Kansas City Southern (NYSE:KSU.PR) Q3 2016 Earnings Conference Call - Final Transcript

Oct 18, 2016 • 08:45 am ET

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Kansas City Southern (NYSE:KSU.PR) Q3 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Greetings and welcome to the Kansas City Southern Third Quarter 2016 Earnings Call. [Operator Instructions]

This presentation includes statements concerning potential future events involving the Company, which could materially differ 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 of the year ended December 31st, 2015 filed with the SEC. The Company is not obligated to update any forward-looking statements in this presentation to reflect future events or developments. All reconciliations to GAAP could be found on the KCS 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. Welcome to our third quarter 2016 earnings call. If you look at page 4, you'll see the line-up, which I think is familiar to everyone. Jeff Songer, Brian Hancock, Mike Upchurch and Jose Zozaya, is on the phone as well this morning.

Let me begin my comments with slide 5. As you saw in our press release from earlier this morning, we reported diluted earnings per share for the third quarter of $1.12, which compares to $1.20 per share last year, which represents a 7% decline from 2015. Revenues were $604.5 million, a 4% decline from last year. Excluding the impact of lower US fuel prices on fuel surcharge revenue and the further weakening of the Mexican Peso, our revenues for the quarter would have been about 1% lower than last year. Volumes were down by 4% from last year.

Our reported operating ratio for the quarter was 66.9%, which is 170 basis points higher than last year. However, this includes the impacts of some one-time cost events, including higher detour expenses due to flooding in South Texas and service disruptions in Mexico, which as we've stated in our press release, had an adverse impact on revenues.

In addition, those disruptions had a negative impact on cost performance during the quarter as well. In spite of this deterioration in quarterly operating ratio, we feel very good about our overall cost performance during the quarter. Later in the presentation, Jeff Songer, will talk about some of the efficiency initiatives that are underway, and Mike Upchurch, will get into more detail about what we'll refer to as our normalized cost performance. Just to give you a bit of a preview, this normalized cost performance is demonstrated by looking at our year-to-date operating ratio, which as you can see from the last point on slide 5, improved by 230 basis points from the adjusted or comparable operating ratio last year to 65%. Among other things, this year-to-date view shows our operating ratio performance on a basis, which smooth out the impact of timing or events that would have a more pronounced impact on the results in any given quarter. Again, Mike, will walk you through this in greater detail in a few