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
Executive
Pat Ottensmeyer

the market price of diesel fuel and the level of the Mexican excise tax. Again, Mike will have much more detailed explanation in a few minutes and we will be happy to entertain questions on this point at the end of the presentation.

With that, I will turn the presentation over to Jeff Songer.

Executive
Jeff Songer

Thank you, Pat, and good morning. Beginning with slide 7, velocity for the quarter of 28.4 miles per hour was a 7.6% improvement over prior year. Dwell for the quarter of 21.8 hours was a 7.2% improvement over prior year. Solid operating performance in the quarter, despite continued weather-related interruptions, which I will discuss, enabled improvements in our key operating metrics, and we've stabilized our operation well over the past three quarters.

Moving to the operations overview on slide 8, we continue to aggressively manage resources. Currently 7% of the US T&E workforce is in furlough status and 15% of our locomotives across the system are in storage. Providing an update on other cost initiatives, our fuel management programs have provided approximately $3 million and reduced cost year-to-date through improved fuel efficiencies.

As presented in the first quarter, our fuel optimization program is well underway. We are approximately one-third complete with the planned installation for 2016, where we are installing on approximately 20% of the US road fleet. Expanding upon this initiative in the second half of the year, we will begin similar work in Mexico related to fuel optimization technologies. We plan to deploy this technology across a similar number of our Mexico road fleet through 2017.

Automatic Engine Start/Stop or AESS technology is another area of focus in our fuel management efforts. While we employ this technology today, future work in this area including expanding use, in yard locomotives, upgrading to newer technologies and tightening up the work rules related to engine start-stop procedures will aid in our fuel efficiency management. With respect to labor management, recrews are another key metric we have been focused on. In the second quarter, we achieved a 49% reduction in recrews and year-to-date we have reduced overall US and Mexico recrews by 42%.

Our capital project highlights for the quarter focus on our expansion of San Luis Potosi in support of the announcements you've seen regarding the new BMW and Ford automotive plants, as well as the WTC and Watco Fluids terminal. We are currently in the design phase for further capacity expansions in the San Luis Potosi area, including multiple new support tracks built at Interpuerto facility, as well as support tracks to directly serve the new auto plants. This will ensure we have adequate capacity through 2018 and 2019 as these facilities come online. Other major projects at Lazaro and Sasol and mainline siding capacity projects continue on schedule.

Regarding equipment, our capital for 2016 is focused on multilevel auto equipment and by the end of Q3 we will have received 300 new auto tracks. We are also adding new Grain and Intermodal equipment to support