Kansas City Southern (NYSE:KSU) Q2 2016 Earnings Conference Call - Final Transcript

Jul 19, 2016 • 08:45 am ET

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Kansas City Southern (NYSE:KSU) Q2 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Greetings and welcome to the Kansas City Southern Second Quarter 2016 Earnings Calls. [Operator Instructions] As a reminder, this conference is being recorded.

The presentation includes statements concerning potential future events involving the company, which could materially different from events that actually occur. The differences could be caused by a number of factors, including those factors identified in the risk factors section of the company's form 10-K for the year ended December 31, 2015 filed with the SEC. The company is not obligated to update any forward looking statements in presentation to reflect future events or developments. All reconciliation to GAAP can be found on the KSC Website www.kcsouthern.com.

It is now my pleasure to introduce your host Pat Ottensmeyer, President and Chief Executive Officer for Kansas City Southern. Mr. Ottensmeyer, you may begin.

Executive
Patrick J. Ottensmeyer

Thank you and good morning everyone and welcome to the Kansas City Southern second quarter 2016 earnings presentation. Again, I'm Pat Ottensmeyer, President and Chief Executive Officer of Kansas City Southern. With me for today's presentation our Jeff Songer, Executive Vice President and Chief Operating Officer; Brian Hancock, Chief Marketing Officer; Mike Upchurch, Chief Financial Officer. [Indecipherable] is on the phone to help us with questions and also Jose Zozaya, President and Executive representative of Kansas City Southern Domenico.

Please move to Slide 4 for a quick overview of the second quarter results, as you saw on our press release earlier this morning. Our revenues for the quarter declined 3% versus last year, excluding foreign exchange and lower US fuel prices, we would have seen an increase in revenue of approximately 2%. Volumes were unchanged compared to last year. Second quarter operating ratio was 61.3%, which includes the impact of a Mexican fuel excise tax credit of $34 million recognised in the second quarter, and this reflects the benefit for both the first and second quarter impact of the fuel excise tax credit. Service continues to be impacted by flooding in Texas during the quarter or I shouldn't say continued. But we did have flooding disruptions in the first quarter as you will recall, and severe weather and flooding during the second quarter south of Houston affected our network. And our cost as well as the founder will have more to say about that in in this portion of the presentation.

I want to circle back and make a couple of quick comments about the operating ratio for the quarter. And this Mexican fuel excise tax, which I realise is probably not well understood out in the animal feed and Mike will cover this in much greater detail in a few minutes. But before anyone jumps to an incorrect conclusion about a new normal for operating ratio, I do want to emphasise that the $34 million credit is retroactive to January 1, 2016. So it covers both the first and second quarter, while our offer -- our reported operating ratio was 61.3, adjusting how the first quarter impact would have resulted in an operating ratio that was