Michael W. Upchurch Executive Vice President Finance & CFO Kansas City Southern Bank of America Merrill Lynch 2015 Transportation Conference May 14 th , 2015 Exhibit 99.1 |
© 2015 Kansas City Southern 2 Safe Harbor Statement This presentation contains “forward-looking statements” within the meaning of the securities laws concerning potential future events involving KCS and its subsidiaries, which could materially differ from the events that actually occur. Words such as “projects,” “estimates,” “forecasts,” “believes,” “intends,” “expects,” “anticipates,” and similar expressions are intended to identify many of these forward-looking statements. Such forward-looking statements are based upon information currently available to management and management’s perception thereof as of the date hereof. Differences that actually occur could be caused by a number of external factors over which management has little or no control, including: competition and consolidation within the transportation industry; the business environment in industries that produce and use items shipped by rail; loss of the rail concession of KCS’ subsidiary, Kansas City Southern de México, S.A. de C.V.; the termination of, or failure to renew, agreements with customers, other railroads and third parties; interest rates; access to capital; disruptions to KCS’ technology infrastructure, including its computer systems; natural events such as severe weather, hurricanes and floods; market and regulatory responses to climate change; credit risk of customers and counterparties and their failure to meet their financial obligations; legislative and regulatory developments and disputes; rail accidents or other incidents or accidents on KCS’ rail network or at KCS’ facilities or customer facilities involving the release of hazardous materials, including toxic inhalation hazards; fluctuation in prices or availability of key materials, in particular diesel fuel; dependency on certain key suppliers of core rail equipment; changes in securities and capital markets; availability of qualified personnel; labor difficulties, including strikes and work stoppages; insufficiency of insurance to cover lost revenue, profits or other damages; acts of terrorism or risk of terrorist activities; war or risk of war; domestic and international economic conditions; political and economic conditions in Mexico and the level of trade between the United States and Mexico; increased demand and traffic congestion; the outcome of claims and litigation involving KCS or its subsidiaries; and other factors affecting the operation of the business. More detailed information about factors that could affect future events may be found in filings by KCS with the Securities and Exchange Commission, including KCS’ Annual Report on Form 10-K for the year ended December 31, 2014 (File No. 1-4717) and subsequent reports. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. KCS is not obligated to update any forward-looking statements to reflect future events or developments. All reconciliations to GAAP can be found on the KCS website, kcsouthern.com/investors. |
© 2015 Kansas City Southern 2015 OUTLOOK 3 |
© 2015 Kansas City Southern Business Outlook 4 Withdrawing 2015 Revenue and Volume Guidance • Primarily due to uncertainty around energy-related markets, F/X impact and U.S. fuel price, KCS is withdrawing its 2015 revenue and volume guidance at this time. • The Company will continue to provide disclosure on capital expenditure plans. • The Company will reevaluate providing revenue and volume guidance in early 2016. Maintaining operating ratio goal of the low-60s by 2017 |
© 2015 Kansas City Southern 5 Q2 to Date Revenue and Carload Growth Well Behind Q1 Trends * Q2 15 Revenue & Carload Growth as of 5/11/15 Impacts of F/X Impacts of U.S. Fuel Price -4% - 7% - 3% -4% Revenue Carloads KCS Revenue and Carload Growth -11% Utility Coal revenue down 68% due to impacts of low natural gas prices, and customer maintenance activity Frac Sand and Crude Oil negatively impacted by lower energy prices and spreads Metals & Scrap down due to reduce demand for drilling pipe, lower scrap prices, and heavy foreign imports to North America Service levels and tight equipment capacity negatively impacting: - Grain - Automotive - Intermodal Unfavorable YoY impacts of F/X and U.S. fuel prices impacting revenue by 7%. Impacts of recent increase in U.S. fuel price to be seen in June/July. |
© 2015 Kansas City Southern Second Quarter Energy Segment Decline Accelerating 6 * Q2 Revenue & Carload Growth as of 5/11/15 US Rig Count by Basin -50% -38% Revenue Carloads KCS Energy Segment Revenue and Carload Growth 4.00 6.00 8.00 10.00 12.00 14.00 16.00 - 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00 110.00 Crude Price Trends Maya - WCS Spread - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50 Henry Hub Natural Gas Spot Price WTI Sport Price |
© 2015 Kansas City Southern 7 Unregulated Customer Utility Coal down 90% from "Peak" levels $- $2 $4 $6 $8 $10 $- $10 $20 $30 $40 $50 $60 $70 $80 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 KCS Utility Coal Revenue Regulated Utility Coal Non-Regulated Utility Coal Avg. Henry Hub Natural Gas Spot Price |
© 2015 Kansas City Southern 8 Service Issues are Impacting Growth Current volume constraints • Service negatively impacting automotive, intermodal and grain • Core demand in these segments is strong Service challenges caused by: • Lack of crews in Mexico due to higher than expected attrition • On-going maintenance and capacity enhancements by KCS and interchange carriers in Texas on cross-border corridor and at/around Laredo Bridge Maintenance cycle to be completed in Q2 Multi-year capacity enhancement at Sanchez Yard continues • Equipment constraints due to reduced velocity Delivery of 300 grain and 400 automotive railcars during the year |
© 2015 Kansas City Southern Key US Economic Indicators Have Deteriorated Since Late ‘14 9 99.2 99.4 99.6 99.8 100 100.2 100.4 100.6 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 OECD - US Leading Indicator 46 48 50 52 54 56 58 60 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 PMI 104.4 104.6 104.8 105 105.2 105.4 105.6 105.8 106 106.2 106.4 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Industrial Production - US 0 10 20 30 40 50 60 70 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 PMI - New Orders |
© 2015 Kansas City Southern Challenging U.S. Rail Volume Environment in Q2 10 Source: AAR Carloads thru Week 18 / *excludes BNSF -30.1% 1.1% -11.2% -55.3% -18.9% -25.1% -20.2% -60.0% -50.0% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0% Carrier 1 Carrier 2 Carrier 3 KCS Carrier 5 Carrier 6 Class I Average* Coal Carloads -0.8% -4.2% -0.9% -6.1% -1.2% -3.5% -2.3% -7.0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% Carrier 1 Carrier 2 Carrier 3 KCS Carrier 5 Carrier 6 Class I Average* Total Traffic: Class I Volume Growth 2.3% -4.9% 1.3% -1.7% 2.5% 0.8% 0.9% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% Carrier 1 Carrier 2 Carrier 3 KCS Carrier 5 Carrier 6 Class I Average* Total Traffic ex. Coal 7.3% -3.4% 4.3% 2.8% 3.3% 5.4% 4.2% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% Carrier 1 Carrier 2 Carrier 3 KCS Carrier 5 Carrier 6 Class I Average* Intermodal Carloads |
© 2015 Kansas City Southern LONG-TERM GROWTH OPPORTUNITIES 11 |
© 2015 Kansas City Southern Near-Sourcing Opportunities Resulting in Foreign Direct Investment (FDI) in Mexico 12 • 2014 Foreign Direct Investment (FDI) reached $22.5 Billion • 81% of FDI was registered in states where KCS has access • Labor cost advantages • Lower transportation costs to North American markets Source: KCS Market Research based on Secretaría de Economía de México. Data includes all economic sectors. (2014 FDI) |
KCS New Business Opportunities Global Partners Est. Completion – Q1 2017 Wylie Intermodal Facility Sunoco Logistics Open Jefferson Rail Terminal Open Genesis Energy Open Hunt Refining Open Sasol Ethane Cracker GM - Expansion Ford - New Plant VW - Expansion Toyota - New Plant Opens 2019 Audi - New Plant Opens Q2 2016 Kia – New Plant Opens Mid 2016 Mercedes/Infiniti- New Plant Opens 2017 BMW – New Plant Opens 2019 |
© 2015 Kansas City Southern 14 APITAL TRUCTURE AND APITAL LLOCATION RIORITIES C C S A P |
© 2015 Kansas City Southern 15 KCS is Announcing the Establishment of a Stock Repurchase Program $500 million program Expires 6/30/17 To be executed opportunistically Reflects management’s and Board of Director’s belief in the strength of our franchise and our future growth prospects To be funded with currently available liquidity and/or future financing Balances the interests of our shareholders and debt holders – Investment grade credit rating to be maintained Ample capacity remains to fund growth opportunities |
© 2015 Kansas City Southern 16 Balanced Approach to Investing in Business and Returning Capital to Shareholders • Committed to superior growth profile • Original 2015 Capex – $700 to $720 million range • New 2015 Capex - $650 to $670 million range Invest in Business • Continue lease conversions • $3 million net operating income benefit in Q1 2015 • Percentage of owned equipment increased from 31% at 12/31/13 to 55% at 03/31/15 • Q1 15 asset purchases of $54 million • Additional purchases identified to increase ownership to +/- 65% Optimize Capital Structure • Board of Directors approved $500 million share repurchase program • Q1 cash dividend declared on Jan. 29, 2015; paid Apr. 8, 2015 • Quarterly payout of $0.33 per share or $36.4 million • Annualized payout of $1.32 per share or $145.6 million Shareholder Returns |
© 2015 Kansas City Southern CONCLUSION 17 |
© 2015 Kansas City Southern 18 KSU Investment Highlights Best-positioned growth story in the industry with unique U.S.-Mexico cross-border network Track record of strong financial and operating performance Well-diversified customer base and commodity mix Excellent strategic positioning with multiple growth drivers Solid balance sheet with a commitment to maintaining investment grade credit rating |
© 2015 Kansas City Southern 19 Appendix Cross-border is defined as traffic that moves on Kansas City Southern both north and south of the U.S. / Mexico border. Traffic interchanged with a competing railroad at the border is not considered cross-border. |