Kansas City Southern (NYSE:KSU) Q2 2016 Earnings Conference Call - Preliminary Transcript
Jul 19, 2016 • 08:45 am ET
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Due to the number of participants on this morning call management will limit your questions to one primary question and one follow up question. One moment please, now we pose the question. Thank you.
Our first question comes from the line of [Indecipherable]. Please proceed with your question.
Thanks. Good morning. What's the follow up on the tax credit issues? I think it's important. It sounds as you're saying, for the full year something that neighbourhood a $0.35 to $0.40 of the tax credit kind of roll through. But like it also sounds like you're saying that you're kind of resetting the bar here to some extent, because I think you're affecting 2017 to also see some heads of benefit from that. So can you give us a sense of that sort of a right way to think about it, that we're kind of getting some credit for overpaying for an extended period of time as we move towards market rates and 2018? This is a sort of way to bridge the gap is a great way to think about it.
Yes, no, I think that's a good question, Chris, and is the right way to think about it. You know, we've been essentially paying roughly double the price for a gallon of diesel in Mexico than we had in the US. And we're now on kind of a level playing field with the tracking industry in Mexico being eligible for this credits this excise credits. And after the credit effectively gets you back to price per gallon that's roughly the same as what we're paying in the US. And while the legislation was only enacted for for 2016, we believe sitting here today that this practice would continue as the country moves to its stated goal of getting to market pricing. And so, we can't say that for certain for 2017. But we believe that will be the case and therefore kind of resets the bar in terms of our cost per gallon is in Mexico.
Okay, that's helpful. So to follow up questions on that in a scenario of rising fuel prices, and assuming this is perfect, you're out for 2017. You see, I'm getting less of the credit roll for later. This is the gap between real prices Africa crisis. And then is there any impact on the fuel surcharge? Collection side relevance to this or the sort of neutral?
Yes, well, Chris, on on the, you know, rising fuel price question, it's really difficult for us to know exactly what what the price is going to be because it changes month in and month out and there's actually a fixed component and a variable component. So it's a bit difficult to to project. And, with respect to your your fuel surcharge question, I mean, this programme is really kind of put us on equal footing with the trucking industry. And we're already pricing that market