G&A cost containment
•
•
•
•
Inflation + pricing expected to continue
Rail continues to provide good value
Improved service levels
Investments driven by shipper capacity needs
Asset Utilization
• Improved velocity, dwell, and equipment cycle
time
• Return to growth drives strong incremental
margins
• Improved asset availability
• Capacity expansion improves network fluidity
9
Kansas City Southern’s
Cross-Border Network
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KCS’s Network is the center of the North
American rail system
Springfield
Kansas City
East St. Louis
Birmingham
Dallas
Jackson
Shreveport
Houston
Meridian
New Orleans
Laredo
11
The KCS Cross-Border Solution
Since 2008, KCS has invested
over to $275 million on the
Houston to Lazaro Cardenas cross
border corridor alone.

100 mile new mainline addition at Victoria Rosenberg

Significant expansion and upgrade at the
Salinas Victoria (Monterrey), and Puerta
Mexico terminals

Investment and expansion of the intermodal
facility at Interpuerto in San Luis Potosi

Track and parking expansion at the Toluca
Auto Terminal

Upgrades and expansion at the Port of
Lazaro Cardenas

Continued investment in lift equipment and
technology at all locations
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Laredo, TX is the Leading Border Crossing
2013 U.S. Surface Trade by Border Crossing
Import and Export Volumes (% Share)
43%
•Laredo is premier gateway
•64.7% of shipments through Laredo are via truck
•Partnering with trucking firms to convert traffic
•Intermodal has cost advantage over truck
12%
10%
Laredo
El Paso
Eagle Pass
8%
Nogales
7%
6%
6%
Hidalgo
Otay Mesa
Brownsville
Source: KCS Market Research derived from BTS Data
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*
Cross-Border Revenue Decreased 3%
Q4 2015 vs. Q4 2014
F/X and Fuel
Price Impact
30.0%
$180
25.0%
20.0%
$140
15.0%
$120
% of Revenue
Revenue (in millions)
$160
10.0%
$100
5.0%
$80
0.0%
$60
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15 15 15 15
Cross-Border Revenue
% of Total Revenue
* See definitions in the appendix to this presentation.
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Mexico Growth Opportunity
15
Near-Sourcing to Mexico Positions KCS for
Growth
Trade Growth
•
•
•
Mexico has 10 Free Trade Agreements involving 45 countries
Since 2010, U.S. imports from Mexico have risen 23.5%; The U.S. is Mexico’s largest trading
partner
Strong GDP growth over the long term
Annual GDP Growth Rate
Labor Force
•
•
Labor costs are converging with China
Highly skilled Mexican labor
50-80 percent less expensive to U.S.
Markets than for those coming from Asia
0%
-2%
Proximity
•
•
•
4%
2%
Transportation Costs
•
6%
Supply chain compression
Time zones are similar
Travel access is faster and cheaper
-4%
-6%
U.S.
Currency
•
Mexico
In U.S. dollar terms, since 2005 Chinese
products have become about 65% more
expensive than those sourced in Mexico
SOURCE: DOC, Bloomberg Businessweek, World Bank, Mexico Today, J.P. Morgan,
U.S. Bureau of Labor Statistics, SICE, U.S. Federal Reserve, Banco de México
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Foreign Direct Investment (FDI) in Mexico
• 2014 Foreign Direct
Investment (FDI) reached
$22.5 Billion
• Manufacturing sector
was key in 2014 with 57%
investments
• 81% of FDI was registered
in states where KCS has
access
• From 1999 to 2014 FDI
accounts $389.6 Billion
Source: KCS Market Research based on Secretaría de Economía de México.
Data includes all economic sectors. (2014 FDI)
17
$0
80
Total Trade with Mexico ($ billions)
US Industrial Production Index (adjusted)
85
March 2015
$10
December 2013
March 2014
June 2014
September 2014
December 2014
90
June 2012
September 2012
December 2012
March 2013
June 2013
September 2013
$20
June 2011
September 2011
December 2011
March 2012
95
June 2010
September 2010
December 2010
March 2011
$30
June 2009
September 2009
December 2009
March 2010
100
June 2008
September 2008
December 2008
March 2009
$40
June 2007
September 2007
December 2007
March 2008
105
March 2006
June 2006
$50
September 2006
December 2006
March 2007
110
June 2005
September 2005
December 2005
$60
September 2004
December 2004
March 2005
Total Trade with Mexico ($ billion)
U.S. – Mexico Trade Growth
US Industrial Production Index (adjusted)
Source: Board of Governors of the Federal Reserve System and US Census Bureau
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Mexico’s free trade agreements foster a strong business
growth environment
Canada
Japan
United States
European Union
Iceland
Liechtenstein
Norway
Switzerland
Israel
Guatemala
El Salvador
Honduras
Nicaragua
Costa Rica
Colombia
Bolivia
Chile
Uruguay
Peru
Venezuela
SOURCE: DOC, Bloomberg Businessweek, World Bank, Mexico Today, J.P. Morgan, U.S. Bureau of
Labor Statistics, SICE, Goldman Sachs, Boston Consulting Group, Reuters
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19
Mexico vs. China Wage Rate

Mexico has a labor force advantage over China
–
–
By 2015, wages in Mexico are forecasted to be 30% lower than in China
Mexican labor is highly skilled; Mexico manufacturing is moving from low-skill, high
volume products to high-skill, sophisticated products
SOURCE: BofA Merrill Lynch Global Research, Banxico, INEGI, International Labor
Organization, China NBS Own Estimates for China Since 2009 and for Mexico in 2013
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Highly Skilled Work Force
•
Population of 112 million people (average age of 29 years old)
•
By 2030, Mexico will reach its lowest Dependency Ratio
•
More than 90,000 engineers graduate every year
•
•
3x higher than the US (per capita)
9th largest talent pool of IT professionals in the world
SOURCE: INEGI, UNESCO, ANUIES, MEXICO IT
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Automotive
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KCS is well-positioned to benefit from growth in
Mexico automotive plants
KCS currently has access to twelve
automotive plants in Mexico:




Ramos Arizpe
Saltillo








San Luis Potosi
Aguascalienties
Silao
Mariscala
Celaya
Salamanca City
Chrysler Fiat (Toluca), (Encantada)
Ford (Cuautitlán), (Guanajuato – Date TBD)(2)
GM (San Luis Potosí), (Rojas), (Silao)
Nissan (Aguascalientes – 2 plants),
(Cuernavaca)
VW (Puebla)
Honda (Celaya)
Mazda (Salamanca)
Audi (San Jose Chiapa 2016)(1)
Mercedes/Infiniti (Aguascalientes 2017)(1)
BMW (San Luis Potosi 2019)(1)
Kia (Monterrey 2016) (1)
Toyota (Mariscala – 2019) (1)
Cuautitlan
San Jose Chiapa
Toluca
Cuernavaca
Puebla
Source: (1) Manufacturer’s Press Releases
(2) Reuters
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New Auto Plant Openings
AUDI
KIA
San Jose Chiapa, Mexico
Opens 2nd Quarter 2016 (1)
Est. Prod Capacity: 170K (1)
MERCEDES BENZ/INFINITI
Pesqueria (Monterrey), Mexico
Opens Mid 2016 (2)
Aguascalientes, Mexico
Opens 2017 (2)
BMW
San Luis Potosi, Mexico
Opens Q2 2019 (2)
Source:
(1) Autocast, April 2015 – Audi (Est. 2017 production)
(2) Manufacturer’s Press Releases
Toyota
Mariscala, Mexico
Opens - 2019
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Mexico’s Auto Production Continues to Rise
5.1
4.4
3.0
3.2
3.4
5.4
4.7
3.6
2013 2014 2015 2016 2017 2018 2019 2020
(units in millions)
Source: Autocast, December 2015
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Intermodal
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Why Intermodal is Attractive
• The national fleet is not growing
• Driver shortages are returning
• Regulation is not helping
• The fleet is getting older and more expensive
• Intermodal growth does not require long-haul
driver or tractor capacity
27
Cross-border truck shipments represent a
significant opportunity for KCS
3.7 million truckloads originate
or terminate in KCS’ Target
Market
342,170
50 percent of loads move
to/from locations deep into
Mexico
KCS operates the Laredo rail
bridge on both sides of border
The current KCS intermodal
cross border market share
represents about 2 percent of
available market.
SOURCE: KCS Market Research derived from BTS Data
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Expanded Channel Engagement
29
Cross-Border* Intermodal growth challenged by
lack of equipment and service in 2015
*
Cross-Border Intermodal
Volumes
24,000
Q4 14
(8%)
*
Cross-Border Intermodal Revenues
($ in thousands)
22,100
$22,000
Q4 15
Q4 14
(3%)
$21,300
Q4 15
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Lázaro Cárdenas
31
Sole concession to serve Lázaro Cárdenas is a
significant competitive advantage for KCS
•
No environmental issues/fees
•
No infrastructure issues/fees
•
Productive workforce
•
Pro-business local government
•
State of the art port
infrastructure
•
Natural deep water port –
maximum vessel flexibility
•
Ample land for future terminal
expansion & second container
concession awarded in
December 2011 to APM
•
Growing Automotive role
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Lázaro Cárdenas Development Plans
•
APM Terminals will invest $900m in the project. The new container port will have a
capacity of 1.2 million TEUS when opened and projected volume of +3 million TEUS by
2019. Projected completion is 2nd half of 2016.
• In October 2012, SSA Marine won a concession to develop, operate and maintain a
Specialized Auto Terminal capable of handling up to 750,000 autos annually
• Hutchinson Port Holdings installed six new vessel cranes at Lazaro over the past two
years.
Source: APM Terminals Press Release dated October 9, 2014; sct.gob.mx
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34
Lázaro Cárdenas
growth plans
New Container
Terminal
Expanded
Container Terminal
New Auto
Terminal
Bulk
Facility
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APM Terminals is Developing a Second Container
Concession at Lázaro Cárdenas

APM will invest $900m in a second container concession at Lázaro
Cárdenas
– The first phase will be completed in 2015 - 43 hectare container yard and 650
meter quay
– The final phase will result in a 102 hectare container yard and 1,485 meters
of quay

Phase I equipment will include 7 Super-Post‐Panamax ship‐to‐shore
gantry cranes (23 container reach) and electrical yard cranes (E-RTGs)
Construction of APM container terminal
Source: Press Releases
35
Lázaro Cárdenas Revenue Growth Continues
Lázaro Cárdenas Intermodal
Volumes
61,400
Lázaro Cárdenas Intermodal Revenues
($ in thousands)
59,900
(2%)
$26,500
Q4 14
Q4 14
Q4 15
+3%
$27,400
Q4 15
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Energy
37
Benefits of Crude by Rail
Time to Market
• Fast delivery time
per train
• Fast construction
– rails in place
• Lower permitting
hurdles
Lower Capital
Requirements
• Shorter investment
horizon
Optionality
• Increased
market coverage
• Flexibility to
Crude Quality
Management
• “Neat” Barrel
Quality In
=
Quality Out
deliver to key
market, direct to
refinery, or to
move where the
production
occurs
• Bi-directional
movement
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Crude Oil Basins & Connecting Partners
Canadian Heavy Oil:
CPRS – Kansas City
CN – Jackson
CN – Cockrell, IL
Bakken Region:
BNSF – Kansas City
CPRS – Kansas City
Niobrara Region:
UP – Kansas City
BNSF – Kansas City
Cushing Barrels:
SKOL – Pittsburg, KS
Permian Basin:
UP – Dallas
TXPF/FWWR – Dallas
Eagle Ford Shale:
KCS Direct
Key Takeaway:
KCS is uniquely positioned to deliver crude-by-rail from crude oil
basins throughout the U.S. and Canada to Gulf Coast refineries
39
Potential Crude Oil
Opportunities
Hunt Refining
Open
Stroud, OK
Genesis Energy
Open
Sunoco Logistics
Open
Jefferson Rail Terminal
Open
Global Partners
Est. Completion –
2017
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Port Arthur & Gulf Coast Crude Oil Demand
Exxon
Mobil
600k bbl/day
Coking: 1.1m tons/yr
PORT ARTHUR, TX
Crude Oil Production Capacity: 1.7m bbl/day
Coking Capacity: 7.8m tons/year
Rail Unloading Capacity: <3% of production capacity
Total
The broader Gulf Coast Region* has 26
Refineries with Coking Capacity
174k bbl/day
Coking: 1.3m/yr
Motiva
660k bbl/day
Valero
310k bbl/day
Source: Company websites, EIA.gov & priceofoil.org
*Gulf Coast Region includes NM, TX, LA, AR, AL & MS
41
Port Arthur Crude Terminal
Initial Facility Design:
•
Double loop track
•
Capable of handling 120 car unit
trains
•
340,000 barrels of product
storage capacity
•
Waterfront access to the Gulf for
barge/vessel loading
~480 Total Acres
~4,000’ of water
front
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Frac Sand Destinations
Eagle Ford Shale (Oil/Gas):
• Laredo, TX
• Alice, TX (2 facilities)
• Agua Dulce, TX
• Corpus Christi, TX
Permian/Cline Basin (Oil):
• Fort Stockton, TX (TXPF)
• Big Lake, TX (TXPF)
• San Angelo, TX (TXPF)
Barnett/Cline Shale (Oil):
• Comanche, TX (FWWR)
• Cleburne, TX (FWWR)
Haynesville Shale (Gas):
• Veals, TX (TN)
• Bossier City, LA
• Sibley/Minden, LA (LAS)
• Gibsland, LA (LNW)
Woodford Shale (Oil/Gas):
• Boswell, OK (KRR)
• Wilburton, OK (AOK)
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Mexico Energy Reform - Future Opportunity
Reform could drive an increase
in rail shipments in the following
ways:
 Increased LPG and refined products
could be the first growth market
 Movement of steel tubing for new
pipelines
 Importation of frac sand from the
United States
 Crude by rail from new producing
regions to refineries
 Increased intra-Mexico moves of
diesel, LPG, gasoline and fuel oil
Reform could reduce power generation cost, further
improving Mexican competitiveness and strengthen near
shoring thesis
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Mexico’s Natural Gas Potential
Key Takeaway:
The white dots on the Texas side of the border are drilling
platforms. Mexico has not yet seen similar development of its shale reserves. Should
these reserves be developed in the future, KCS will be well-positioned to serve that
new energy market.
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45
KCS Grain Franchise
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KCS Grain Customers
KCSM Grain
Shuttle
Destinations
Poultry Plants
•
•
KCS delivers grain for feed & food to destinations in U.S. & Mexico
KCS grain shipments are ‘demand driven’
47
The KCS Cross Border Network Connects Major
Grain Producers to Major Grain Consumers
•
Largest export purchase
of grain in 21 years will
originate on KCS in the
Midwest and terminate
on KCSM in Mexico City
area
•
KCS hauls
approximately 3.09
million metric tons of
export grain to Mexico
annually
SOURCES: Office of the US Trade Representative, USDA, Daniels Trading, Corn Supply-Demand US & State
Details. William J. Hudson.
The ProExporter Network. July 18, 2012, Produccion-Consumo de Maiz 2012. Grupo Consultor de Mercados
Agricolas . June 2012
48
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KCS Carload Franchise
49
Ethylene Announcements
Updated: August 2015
Source: Corporate Public Announcements & Trade Press
Updated: August 2015
50
Updated: June 201450
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Financial & Operational Results
51
KCS Fourth Quarter Overview
• Revenue declined 7%
•
Excluding F/X and lower U.S. fuel price, revenue was flat*
• Record fourth quarter operating ratio of 63.4%, an
improvement of 3.3 points compared to Q4 14
• Operating metrics returned to 2013 levels despite
hurricane and flooding events
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Fourth Quarter Results
Q4 2015
Q4 2014
Variance
Carloads/Units (in thousands)
555.8
569.8
(2%)
Reported Revenues (in millions)
$598.0
$642.5
(7%)
Reported Operating Ratio
63.4%
66.7%
(3.3) points
Reported Diluted Earnings per
Share
$1.28
$1.28
-
Adjusted Diluted Earnings per
Share *
$1.23
$1.27
(3%)
53
Full Year 2015 Results
FY 2015
FY 2014
Variance
Carloads/Units (in thousands)
2,216.6
2,274.1
(3%)
Reported Revenues (in millions)
$2,418.8
$2,577.1
(6%)
Reported Operating Ratio
66.8%
68.6%
(1.8) points
Adjusted Operating Ratio*
66.4%
67.1%
(0.7) points
Reported Diluted Earnings per
Share
$4.40
$4.55
(3%)
Adjusted Diluted Earnings per
Share *
$4.49
$4.82
(7%)
54
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Adjusted Diluted Earnings per Share
Q4 2015 vs. Q4 2014
Earnings per
Share Q4 2015
Earnings per
Share Q4 2014
$1.28
$1.28
Debt Retirement & Exchange Costs
0.05
-
F/X Loss
0.03
0.20
F/X Component of Income Taxes
(0.13)
(0.21)
Adjusted
$1.23
$1.27
Reported
All reconciliations to GAAP can be found on the KCS website in the Investors section.
55
Adjusted Diluted Earnings per Share
FY 2015 vs. FY 2014
Earnings per
Share FY 2015
Earnings per
Share FY 2014
$4.40
$4.55
Lease Termination Costs
0.06
0.23
Debt Retirement & Exchange Costs
0.04
0.04
F/X Loss
0.36
0.22
F/X Component of Income Taxes
(0.37)
(0.22)
Adjusted
$4.49
$4.82
Reported
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F/X Had Minimal Effect on Operating Income
Estimated Operating Income Impact
Q4 2015
KCSM MXN-Based
Revenues & Expenses
Q4 2015 F/X
Impact B/(W)
F/X Adjusted
Q4 2015
Revenues
$598.0
$101.7
($20.2)
$618.2
Operating Expenses
379.1
95.7
20.4
399.5
Operating Income
$218.9
$0.2
$218.7
$ in millions
Note: Revenue and expense impacts are based on KCS’ actual weighted average MXN/USD rates.
The average MXN/USD exchange rates as published by Banco de México were 16.7 and 13.8 for
the quarters ended December 31, 2015 and 2014, respectively.
57
F/X and U.S. Fuel Price Are Expected to Materially Impact
First Half 2016 Revenues
F/X Impacts
2016 Consensus MXN/USD Exchange Rate1
2015 Average Quarterly MXN/USD Exchange Rate2
Variance
Q1
Q2
Q3
Q4
17.3
17.2
17.1
17.0
14.9
15.3
16.4
16.7
(16%)
(12%)
(4%)
(2%)
U.S. Fuel Price Impacts
Q1
Q2
Q3
Q4
2016 Estimated Average On-Highway Diesel Price/Gallon
2.17
2.28
2.32
2.37
2015 Average On-Highway Diesel Price/Gallon3
2.92
2.85
2.63
2.43
(26%)
(20%)
(12%)
(2%)
3
Variance
1
2
3
Source: Bloomberg Consensus as of 1/21/16
Source: Banco de México
Source: EIA
58
29
1/27/2016
Estimated F/X and U.S. Fuel Price Impacts
($ in millions)
Chemicals & Petroleum
Reported
Q4 2015
Reported
Q4 2014
$120.4
$115.3
Reported
Change
Estimated F/X
Adjusted
Change
Estimated
U.S. Fuel Price
Adjusted
Change
Estimated F/X
and U.S. Fuel
Price Adjusted
Change
4%
7%
8%
11%
(14%)
(11%)
(10%)
(7%)
Industrial & Consumer
Products
129.6
151.1
Agriculture & Minerals
108.6
113.7
(4%)
(3%)
3%
4%
Energy
67.8
76.5
(11%)
(10%)
(5%)
(4%)
Intermodal
93.4
102.4
(9%)
(9%)
(6%)
(5%)
Automotive
54.7
60.6
(10%)
4%
(8%)
6%
Other revenue
23.5
22.9
3%
6%
3%
6%
Total revenues
$598.0
$642.5
(7%)
(4%)
(3%)
Compensation and benefits
-
$103.9
$123.2
(16%)
(11%)
(16%)
(11%)
Purchased services
50.9
62.0
(18%)
(14%)
(18%)
(14%)
Fuel
69.9
95.1
(26%)
(17%)
(11%)
(1%)
Equipment costs
29.2
29.6
(1%)
(1%)
(1%)
(1%)
Depreciation and amortization
73.9
67.3
10%
10%
10%
10%
Materials and other
51.3
51.4
-
5%
-
5%
$379.1
$428.6
(12%)
(7%)
(8%)
(3%)
Total operating expenses
59
Foreign Exchange, Fuel and Incentive Compensation
Drives 12% Decrease in Operating Expenses
$ in millions
$103.9
$123.2
Comp & Benefits
$69.9
Fuel
Equipment Costs
Total Operating Expenses
$50.9
$62.0
Purchased Services
$95.1
$29.2
$29.6
Q4 2014 Expense
$429
F/X
(20)
U.S. Fuel Price
(15)
Incentive Compensation
(11)
Other Expense Reductions
(11)
Depreciation
$73.9
$67.3
D&A
$ in
millions
Q4 2015 Expense
7
$379
$51.3
$51.4
Materials & Other
Q4 15
Q4 14
60
30
1/27/2016
Compensation & Benefits Expense Decreases, Primarily
Due to Incentives and F/X Favorability
Quarterly Average
Employee Headcount
Compensation & Benefits
Headcount is up 3%
Q4 2014 Expense
$123
Incentive Compensation
(11)
F/X
(6)
Wage Inflation
6,685
6,464
4
(6)
Other
Q4 2015 Expense
Q4 14
$ in
millions
$104
Q4 15
61
Fuel Expense Decreases Due to Price and F/X
Favorability
Locomotive Fuel Price
($ per gallon)
Fuel Expense
Q4 2014 Expense
$95
U.S. Fuel Price
(15)
F/X
(9)
Efficiency
(2)
$2.82
$2.09
US $2.45
MX $3.20
Q4 14
US $1.54
MX $2.65
MX $3.20*
$ in
millions
Increased tonnage /
consumption
Q4 2015 Expense
1
$70
Q4 15
* Assumes constant F/X.
62
31
1/27/2016
Continued Benefit from Lease Conversions
Equipment Costs
$30
Q4 14
Equipment Costs
$29
Q4 2014 Expense
$30
Lease Conversions
(2)
Car Hire
Q4 15
(1)
Q4 2015 Expense
$29
$1 million net
lease benefit
Depreciation and
Amortization
$74
$ in
millions
Q4 2014 Expense
$67
Larger Asset Base
6
Lease Conversions
Q4 2015 Expense
Q4 14
2
Other
Depreciation and
Amortization
$67
$ in
millions
1
$74
Q4 15
$ in millions
63
Continued Benefit from Maintenance Contract Restructuring
Purchased Services
$62
Q4 14
$51
Q4 15
Materials and Other
Purchased Services
Q4 2014 Expense
$62
Maintenance Contract
Restructuring
(4)
Repairs
(2)
F/X
(2)
Joint Facilities
(2)
Legal
(1)
Q4 2015 Expense
$51
Materials and Other
$51
$51
$ in
millions
Q4 2014 Expense
$51
F/X
(3)
Materials and Supplies
Q4 2015 Expense
Q4 14
$ in
millions
$1 million net
maintenance
contract
restructuring
benefit
3
$51
Q4 15
$ in millions
64
32
1/27/2016
Condensed Income Statement – Q4
Q4 2015
Q4 2014
Revenues
$598.0
$642.5
Operating Expenses
379.1
428.6
Operating Income
218.9
213.9
($ in millions, except EPS Diluted)
Equity Earnings
3.9
4.5
Interest Expense
(23.7)
(18.3)
Foreign Exchange Loss
(4.5)
(31.4)
Debt Retirement & Exchange Costs & Other
(7.9)
1.5
Pre-tax Income
186.7
170.2
Income Tax Expense
(46.7)
(28.5)
Net Income
$140.0
$141.7
Reported EPS Diluted
$1.28
$1.28
Adjusted EPS Diluted*
$1.23
$1.27
108,737
110,493
Average Diluted Share Count (in thousands)
65
Condensed Income Statement – Full Year
FY 2015
FY 2014
Revenues
$2,418.8
$2,577.1
Operating Expenses
1,615.0
1,768.0
803.8
809.1
($ in millions, except EPS Diluted)
Operating Income
Equity Earnings
18.3
21.1
Interest Expense
(81.9)
(72.8)
Foreign Exchange Loss
(56.6)
(35.5)
Debt Retirement & Exchange Costs & Other
(11.0)
(8.8)
Pre-tax Income
672.6
713.1
Income Tax Expense
(187.3)
(208.8)
Net Income
$485.3
$504.3
Reported EPS Diluted
$4.40
$4.55
Adjusted EPS Diluted*
$4.49
$4.82
109,915
110,433
Average Diluted Share Count (in thousands)
66
33
1/27/2016
Effective Tax Rate Reconciliation
Q4 2015 Effective Tax Rate
(2.5%)
1.9%
(2.0%)
35.0%
32.4%
Statutory
Lower State Taxes
Rate
Foreign Tax
Rate
Other
Hedge and F/X Tax Impact
(7.4%)
Adjusted
ETR
$ in millions
Q4 15
FY
2015
F/X Benefit in Income Tax
Expense
$15
$46
1
(3)
25.0%
Foreign
Exchange
Reported
ETR
F/X Gain (Loss) on
MX Peso Exposure
Unhedged F/X
Income Statement Impact
16
43
F/X Hedge Loss
(2)
(33)
$14
$10
2015 Effective Tax Rate
(2.6%)
1.5%
(6.1%)
0.0%
Net F/X
Income Statement Impact
35.0%
33.9%
Statutory
Lower State Taxes
Rate
Foreign Tax
Rate
Other
Adjusted
ETR
27.8%
Foreign
Exchange
Note: Above amounts are net of tax at the 30% statutory Mexico tax rate
Reported
ETR
67
Improving Service and Productivity
Aligning
–
–
–
–
Resources With Volume
Experienced management structure in place
Re-organizations in Network Operations Center and various field locations
Mexico 2015 hiring initiative complete, focus shifts to productivity
2016 labor to align with volumes through attrition, furloughs and work rule changes
Productivity Initiatives for 2016
– Establishing inner-division trains eliminating crew changes at Jackson, MS and Leal, Mexico,
enabled by velocity improvements within these segments
– Relocation of joint territory dispatch team to Spring, TX to promote efficiencies between
KCS/UP/BNSF dispatching of joint territory
– Sanchez Yard phase 1 completed/phase 2 underway to improve border operations. Relocation of
work from Laredo to Sanchez to commence in 2016
– Streamlining train departures at the Port of Lázaro reducing crew handlings and improving
average cycle times by 6 hours
– Implementing fuel optimization technology in approximately 20% of road locomotives in 2016
Key Metrics
– Velocity improved 1% vs Q4 2014 (27.0 vs. 26.8 MPH)
– Dwell at terminals improved 9% vs Q4 2014 (21.2 vs. 23.4 hrs)
– Q4 Service returning to 2013 levels while handling 2.2% more carloads vs. Q4 2013
11
34
1/27/2016
Operating Metrics Returning to 2013 Levels
Velocity (mph)
Average Train Speed
KCS
Class I (ex. KCS)
31
29
27
25
23
21
19
17
15
2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2015 2015 2015 2015 2015 2015
1
10
19
28
37
46
3
12
21
30
39
48
5
14
23
32
41
50
Week of the Year
Return to
2013 levels
Dwell* (hours)
Average Terminal Dwell
KCS
Class I (ex. KCS)
29
27
25
23
21
19
17
15
2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2015 2015 2015 2015 2015 2015
1
10
19
28
37
46
3
12
21
30
39
48
5
14
23
32
41
50
Week of the Year
Source: AAR
69
KCS Cargo Security
1,186
593
117
5
Agents
Guard Points
Patrol Vehicles
K-9 Units
24x7
Security Desk
99.98% of shipments move without a claim
70
35
1/27/2016
Capital Structure & Credit
71
Credit ratings have improved from mid single B
in 2010 to investment grade
Kansas City Southern
Outlook
Corporate
Short-Term Corporate Credit
S&P
Moody’s
Fitch
Positive
Stable
Positive
BBB-
Not Rated
BBB-
A-3
Not Rated
F3
Kansas City Southern Railway
S&P
Moody’s
Fitch
Positive
Stable
Positive
Senior Unsecured
BBB-
Baa3
BBB-
Commercial Paper
A-3
P-3
F3
Outlook
Kansas City Southern de México
S&P
Moody’s
Fitch
Positive
Stable
Positive
Corporate
BBB-
Not Rated
BBB-
Senior Unsecured
BBB-
Baa3
BBB-
Commercial Paper
A-3
P-3
F3
Outlook
72
72
36
1/27/2016
KCS Announced the Establishment of a Stock
Repurchase Program

$500 million program
 Expires 6/30/17
 Initiated as opportune return of capital
 Reflects management’s and Board of Director’s belief in the
strength of our franchise and our future growth prospects
 To be funded with currently available liquidity and future financing
 Balances the interests of our shareholders and debt holders
– Investment grade credit rating to be maintained
– Program size reflects discussions with rating agencies regarding potential
debt capacity available for repurchases
 Ample capacity remains to fund growth opportunities
73
Reduced Capital Spending While Still Investing for Future Growth
Total Capex $580-$590 Million Range
Investing in Growth – Capacity and Equipment
•
Significant spending on Sasol Project in 2016 and 2017
•
New or expanded sidings to improve line of road fluidity
•
Expansion of intermodal and automotive fleets
•
Continuation of Sanchez Yard three year, $60M+ expansion
project
•
Increased PTC spending versus 2015
Capital Spending
Reduction of ~10%
$649M
$580M-$590M
2015 Actual
Maintenance
2016 Capital Expenditures
2016 Estimate
Growth
PTC
IT / Other
IT / Other 4%
PTC 9%
Capacity 8%
Growth 42%
Locomotive
Overhauls 9%
Rolling Stock
8%
Maintenance 45%
Sasol 11%
Sanchez Yard 3%
Other 3%
74
37
1/27/2016
Balanced Approach to Investing in Business and
Returning Capital to Shareholders
Invest in
Business
Shareholder
Returns
Optimize
Capital
Structure
• Committed to superior growth profile
• 2015 Capex - $650 to $670 million range
• Board of Directors approved $500 million share repurchase program
• During Q3 15 KCS repurchased 1,236,094 shares for $115.7 million
with an average price of $93.57
• Q3 cash dividend declared on Aug 3, 2015; paid Oct 7, 2015
• Quarterly payout of $0.33 per share or $36.0 million
• Annualized payout of $1.32 per share or $144.0 million
• Continued lease conversions
• Percentage of owned equipment increased from 56% at 6/30/15 to
61% at 09/30/15
• KCSR issued $500 million in senior notes at 4.95% due 2045
• Consolidated interest expense of ~$23 million in Q4 15 and ~$95
million annually
• Proceeds used for repayment of commercial paper, share
repurchase, and general corporate purposes
75
Higher Capital Spend at KCS Supports Industry Leading Revenue
Growth / KCS Return on Capital Improvement Exceeds Peer Group
Class I Comparison includes CN, CP, CSX, NS, UP, BNSF
*FY 14 results for KCS , CN, CSX, NS & UP. Annualized
Q3 results for BNSF & CP.
76
38
1/27/2016
Definitions
•
Dwell is defined as the average time a car resides at the specified terminal location.
•
Cross-border is defined as traffic that moves on Kansas City Southern both north and south of the U.S. / Mexico
border. Traffic interchanged with a competing railroad at the border is not considered cross border.
77
Additional Investor Resources
For more information please visit the KCS Investor Relations Homepage:
KCS IR Homepage: http://investors.kcsouthern.com
Or contact KCS Investor Relations:
Bill Galligan
Vice President, Investor Relations
[email protected]
Office: 816-983-1551
Cell: 816-830-4440
Brian Steadman
Director, Investor Relations
[email protected]
Office: 816-983-1501
Cell: 816-695-4343
78
39
1/27/2016
©2013©2016
Kansas
Kansas
City Southern
City Southern
79
40

Investor Relations General Book - Investor Relations – Kansas City

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