Kansas City Southern (KSU) 8-K Strong Operating Income Growth, Operating Ratio Improvement Highlight Kansas City Southern’s Third Quarter 2007 Earnings

Date:	October 25, 2007
Media Contact:	William H. Galligan	Phone: 816/983-1551
	bgalligan@kcsouthern.com

Strong Operating Income Growth, Operating Ratio Improvement Highlight
Kansas City Southern’s Third Quarter 2007 Earnings

Third Quarter Highlights

• Revenues of $444.1 million, a 6.8% increase over 2006

• Record operating income of $98.2 million, a 27% increase

• Operating ratio of 77.9%, a 3.5 point improvement

• Diluted earnings per share of $0.48, a 50% increase

Kansas City, MO, October 25 2007. Kansas City Southern (KCS) (NYSE:KSU) recorded third quarter 2007 revenues of $444.1 million, a 6.8% increase over third quarter 2006. Revenue gains were primarily attributable to volume growth in select commodity areas and a continued favorable pricing environment.

For the third quarter, revenues for the Automotive group increased 21.8% on volume growth of 16.6%. Coal revenues remained strong, increasing 16.9% for the quarter with volumes growing by 4.8%. Chemical & Petroleum products revenues experienced 12.7% growth with volume increasing by 5.3%. Agriculture & Minerals revenues increased by 7.0% while posting a 2.2% decrease in volumes. Despite the impact of a depressed U.S. new home building market on building materials, Paper & Forest Products posted a revenue gain of 1.0%, though overall volumes were 12.1% lower. Intermodal revenues, including haulage, were flat quarter-over-quarter, with volumes 6.5% lower. Excluding the loss of certain haulage business, intermodal revenues increased by 12.5% and

volumes grew by 17.6%. Overall volumes fell by 2.8%, however excluding the haulage traffic, volumes would have been 3.0% higher than last year.

Third quarter 2007 operating expenses totaled $345.9 million, increasing 2.2% from 2006. Operating income grew 27.0% from $77.3 million to $98.2 million. The third quarter operating ratio improved to 77.9% from 81.4% for the same prior year period, a 3.5 point improvement.

Net income available to common shareholders in the third quarter 2007 increased by 58% to $41.8 million, or $0.48 per diluted share, compared with $26.4 million, or $0.32 per diluted share in the third quarter 2006.

Comments from the Chairman

KCS Chairman and Chief Executive Officer Michael R. Haverty said, “Within the context of a slower than expected economy, we are encouraged by the overall improvement in KCS’s operating performance. The Company posted solid, double-digit revenue growth in three of its commodity groups, and only haulage revenues declined as a result of the loss of certain business over the Meridian Speedway.

“While operating expenses were in-line with our expectations, KCS management remains committed to taking additional costs out of our network. Having attained an operating ratio of 77.9% for the quarter and the Company is focused on achieving the revenue growth and expense controls necessary to meet our target of an operating ratio below 80% for the year.

“Construction of Phase I of the Port of Lazaro Cardenas is complete, which brings the capacity to over 500,000 TEUs. Even prior to the expansion, third quarter revenue growth from Lazaro Cardenas was approximately 23%. The opening of Phase I will offer KCS customers new service options and will result in increased intermodal and carload traffic out of the port to both inter-Mexico and cross-border destinations.

“Finally, at the end of the quarter, KCS and its former Mexican partner, Grupo TMM, S.A. (TMM) entered into an agreement that resolved all remaining claims and disputes over liabilities established in 2005 as part of the acquisition of Grupo TFM, now Kansas City Southern de Mexico (KCSM). The settlement was favorable for KCS and its shareholders as it finalizes KCS’ relationship with TMM and eliminates any future payouts to TMM and potential dilution of KCS shares.”

Headquartered in Kansas City, Mo., KCS is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holding includes The Kansas City Southern Railway Company, serving the central and south central U.S. Its international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS’ North American rail holdings and strategic alliances are primary components of a NAFTA Railway system, linking the commercial and industrial centers of the U.S., Canada and Mexico.

This press release includes statements concerning potential future events involving the Company, which could materially differ from the events that actually occur. The differences could be caused by a number of factors including those factors identified in the “Risk Factors” and the “Cautionary Information” sections of the Company’s Form 10-K for the year ended December 31, 2006, filed by the Company with the Securities and Exchange Commission (SEC) (Commission file no. 1-4717). The Company will not update any forward-looking statements in this press release to reflect future events or developments

# # #

Kansas City Southern
Income Statement
(In millions, except share and per share amounts)
(Unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2007			2006			2007			2006
Revenues	$	444.1		$	415.7		$	1,282.5		$	1,217.3
Operating expenses:
Compensation and benefits		104.7			96.5			303.1			289.1
Purchased services		47.9			56.6			137.7			163.9
Fuel		66.6			66.4			194.8			187.8
Equipment costs		43.7			46.1			137.1			130.1
Depreciation and amortization		38.9			37.7			117.8			112.9
Casualties and insurance		15.9			12.0			52.8			40.1
Materials and other costs		28.2			23.1			85.5			77.3
Total operating expenses		345.9			338.4			1,028.8			1,001.2
Operating income		98.2			77.3			253.7			216.1
Equity in net earnings of unconsolidated affiliates		3.3			3.2			7.2			5.7
Interest expense		(37.3	)		(42.3	)		(118.3	)		(123.5	)
Debt retirement costs		—			—			(6.9	)		(2.2	)
Foreign exchange gain (loss)		(1.9	)		4.5			(1.6	)		(6.7	)
Other income		2.0			3.5			5.9			9.3
Income before income taxes and minority interest		64.3			46.2			140.0			98.7
Income tax expense		17.5			14.7			40.6			30.2
Income before minority interest		46.8			31.5			99.4			68.5
Minority interest		0.1			0.2			0.3			0.2
Net income		46.7			31.3			99.1			68.3
Preferred stock dividends		4.9			4.9			15.0			14.6
Net income available to common shareholders	$	41.8		$	26.4		$	84.1		$	53.7
Earnings per share:
Basic earnings per share	$	0.55		$	0.35		$	1.11		$	0.72
Diluted earnings per share	$	0.48		$	0.32		$	1.00		$	0.67
Average shares outstanding (in thousands):
Basic		75,935			75,178			75,797			74,490
Potential dilutive common shares		21,716			16,411			14,781			16,431
Diluted		97,651			91,589			90,578			90,921

Kansas City Southern
Revenue & Carloadings By Commodity – Third Quarter 2007
(Dollars in Millions)

Carloadings							Revenue
Third Quarter			%				Third Quarter				%
2007	2006 (a)		Change				2007		2006 (a)		Change
						Coal
65,951		62,370		5.7	%	Unit Coal	$	39.6	$	33.7		17.5	%
13,808		13,708		0.7	%	Other Coal		11.0		9.6		14.6	%
79,759		76,078		4.8	%	Total		50.6		43.3		16.9	%
						Paper & Forest Products
30,431		34,776		(12.5	%)	Pulp/Paper		42.9		44.7		(4.0	%)
4,946		1,808		173.6	%	Scrap Paper		6.0		1.8		233.3	%
4,821		4,374		10.2	%	Pulpwood/Logs/Chips		4.3		2.9		48.3	%
6,534		7,638		(14.5	%)	Lumber/Plywood		9.5		9.8		(3.1	%)
21,640		30,275		(28.5	%)	Metal/Scrap		30.5		34.9		(12.6	%)
26,626		29,145		(8.6	%)	Military/Other Carloads		30.7		28.6		7.3	%
94,998		108,016		(12.1	%)	Total		123.9		122.7		1.0	%
						Chemical & Petroleum Products
3,471		3,267		6.2	%	Agri Chemicals		4.5		3.9		15.4	%
27,145		22,749		19.3	%	Other Chemicals		37.1		27.7		33.9	%
15,856		17,929		(11.6	%)	Petroleum		21.6		24.4		(11.5	%)
11,716		11,329		3.4	%	Plastics		20.3		18.1		12.2	%
58,188		55,274		5.3	%	Total		83.5		74.1		12.7	%
						Agriculture and Minerals
39,970		40,711		(1.8	%)	Grain		59.4		54.0		10.0	%
15,944		17,331		(8.0	%)	Food Products		25.1		26.0		(3.5	%)
14,271		13,827		3.2	%	Ores and Minerals		12.8		11.1		15.3	%
3,969		3,950		0.5	%	Stone, Clay & Glass		5.8		5.3		9.4	%
74,154		75,819		(2.2	%)	Total		103.1		96.4		7.0	%
						Intermodal & Automotive
27,997		24,010		16.6	%	Automotive		29.0		23.8		21.8	%
134,869		144,172		(6.5	%)	Intermodal		37.4		37.4		0.0	%
162,866		168,182		(3.2	%)	Total		66.4		61.2		8.5	%
469,965		483,369		(2.8	%)	TOTAL FOR BUSINESS UNITS		427.5		397.7		7.5	%
						Other KCSR Revenue		16.6		18.0		(7.8	%)
469,965		483,369		(2.8	%)	TOTAL	$	444.1	$	415.7		6.8	%

(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 September 30, 2007
(Dollars in Millions)

Carloadings							Revenue
Year to Date			%				Year to Date				%
2007	2006 (a)		Change				2007		2006 (a)		Change
						Coal
192,971		183,986		4.9	%	Unit Coal	$	112.1	$	98.0		14.4	%
39,536		39,151		1.0	%	Other Coal		29.1		26.3		10.6	%
232,507		223,137		4.2	%	Total		141.2		124.3		13.6	%
						Paper & Forest Products
91,437		101,246		(9.7	%)	Pulp/Paper		125.5		121.4		3.4	%
13,775		5,825		136.5	%	Scrap Paper		16.5		5.6		194.6	%
13,371		14,226		(6.0	%)	Pulpwood/Logs/Chips		11.1		9.4		18.1	%
20,096		24,483		(17.9	%)	Lumber/Plywood		27.6		31.0		(11.0	%)
74,879		99,890		(25.0	%)	Metal/Scrap		98.4		109.0		(9.7	%)
83,526		89,212		(6.4	%)	Military/Other Carloads		91.6		90.5		1.2	%
297,084		334,882		(11.3	%)	Total		370.7		366.9		1.0	%
						Chemical & Petroleum Products
10,462		11,168		(6.3	%)	Agri Chemicals		12.9		12.1		6.6	%
76,875		67,087		14.6	%	Other Chemicals		103.0		81.4		26.5	%
49,005		53,851		(9.0	%)	Petroleum		63.7		69.9		(8.9	%)
33,459		33,522		(0.2	%)	Plastics		57.8		52.4		10.3	%
169,801		165,628		2.5	%	Total		237.4		215.8		10.0	%
						Agriculture and Minerals
121,722		121,287		0.4	%	Grain		168.6		152.8		10.3	%
47,708		50,747		(6.0	%)	Food Products		74.6		75.2		(0.8	%)
41,376		42,038		(1.6	%)	Ores and Minerals		35.8		33.6		6.5	%
11,921		12,304		(3.1	%)	Stone, Clay & Glass		17.3		16.2		6.8	%
222,727		226,376		(1.6	%)	Total		296.3		277.8		6.7	%
						Intermodal & Automotive
79,451		76,212		4.2	%	Automotive		81.8		74.4		9.9	%
385,334		400,159		(3.7	%)	Intermodal		103.7		100.1		3.6	%
464,785		476,371		(2.4	%)	Total		185.5		174.5		6.3	%
1,386,904		1,426,394		(2.8	%)	TOTAL FOR BUSINESS UNITS		1,231.1		1,159.3		6.2	%
						Other KCSR Revenue		51.4		58.0		(11.4	%)
1,386,904		1,426,394		(2.8	%)	TOTAL	$	1,282.5	$	1,217.3		5.4	%

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