Kansas City Southern (KSU) 8-K Revenue Growth, Strong Pricing Highlight Kansas City Southern’s Second Quarter 2007 Earnings

July 26, 2007

Media Contact:	William H. Galligan	Phone: 816/983-1551
	bgalligan@kcsouthern.com

Revenue Growth, Strong Pricing Highlight
Kansas City Southern’s Second Quarter 2007 Earnings

Second Quarter Highlights

• Revenues of $427.1 million, a 3.4% increase over 2006.

• Operating income of $83.1 million increased 7.2%.

• Operating ratio improved to 80.5% compared with 81.2%.

• Refinancings result in annual $13 million pre-tax savings.

Kansas City, MO. Kansas City Southern (KCS) (NYSE:KSU) recorded second quarter 2007 revenues of $427.1 million, a 3.4% increase over second quarter 2006. The quarter-over-quarter revenue growth was primarily attributable to a continued strong pricing environment.

For the quarter, revenues for KCS’ automotive group increased by 17.8% over last year, a reflection of the growing importance of Mexico to the North American automotive industry. Coal revenues also experienced double-digit improvement increasing by 10.4% on strong volume. Chemical & petroleum products grew by 5.1%. Growth in grain business was a key driver leading to a 4.6% increase in agriculture & minerals, and despite a continued slow U.S. new homes market, paper & forest products revenues rose 1.2%. Finally, second quarter intermodal revenues were basically flat, increasing 0.6%. Intermodal continued to be challenged on a year-to-year comparative basis by the loss of certain haulage business. Excluding the impact of the haulage, second quarter 2007 intermodal revenues increased by approximately 14%. It is anticipated that the reduced haulage revenues will be partially replaced with new traffic created from a new haulage agreement that will utilize KCS’ Meridian Speedway beginning in the second half of the year.

Second quarter 2007 operating expenses totaled $344.0 million, a 2.5% increase. Operating income increased 7.2% to $83.1 million, and the second quarter operating ratio improved to 80.5% from 81.2% a year earlier. The Company’s operating ratio has improved in both the first and second quarter compared with the same periods in 2006.

Net income available to common shareholders in the second quarter totaled $25.3 million, or $0.30 per diluted share, compared with $19.2 million, or $0.24, in the second quarter 2006, a 25% increase in diluted earnings per share. Second quarter 2007 pre-tax

income includes a cost of $6.9 million, or 6 cents per share on a dilutive basis, related to the refinancing of Kansas City Southern de México (KCSM) 12.5% senior notes and bank credit agreement. Excluding these refinancing costs in the quarter, KCS diluted earnings per share would have been $0.36 for the second quarter. Going forward, the KCSM refinancings will result in a significant pre-tax reduction in interest expense.

Comments from the Chairman

KCS Chairman and Chief Executive Officer Michael R. Haverty stated, “While we appreciate that the Company’s overall performance has remained positive despite a somewhat less robust economy in the first half of the year, KCS is determined to improve its operational and financial results in the second half of 2007.

“Going forward, KCS will benefit from some mid-year new business opportunities, which will strengthen volumes during the remainder of 2007. In addition, KCS will take delivery of 120 new locomotives during the second half of this year. These developments, among others, will contribute to our goal of achieving a full-year operating ratio below 80%.

“Considerable progress was made during the second quarter on two construction projects that have major long-term significance for KCS. Hutchison Port Holdings, which has the concession to operate the Port of Lázaro Cárdenas, has completed the work necessary to install the cranes on dock. The cranes are now on site and the schedule for Phase I operations continues to move toward an opening in late September. In addition, in late May, The Kansas City Southern Railway filed an application with the U.S. Railroad Administration (FRA) for a $100 million Railroad Rehabilitation and Improvement Financing (RRIF) loan to be used for the reconstruction of a rail line between Victoria and Rosenberg, Texas. Construction began immediately after the application was filed. When completed in late 2008, this new rail line will reduce KCS’ route to Mexico by approximately 70 miles and will result in lower costs and improved service, which are critical elements of our cross border intermodal growth strategy.

“Finally, during the second quarter we completed two key refinancings at KCSM, which will generate an annual pre-tax interest savings of $13 million. Since KCS acquired its controlling interest in KCSM in April 2005, KCSM has refinanced all of its senior unsecured indebtedness resulting in annual pre-tax interest savings of over $22 million.”

For the calculation of adjusted EPS, see the Reconciliation to GAAP schedule attached to the Company’s 8-K filing or the Company’s website atwww.kcsouthern.com.

KANSAS CITY SOUTHERN SECOND QUARTER 2007 PRESS RELEASE
RECONCILIATION TO GAAP⁽¹⁾
(in millions)

	June 30,
EPS Effect of Debt Retirement Costs:	2007
As Reported net income available to common stockholders for purposes of computing EPS	$	27.4		A
Effect of debt retirement costs, net of Mexico segment tax		5.2
Effect of additional income due to dilution of convertible preferred stock		2.7
Net income available to common stockholders for purposes of computing EPS	$	35.3		C
As reported diluted shares		90,732		B
Additional preferred stock dilutive shares due to additional income		7,000
Adjusted diluted shares		97,732		D
As reported diluted earnings per share	$	0.30		A/(B/1,000)
EPS excluding debt retirement costs		0.36		C/(D/1,000)
Difference	$	(0.06	)

Non-GAAP Reconciliation⁽¹⁾

KCS reports its financial statements in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures used to review and in certain cases manage the Company’s business may provide its users of the financial information with additional meaningful comparison when reviewing the Company’s results.

KCS management uses non-GAAP information in its planning and forecasting processes and to further analyze its own financial trends and operational performance, as well as making financial comparisons to prior periods presented on a similar basis. The Company also uses some of these measures internally as part of its incentive compensation plans for management employees. Management believes investors and users of the Company’s financial information should consider all of the above factors when evaluating KCS’ results.

Some of KCS’ non-GAAP measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures.

Kansas City Southern
Income Statement
(Dollars in millions except share and per share data)
(Unaudited)

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2007			2006			2007			2006
Revenues	$	427.1		$	413.1		$	838.4		$	801.5
Operating expenses:
Compensation and benefits		98.5			97.6			198.4			192.6
Purchased services		43.1			52.4			89.8			107.3
Fuel		65.7			63.1			128.2			121.4
Equipment costs		48.5			39.3			93.4			84.0
Depreciation and amortization		40.8			36.8			78.9			75.2
Casualties and insurance		17.5			15.5			36.9			28.1
Materials and other costs		29.9			30.9			57.3			54.1
Total operating expenses		344.0			335.6			682.9			662.7
Operating income		83.1			77.5			155.5			138.8
Equity in net earnings of unconsolidated affiliates		2.8			2.0			3.9			2.5
Interest expense		(41.6	)		(40.6	)		(81.0	)		(81.2	)
Debt retirement costs		(6.9	)		(2.2	)		(6.9	)		(2.2	)
Foreign exchange gain (loss)		3.4			(7.0	)		0.3			(11.2	)
Other income		3.3			2.9			3.9			5.8
Income before income taxes and minority interest		44.1			32.6			75.7			52.5
Income tax expense		13.8			8.5			23.1			15.5
Income before minority interest		30.3			24.1			52.6			37.0
Minority interest		0.1			—			0.2			—
Net income		30.2			24.1			52.4			37.0
Preferred stock dividends		4.9			4.9			10.1			9.8
Net income available to common shareholders	$	25.3		$	19.2		$	42.3		$	27.2
Earnings per share:
Basic earnings per share	$	0.33		$	0.26		$	0.56		$	0.37
Diluted earnings per share	$	0.30		$	0.24		$	0.52		$	0.36
Average shares outstanding (in thousands):
Basic		75,892			74,464			75,737			73,661
Potential dilutive common shares		14,840			18,088			14,813			16,355
Diluted		90,732			92,552			90,550			90,016

Kansas City Southern
Revenue & Carloadings By Commodity — Second Quarter 2007
(Dollars in Millions)

Carloadings							Revenue
Second Quarter				%			Second Quarter				%
2007	2006 (a)			Change			2007		2006		Change
						Coal
64,721		60,631		6.7	%	Unit Coal	$	36.9	$	32.3	14.2	%
12,884		13,420		(4.0	%)	Other Coal		8.6		8.9	(3.4	%)
77,605		74,051		4.8	%	Total		45.5		41.2	10.4	%
						Paper & Forest Products
30,734		32,591		(5.7	%)	Pulp/Paper		42.5		38.9	9.3	%
5,948		1,897		213.5	%	Scrap Paper		6.8		1.8	277.8	%
3,507		4,694		(25.3	%)	Pulpwood/Logs/Chips		2.6		3.2	(18.8	%)
7,108		8,503		(16.4	%)	Lumber/Plywood		9.2		10.8	(14.8	%)
24,008		33,829		(29.0	%)	Metal/Scrap		31.2		36.8	(15.2	%)
28,726		30,432		(5.6	%)	Military/Other Carloads		32.3		31.6	2.2	%
100,031		111,946		(10.6	%)	Total		124.6		123.1	1.2	%
						Chemical & Petroleum
						Products
3,561		3,846		(7.4	%)	Agri Chemicals		4.2		4.2	0.0	%
26,959		22,733		18.6	%	Other Chemicals		36.1		27.9	29.4	%
15,245		18,359		(17.0	%)	Petroleum		18.8		24.4	(23.0	%)
11,264		11,402		(1.2	%)	Plastics		19.2		18.0	6.7	%
57,029		56,340		1.2	%	Total		78.3		74.5	5.1	%
						Agriculture and Minerals
42,596		41,178		3.4	%	Grain		57.2		51.5	11.1	%
15,733		17,622		(10.7	%)	Food Products		24.5		26.6	(7.9	%)
12,897		13,921		(7.4	%)	Ores and Minerals		11.2		11.3	(0.9	%)
4,477		4,196		6.7	%	Stone, Clay & Glass		6.5		5.6	16.1	%
75,703		76,917		(1.6	%)	Total		99.4		95.0	4.6	%
						Intermodal & Automotive
28,615		25,052		14.2	%	Automotive		29.1		24.7	17.8	%
121,160		135,143		(10.3	%)	Intermodal		33.5		33.3	0.6	%
149,775		160,195		(6.5	%)	Total		62.6		58.0	7.9	%
460,143		479,449		(4.0	%)	TOTAL FOR BUSINESS UNITS		410.4		391.8	4.7	%
			��			Other KCSR Revenue		16.7		21.3	(21.6	%)
460,143		479,449		(4.0	%)	TOTAL	$	427.1	$	413.1	3.4	%

(a) Certain amounts have been reclassified to reflect changes in the business groups and to conform to the current year presentation.

Kansas City Southern
Revenue & Carloadings By Commodity — Year to Date June 30, 2007
(Dollars in Millions)

Carloadings							Revenue
Year to Date			%			Year to Date						%
2007	2006 (a)		Change			2007			2006			Change
					Coal
127,020		121,616	4.4	%	Unit Coal		$	72.5		$	64.3	12.8	%
25,728		25,443	1.1	%	Other Coal			18.1			16.7	8.4	%
152,748		147,059	3.9	%	Total			90.6			81.0	11.9	%
					Paper & Forest Products
61,006		66,470	(8.2	%)	Pulp/Paper			82.6			76.7	7.7	%
8,829		4,017	119.8	%	Scrap Paper			10.5			3.8	176.3	%
8,550		9,852	(13.2	%)	Pulpwood/Logs/Chips			6.8			6.5	4.6	%
13,562		16,845	(19.5	%)	Lumber/Plywood			18.1			21.2	(14.6	%)
53,239		69,615	(23.5	%)	Metal/Scrap			67.9			74.1	(8.4	%)
56,900		60,067	(5.3	%)	Military/Other Carloads			60.9			61.9	(1.6	%)
202,086		226,866	(10.9	%)	Total			246.8			244.2	1.1	%
					Chemical & Petroleum Products
6,991		7,901	(11.5	%)	Agri Chemicals			8.4			8.2	2.4	%
49,730		44,338	12.2	%	Other Chemicals			65.9			53.7	22.7	%
33,149		35,922	(7.7	%)	Petroleum			42.1			45.5	(7.5	%)
21,743		22,193	(2.0	%)	Plastics			37.5			34.3	9.3	%
111,613		110,354	1.1	%	Total			153.9			141.7	8.6	%
					Agriculture and Minerals
81,752		80,576	1.5	%	Grain			109.2			98.8	10.5	%
31,764		33,416	(4.9	%)	Food Products			49.5			49.2	0.6	%
27,105		28,210	(3.9	%)	Ores and Minerals			23.0			22.5	2.2	%
7,952		8,354	(4.8	%)	Stone, Clay & Glass			11.5			10.9	5.5	%
148,573		150,556	(1.3	%)	Total			193.2			181.4	6.5	%
					Intermodal & Automotive
51,454		52,202	(1.4	%)	Automotive			52.8			50.6	4.3	%
250,465		255,987	(2.2	%)	Intermodal			66.3			62.7	5.7	%
301,919		308,189	(2.0	%)	Total			119.1			113.3	5.1	%
916,939		943,024	(2.8	%)	TOTAL FOR BUSINESS UNITS			803.6			761.6	5.5	%
					Other KCSR Revenue			34.8			39.9	(12.8	%)
916,939		943,024	(2.8	%)	TOTAL		$	838.4		$	801.5	4.6	%

(a) Certain amounts have been reclassified to reflect changes in the business groups and to conform to the current year presentation.