KSU - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to the Kansas City Southern Third Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. This presentation includes statements concerning potential future events involving the Company which could materially differ from events that actually occur. ended caused the number the Risk XX-K the be those factors, Company’s could filed for in XXXX, identified Factors year differences by SEC. of a including Form with The the XX, December section of obligated or The events forward-looking statements reflect update in Company to any presentation this is to not developments. future website, reconciliations GAAP be can to found www.kcsouthern.com. All on the KCS President to and my is pleasure introduce City your Southern. Pat Kansas now Executive Chief Ottensmeyer, Officer for It host, Mr. begin. Ottensmeyer, may you

Patrick Ottensmeyer

morning, good XXXX and Welcome to much quarter very you everyone. our third earnings Thank call.

X. I Sorry for here, delay the brief will but start on Page

You’re lineup the won’t for familiar presenters, with so everyone. introduce the the that we’ve I quarters, several same had last

Monday, in about of the really Jeff the hurricanes a our resilience storms during in seen us But the talk performance we’ve the The can X% from position she recent X% Moving each also factor ability of want quickly was hit of was Operating I the were will to this the a and also CEO strongest to Mother I recover strength of work revenues improvement spite point with in talk this recover was Christi operating on And to we touch railroads for in us the we network in quickly. on the in of results during with memory. in minutes. and how of in had, more The Hurricane operating see network, which and of Union stay to the as one On really want Harvey units. our a know throwing has XX.X%, terrific that play Friday. volume their the several Pacific, of out, mention team going summary. point quarter on business storm telling of you about where we and asking and infrastructure of minute. actually a at the other, our ratio cooperation most things almost last us together work anyway I our call Fritz, condition growth, year. rain our the we more from basis our team XXX were stopped. put Corpus as performance couple my Lance spite in increasing because In to in of it Nature memory. with was condition better it really performance Slide the encouraging had offering how and before you’ll everything didn’t to see a a to situation X, received than me a way help because the been quarter deal very of could to days and doing, very was high-level in what a quarter

of only us was most it cooperation our level helps and and recovery, served made just outstanding the to communication So, possible keep help of the with really our customers and for the but make situation. well it not

Kansas days few Laredo trains were Mexican we phone of a within and that grain detouring City customers. fact, In from call, serve our rerouting to to

of dramatic basis quickly of hurricane. higher $X.XX, made in a than year. measure much share and an comparable shows impact per would $X.XX, Switching Slide our was recover kept to served earnings on kept than for finally, us it it possible XX% the which And to X, business, So customer it otherwise. the more really on us adjusted last we

immediate then the from bounced off the some You XX,XXX quickly, may area, red of Houston, recall was railroads lost highways because excuse modal dramatically, it there ports. just that the around were wasn’t we rather as you the it at the Beaumont-Port me, line, checking affected, really before and some this dropped was Arthur business, hurricane and can were particularly shifting, while back see recovered the during of along kind the hit period, cars

other to limited modes significant without was for use longer additional there reroutes. So in mileage ability shippers

see we were or a rate can that moving year. the the X% dotted You along from line about also previous from growth at X%

hurricane couple quarter hurricane back. obviously a of that, that, the and network, impact hit Before of the not we along have in hit at were resilience for and on recovered a of will point we loss of all impact our a the performance this in minutes. us help X% is of the financial very increase our on a hurricane growth minimize get and more the Mike to other the carloads, rate again gain we operating of until reported the so railroads the moving didn’t of the that some all cooperation about But it, in ourselves testament the volume, nice to talk the our But of of customers. team,

to the Songer, Officer. Chief over that, with turn Jeff will our I So Operating call

Jeffrey Songer

the minimized, becoming recovery of and Thank metrics the XX% the same versus Hurricane-related relatively kept quarter quarters, morning. improved has impacts network XX.X for our on operating good hours, consistent you, Pat, several remained key overly while the as last year. over velocity from for Dwell key Slide, embargo Reviewing operating period metrics to activities congested. and the were last quarter

BN we impacted reported. were than its different events, to with other August Christi, KSC which storm’s railroads prior events work partnered XX region. first to on near initial Harvey time connecting interruptions entire weather the UP outages and was longevity. The As service due recent occurred experienced Corpus through landfall Hurricane in that at well

the impacted of eventually BN areas than more north, Houston over were received as KCS, stalling Over rain. routes XX and where traveled multiple storm inches some UP several the next days,

the September after Northern By X, to days several to Harvey, been visible the of October operating Unrelated has Hurricane of last assess subsided, service. to As other the to Mexico the around flooding restored September caused the water during storm progressed, rains Texas impact and traffic, week September were on Once levels tracks which our we metrics. KCS and all initial were early into repair tracks impacts Beaumont, X, a cross-border full storm’s in landfall. in week Louisiana the and able damage. flooded

have largely our to I the quarter. We from recognize recovered during would events, team like efforts operating their now these tireless for and

showed weather Aside significant over prior the Mexico impacts, from the terminals improvement year.

continue As and you impacts recall investments last caused across Mexico have multiple service on and year, our network outages disruptions improved our cross-border period. inflated of performance. Overall during days positive and in that operations, the initiatives to capacity dwell

started X% demonstration subdivisions on continue Turning headcount. on Louisiana. in pleased we revenue the X% to we growth I’m tinny announce that PTC our the service efforts two Slide manage X, a volume, have resources volume below to to

an overall monitoring network have the disruption rest will that recent Environmental enhance aggressive to safety announcement for opportunity several of grows. next and of our initiative. additional We Safety are our commitment a PTC this to this of during and U.S. Other group the will any the include minimize months, resources as and highlights oversight safe the implementation movement for provide new Health, scheduled over refined products

to Nuevo to complete, track some Regarding our terminal. the major is capital from started operations at and shift yard new Sanchez the we have program, Laredo work Sanchez

it before capacity. XXXX into our mechanical the Sasol facilities at overall a by in for pictured and single point cross-border The ongoing. will new month, initiative here Sanchez Unified million investments time joint will for those This at should KCS within we This Mexico construction functions for adjacent customs continue the also the transit and year. will inspection end by reduce approximately complete include of highlights the Cargo Processing to costs facility allows reducing continue trains mechanical on effort the of Mexico. work This the and schedule. work We and fueling annually in-sourcing finalize the an Additional will the opening reach. at U.S. recently Center agreement support remains terminal facility our additional be $X northbound Sasol at in tracks is of the Laredo. Other of will and construction completed

by to I who those affected Mexico recent Finally, earthquakes. acknowledge the want are in

damage turn there over by Officer, Chief the infrastructure, to I no our our presentation families events. impacted to to those Brian will we While continue these now and businesses was Hancock. support Marketing

Brian Hancock

Jeff, up you, year-over-year on quarter can were third X%. up Thank start good Page XX, and was volumes comments I’ll everyone. and my see morning, X% revenue you where

negatively by weather several rate approximately growth discussed in Prior Mexico. Pat, of to Northern growth and impacted by at these Texas a events As volume were tracking was X%. volumes events,

due weeks by, with the and southbound flooding where well business excuse in and Hurricane as well a performance quarter, & driven as was sales refineries the heaviest by business, hit at LPG by business, me, our as the XX% of longer oils. came hardest facilities For This as same-store in-quarter Southeast in customer pricing Harvey, length in solid Chemical our shutdown renewals haul in solid impacts primarily growth were being several seen business was of petroleum Texas. lubes to The both Petroleum X%.

& improvement Our showed Consumer Industrial increase X% business of quarter third growth X%. volume with revenue in of and of an also the

revenue positive total an We this metals for increased increase continue both XX% overall in need business our XXX% business. Once year-over-year shipments to sand crude sector. growth in quarter, also of energy frac see to due energy the military of was pipe strength energy driving and business an over our for the our saw oil, in revenue and line again

in attractive model percentage to mix of business saw XX% an due haul final as also destination in capacity business XXXX, manufacturing We the larger growth to Texas. The primarily the by effect. launches automotive began of take and driven having improved up was over length this a quarter new

industry increase inventories. demand in through damaged in existing of September, Given satisfied of hurricanes of floods, the vehicles most an and dealer sales saw were lot the number in the that but

volume third equipment any services. a network. do of the in in storms Intermodal We seeing of and QX regions see across increases still with and American a XXXX. rail of this solid partly driven quarter demand. new Even tightness, demand, the automotive cross-border and this fourth this X%, performance to are in fill of outside surge improved the revenue not by we As tightness new the impact several we expect to the expect business North to have result from

this unit During publicized business was well Hurricane the as impacted the Northern less as definitely by Harvey, in Mexico. quarter, floods

tightening We seeing in in but consolidation, is well also our of see low positioned market the believe some will growth service chain. of well The business the their of Cárdenas trucking Agriculture alternative intermodal revenue for see U.S. in customers. There competitive are into Lázaro continue solid in grain impacted to we business ocean for competition. a the our continue supply We demand. shipping as to very solutions by that rates look with deal solid – driven domestic coming to cross-border has growth and to we’re major due very to line was primarily as both of Minerals customers continue freight Port both of & offerings, as X% a

team fantastic we the XX, operating expect close On Our quarter of year. The much flooding. quarter our and a partner export due by the impacted shipments see did conjunction the of and remainder were fourth updated see with minerals to can ag grain of carriers outlook. our the job fourth an looks out that assessment strength to for XXXX strong harvest in to to continued the volume Page you in

As intermodal see service business our driving fourth our I in expect we mentioned, the improvement continue to offerings cross-border quarter. in

& the growth want by refined impacted to shipments that XX. be Reform transition the for will in market. November remind additional remaining the Energy everyone final plastics to expect I date the Mexico in product Petroleum Chemical strengthening segment regions our and We due

We our presentation. planned near discuss quarter, investment during in I’ll another the terminal in later and storage third that distribution the announced also Monterey

In Consumer, business, lower in at the paper. strong Ag growth business Products grain Food but end see This to we and could will expect moderate year-over-year both XXXX. in slightly drive slightly metals strength rate & through the mentioned, harvest by year. of volumes I be the a fourth As tempered in year-over-year our quarter Industrial

change XXXX. hurricanes schedules heavy the oil of the and shipments area still part seeing market of be replacement utility the challenge and tough sand in strong of military frac will will we’ll a similar plant year. when the compared to year-over-year in Automotive our our growth to quarter, it’s be in expecting in cement difficult if well. to mitigated Due The business currently, quarterly remains by some the automated plant end – extent as cars year moves but fourth shutdown possible business what year-over-year to in Crude comps, see but of strong will to trucks continue schedules, due we’re in year-over-year demand coal the Our volumes for and growth facing second-half we’re create the for volumes outlook have then comp remain we to earthquakes. the the impacted and this uncertain, may but total

steps. before, investment and well slide growth carload update joint facilities Moving and important This to half Monterrey with in to service this north Mexico. shift hurricane for saw planned provides to increase LPGs XX% will LPG. demonstrate more our to business refined products in year-to-date. shipments announced terminal mentioned an commitment allow in just markets continue this up continue rail as our impact, Adjusted important growing the come Victoria stair remember products fluids markets on we we quality the volumes Slide as as Salinas XX, segment. the that venture I in Mexico. refined make a to provide in than in in It’s Bulkmatic of refined that This to critical in us creating will

coming the that and construction the the in after all is a are facilities second-half Slide step first open, the larger XXXX. will The On after products XX, storage as terminals our on portion have line of included and complete tanks come of second, of as for LPG. the a refined provides we visual pipeline KCS existing well important a systems the both network, new the diagram

you As to areas and that centers that is our also levels. entire located are in already the pipeline population capacity to investments close almost system serve see, not growth existing are near diagram strategically The running pipeline. shows major can

Mike building of we the call over pipelines, believe topographical difficulty a that, well CFO, With give and the significant new as challenges this land as turn security in strategic foothold investments developing new Given Upchurch. now us infrastructure. and acquiring of I’ll to the our

Michael Upchurch

to revenues to the everyone. Thanks, quarter Brian, improved going third and my reported despite volumes to ratio Operating from start increased due X% on and the hurricane. increased I’m X%. the significant morning, loss XX.X%, XX.X% comments Despite operating Hurricane, Slide good of XX. income

was increase reconciliation EPS XX% Slide XX% $X XXXX, our to was million, appendix. lower $X.XX, incremental increase and However, $XX points. adjusted a was over over quarter EPS helping was about comparisons XX%, good or expense basis can our XX found XXXX. year-over-year Reported productivity. reported on XX while reflecting expense and million, XX%, improved a adjusted $X.XX, from XQ management the be third EPS of incentive Operating income margin compensation or And in approximately

despite quite the were on quarter So which significant the overall, third experiencing Hurricane we achieved negative quarter impact results, pleased were Harvey. with from

the to from Moving Slide impacts Hurricane estimated XX, let me briefly cover Harvey.

traffic customer the range First, transportation in of we is either margin of lost $XX alternative modes $XX under from or million is permanently to believe outages, loss production million. moved that to the that

levels, and pre-hurricane level. prior approximately our saw after operating again you the was reviewed, Pat slide same normal the the now our we are As traffic prior in at at increasing the to carloads hurricane X% over year. that And growing back network to getting equipment

business and $X from income that we disruptions related operating operating expenses property costs, lost other interruption, approximately incremental totaled operational to detour damage million. to addition In also incurred

under policy for and We will record filing insurance an those quarter the a third expenses our permitted offsetting accordingly in claim under are GAAP be P&L. incremental property receivable to

the of once that estimated impact final per recording be about insurance in sometime claim hurricane is our of quarter $X.XX the to $X.XX have $X.XX to net we resolution is Accordingly, or from we impact third we are or operating expect until less, the would XXXX. the finalized. essence And don’t from to back-half the occur in recoveries, to to points preclude expect claim. Hurricane additional of While basis contingent does estimated us XXX GAAP a Harvey share, gains which negative XXX ratio,

the of million, inflation to increased increases which fuel wage over $X $XX in to $XXX million $X of expense operating respectively, fuel tax U.S., or volume-related prices increased million, million, expenses variances variances million, demonstrating depreciation incentive reduced the of ago year $X initiatives, then drivers as slides, $X $X expense the million, Slide million. expense increases $X but and to several and next XX, Turning cost million of point such in saving cover compensation want a do credits I’ll Key out key of reduced million, few favorable partly which Mexico a X% good mechanical excise and control. were quarter. the in restructuring, and basis, year-over-year result which of expenses fuel of $X were $X equipment Mexico the in-sourcing in times reduced in also the million on contract cycle saved

or benefit expense $X year-over-year Turning OR incentive comp, X%, to benefits Slide million, largely to and points. basis about due increased the our XX, the compensation decline XX of by year-over-year approximately in

excluding have in-sourcing, added X% increased the expense; would increased importantly, in-sourcing compensation excluding inflation $X Excluding and headcount, growth, $ mechanical the the million increased the of due million compensation million in million year-over-year comp a offset overall was in-sourcing added by compensation. benefit, and in And expense the our of volume including contributed inflation expense. $X expense; expense approximately wage essentially increased also headcount in-sourcing mechanical increased million incentive $X X%; $X vendor facility mechanical headcount benefit wage to of below incentive our in

GTM Turning fuel Mexico we to fuel expense the to consumption increased $XX expense Increasing increase. $X also or and prices Slide as X% both experienced carload XX, that XX%. fuel increase. U.S. million, increase million a and Higher contributed increased a in X%

rising from of user continue system. excise excise XXXX Our the beyond, railroads benefit Mexican fuel million similar will fuel Mexico $XX exempt that the $XX that as as the tax government fuel do in being $XX have We U.S. the in prices fuel excise taxes to guidance to for fuel will credits to Mexico tax to million reduce to to fuel million tax $XX tax the range caused from rate. is excise reduced by and million wholesale and those believe to being a continue

Turning declined in-sourcing due in-sourcing. to mechanical And and purchase supplies the service from materials we other Slide primarily mainly materials expense decreases $XX by XX, and from the contract savings to for expenses million. required mechanical million, which restructuring, $X achieved increased and

by our receivable earlier, costs finally, I disruptions. expense million turning as a million discussed capital detour to XX, And incremental from our than we XXXX, the insurance continue be business consistently on allocation to other Finally, growing Slide operational of and carload declined damage, our have railroads our overall due $X faster offset volumes we X something X%. priorities, by recorded property $X we growing the achieved while competitors, on that to carriers rest in have Class focused since our XX%,

Jeff our earlier, range continues in declining the the for row XXXX, third CapEx As guidance be million to capital be which indicated $XXX to a will year in $XXX million spend. of

In to partnering XXXX capture liquid invest the with And discussed. and in capital not to expenditures. XXXX $XX in these capital be investments, invest million the Brian Energy that method for opportunity others to Reform in we’re expenditures, as to as rail projecting Mexican million $XX served, equity by in addition refined Mexico will terminals approximately accounted

and and dividend. team a August our management Board returning common to are repurchases. share on continuing capital $XXX an million stock XX to committed dividends our Board at shareholders of X% share through in increase repurchase of Our program practice approved Directors Accordingly, our

million interest the million $XXX shares under remaining settled accelerated And capital turn our with $XXX.XX. thus And as a the very under common the ratio credit having purchased we’re purchase X.X%. lowest X.X, completing finally, program. And During And from third peers we in secured with to credit are call at X.XX accelerated this repurchase with debt or XXX,XXX early Pat. better most and an at with our the in Class program than financial I’ll as were of comfortable shares BBB+. of space price the that, back levels, the structure, X institutions stock weighted of average an two a program quarter, rated our metrics good leverage of rate our average October, profile

Patrick Ottensmeyer

this before XX couple Slide back the it up. factors and open other emphasized sure and to just positive make place quick Mike hurricane. Mike make a I’ll just of only what Obviously, want of I slide are and to during covered we impact Thanks. took of want that sort reiterate there shows This slide. comments quarter. that negative on the to Okay. the go

didn’t just to been that in numbers the reflected not or slow Slide biggest very got factors in flooding outstanding you these be Brian that would proud headline on in much that team Hurricane updates, support suggestions in be there and I’ve it after getting again, impact couldn’t And amazing terms traffic. more your in have Again, really pleased particularly the few obviously quarters, way XX. Harvey So get the the Harvey the that research both hurricane. railroads that you back points strong better other Mexico so just was XXX down correct were from occurred I us to ratio press did operating for for cross-border in during quarter, given the resilience basis and headline operating we not of and other Harvey. XXX mentioned past business, Jeff the without our the and were extrapolate that the and or coverage would Northern in performance. for really recovering quarter of the

of into first of week the or operating fourth that some the impact so metrics our And quarter. will on

a delay quarter. the much week there during said process had, collapsing, also this negotiations. ratio that’s were the that the that the sure pace of just detailed everything Mother Nature – negotiations days just conclude. was that was – explanation was answers overcame heard about throwing included We place. more very actually bad not – questions I I a thing. up are delay specific lot of to in just take I headlines the and they of for this So she at the have delay to quarter, it felt the know parties are. longer this been as of how operating asses a and spite those for We been not as could in in in record think deteriorating don’t to And those And that as going There in the reason has round the is – spite and I all us the impact next taking next the going and about it’s NAFTA beginning, before it strong week, to negotiations had I’m when for has proposals was timing attributable analyze that. of wrap third round, this the record a and get a in Washington still And we for operating so almost to the proposals. or to I of assessments that what together the they the sides three And all appropriate all – really again. make income,

we And all still and what obviously, is we which at be. just have are So yet good. process continuing parties table, but to solid the answers, don’t know is the is don’t impact the going

I So Q&A. up the open call that, to with will

Operator

you. Thank

management limit question-and-answer a now number [Operator session participants question Instructions] follow-up on primary and to will morning’s to question the call, question. one be of will your Due this conducting We one

proceed Our Ken Lynch. with line first comes your question. of Merrill from question Hoexter Please the with

Ken Hoexter

Great. Good the hurricane morning. working on the performance. and Congrats around

Patrick Ottensmeyer

Yes.

Ken Hoexter

in peso. decline you intermodal talking in about your that presume rates of I were given opening truck remarks. your prepared the some Brian, you low – mentioned Mexico

truck and compare tight seeing U.S. just the the given of the of contrast strength kind given might is that us you the be So trending with business market? in the decline maybe side can you in and peso on how on intermodal fill

Brian Hancock

talking Yes, well. City thanks truck relatively absolutely, into the equipment we’re Mexico Mexico about the I but stay fuel, to competitive continue Ken, rates for Definitely, specifically Mexico. cheap in continued was market, and low, positioned The question. very

terminal, We’re cross-border the volumes Lázaro is also great of I seeing working off very, well. like said, very inter-Mexico, the

we there that’s – you lot market that Atlanta, seeing a fairly a mentioned, increases space, between market. there’s which domestic for price specifically of significant are basically competitive As the Dallas our happen things in and allows

able us, get the as so intermodal positive go truck up it’s we’re because and up, more for to rates And on rates go freight obviously as railroad. those

that that think well. think out we few it’s pricing for maybe is intermodal it’s So in of positioned funk last coming the been years. We

going continue forward. And intermodal benefit to is great believe, to a so going we be

Ken Hoexter

have then on to if and the just I Great. benefit tax could thoughts the the sustainability Mexican his COFECE And you’re timing still on get if line highlight, side? the of my the on Jose,

Patrick Ottensmeyer

there? you are Jose,

Michael Upchurch

No.

Ken Hoexter

Okay.

Patrick Ottensmeyer

Jose really been process. is No change the There’s on no not Sorry, change. there. COFECE

I And We’re reason or to expecting that’s there there. talking hasn��t don’t And – any just permanent publicly be been think, see to update, Mike just privately any think any going anything dialogue a indication in to conclusion or still really covered are you We say January. as have we about the tax? or not an don’t evidence that excise to the a benefit. so

Michael Upchurch

wholesale time then have do in that taxes. buy place credit. Mexico, the Mexico. through XX is at the know this the pay But realization it get the excise our in has or aren’t mean, of But slightly benefit, where at tax different withholding for are end to U.S. fuel, incur Ken, year, the purchase. we have they and it Yes, in of about just We in different and the net-net, pay credit the we on it’s in years Mexico excise Mike. been is the I to taxes get of than than we’ll It’s for systems a U.S., sure our really income In no any U.S. this don’t the to different taxes ability

Operator

Thank you.

Cowen question. comes with question next your proceed with the and Company. from Please Seidl Jason of line Our

Jason Seidl

I so to get a it a to focus tough, guys. also Good hear that’s nice Thank about really how want the morning, business little together some bit modeling. was of automotive note. you, or in when heartening more operator. to I times some say the I wanted working that we’ve two railroads a Was on quarter, was reprice? thought the carload issue bit a little revenue did just per than up mix been numbers.

Brian Hancock

I a say, Jason. quarter. mix the There’s happened would it’s in No, exactly, issue no repricing

Jason Seidl

you are on Okay. out? what’s – the guys if U.S. we because down rates say obviously, is as there intermodal, Overall, exclude you Mexican truck than roads going the improving for in different forward, environment the look pricing you And going would the

Brian Hancock

I Jason, right and positive pricing that relatively environment strong. say would the now is

believe plus border. sides on really the will both to continue We of no be it There’s in inflation that. change

everybody are I going We some I would of think pricing in of you, And I in some the tell of seeing stabilized. refined kind how the out. the change that’s is the markets that products seeing think market in play to has U.S. kind

to pricing So a solid continue expect comfortable we plus. very good environment and we’ll feel that it’s inflation

Jason Seidl

much All right. Those so you the time. are Thank for my two.

Brian Hancock

Thanks.

Patrick Ottensmeyer

Jason. Thanks,

Operator

Thank you.

question comes the Landry from Please with Our Credit Allison your line Suisse. with next of question. proceed

Allison Landry

Hi, good morning.

good So partnership partners can in And to sounds BN you lastly, of volume – could quickly success. cross-border has longer-term, us seen here Intermodal IMC versus truck some think then I the seeing size help developments you franchise? border? the if with you was wondering rail market any early you’re build terms the if share like with do it needle move how broader out density at the the opportunity in

Brian Hancock

X%. across still you number the And I would border That’s this Again, as little from very tell a of containers market question. there a market coming Allison. share is have is, around we what X% the to Thanks, great Brian. is perspective, share

very I BNSF happened. upside And There’s comfortable pleased freight What interest. with groups had of significant in that it’s extremely business. review both very feel road week you and are a is, so the rail. going pleased would that We our with grow. this lot to We converting there’s are just partners to the what’s a you the from upside, tell with think about we

business We also and partner other UP, intermodal. exact with our see our the in the of same thing automotive the some

just So great understand like of down the If opportunity. every at intermodal going that’s comments, and Mexican well mentioned on, really to at It look be doesn’t understand the he his a get to customs. able bridge hard the as U.S. that as joint the customer. great between he’s we’re at trucks the quietly for to the focused. time carload day, benefit to the stand it’s facility in working XX,XXX mentioned and think, to And us. Jeff much trying go the cross it, border I They he take mentioned, kind IMCs are the opportunity a as

So it’s we good think a to going be space.

Allison Landry

follow-up just question Sasol. then as And on my Okay.

how the would So, then you carloads any much the how incremental Lázaro? XXXX? general had other for be into on the petrochemical helpful? be in thoughts that should visibility volume forward, thinking we you have exports you haul And move terminal in initial Thanks. if any look we completion, just through about could in to as ramp close And opportunity single do

Patrick Ottensmeyer

as and the Sure. complete are showed. XXXX, his going I tell What second-half Sasol fourth mentioned, you tell operations has and Sasol concur we already he would What with in think Jeff a yard the the is, beautiful to of is, I team, begin in picture I that them. here It’s they quarter. you yard the as would will announced

Lázaro. don’t is, you support, those We’re it’ll on would I they and volumes those talk volume make that online. they’re get the going have growth sure of is and continue for the Coast, about really the – up up next not into the working facilities to will to grow have tell But comes the the through Gulf have ramp certainly ramp but projected yet continued into you to daily to We as within that crackers proper year U.S., as about how will that turn theirs. that, then very with them built What volume Sasol because that to for how we’re and out XXXX. excited only facility capacity probably carloads, obviously

it focused but we’re to it’s So of up, our focused opportunity. it’s all going big on it, ramp are be gradual and a partners a on

Operator

Thank you.

the from comes with with your Stanley. of proceed question Ravi Please next line Morgan question. Shanker Our

Diane.Huang

My third that $X.XX, in do you to you $X.XX $X.XX quarter. was this Diane revenue question. how the the lost from is, estimated to on of question EPS you taking Ravi’s about impact fourth first can majority Thanks Hi, permanent due of the quarter, to the quarter much nature? Can my team. this of is for think hurricane and you or recover the in estimate $X.XX announced Thanks.

Michael Upchurch

Upchurch. we This is Mike do No, that. can’t

That filed or XX total insurance another to We will with take the haven’t days probably companies claim the establish loss. so. a yet

it’s how and the given issues the just in hurricanes dealing the XXXX, that to appreciate like but and be other fourth lost. to two a amount that here back-half are going do to through a have be date, would quarter. and recovery now, be I major claims right get at the of We terms indicated we think have companies to many will You appreciate that with customer invoices in insurance we’re world in the the not the later around booked detail of in carload earthquake going go Mexico.

to work going to some take that. time through it’s So

Diane.Huang

XX. And Got factors the it. reflected is, That’s follow-up were guys there call other were said, not Slide that in in you my helpful.

talk And of forward? quarter? if found that about or headwinds you other you tailwinds guys in these continue trends the so going will can the And any

Michael Upchurch

hurricane? XX to the Slide On related

Diane.Huang

Yes.

factors? You there other guys said also were

Michael Upchurch

detour costs hire over Pat detouring because those getting expenses we Mexico. idle. that Well, were had incur. were that lot still like is to we Union a and of incurred, mentioned we sitting had were that trains into car There the things equipment Pacific

Patrick Ottensmeyer

I was to unrelated think, summary the kind what I was referring in hurricane. comments of my to things

only slide other things during incentive quarter. reflects this occurred the and other like It of the So that include hurricane. comp things doesn’t the impact

statement hurricane. my better our to it operating to absent been be XXX would would So ratio points XXX incorrect that, the assume basis was that have

Operator

you. Thank

with of Our question. from next JPMorgan. line your proceed question comes Brian Ossenbeck the with Please

Brian Ossenbeck

Hey, thanks. Good morning.

about and but you there time So To own the earlier what cross-border have your that add down down the on. speed, on challenge? of flow going out rebalance you’re solve terminal network on the to bridge addition APM is to north and equipment comment BNSF of you help that or And service, go south? affected that’s the might help line perhaps something to you some And the the going mentioned initiatives with working maybe it? containers just could and is if really balancing

Jeffrey Songer

This is Let to probably comments. and turn Brian for then APM Jeff, me I’ll start, it

So action same flow. period the customs this time southbound on showing. here this that what very pilot we center certainly to currently do is of only trying on we’re think we working the and supportive then we’re of is The for and a northbound cargo processing is do new desire I flow. And

border border that unified was in I application. processing on cargo this country the south airlines have rail think Laredo truck the of only kind the

would to on able that the So for southbound. early hopefully we’re I activity into look year same again, execute next the

shift this view that’s I look a structure off at we So work that overall bridge. currently would time. you the or can going thing on don’t bridge the every train a the being shave allow to I to create bad an is that We spent said, at thing some on under window the of minute and the maybe time imbalance. kind a

for So more expand is and those you maybe shorten flowing if northbound fluidly, the you for the windows the southbound. time the time

continue it, again, a in southbound no matter see we’ll at trains early I next benefit some look positive, – how and you So it’s on year. into to think,

Patrick Ottensmeyer

next the opportunities in have another we of sides been This has policymakers take has billion building for which project trains – and see export really border a through to to as to growth years. going change bridge, I’ll in than If better, go easier, more probably update border. refined with that both the from on to to cheaper the products we elements five advantage specifically plastics the NAFTA. This here That’s of important as three, Mexico, the lot the plus well. of $X to U.S. process solution we’re one cross of need in possible that chime is and our the of discussion the lawmakers a five-plus-years, modernization

can if the We what’s process inspection So of we of feel that. cargo one is can at that the the possible. significantly currently this elements capacity key improve facility from and we increase in bridge the change

Michael Upchurch

balanced. IMCs, operators, you don’t sure we’re want all mean focused of of lot refined come say making very to me plastics transportation about a stay all Obviously, I freight our in. volume the container of all balance. if is I many a more on lot Brian, Maersk, There and anything network. know on teams the export of moving are But working the there and south, across we products this

as And on focused Jeff. so very well we’re as

to So on nothing that. more say

Brian Ossenbeck

understood. Okay

in a lack storage Brian, on hand way? can more there, base, help an you of terms Just in LPGs, overview stay demand expected refined bigger your of terms is the give about you’ve lot relative investments continue? Do a one a on current make to I about and that too on for just other much terminals LGP that’s that in market you days us have that opportunity you, follow-up that volume to Mexico. maybe the in products heard storage, quick haven’t the of But of opportunity, couple heard to

Brian Hancock

how LPGs it’s Brian. home surprising those picked into Mexico. question, quickly the What great say And would Yes, us every used in obviously have LPGs almost bringing to up. I Mexico it is been in

as going being what population so the are most of see But the created to that well. I And continue storage to is, would business in facilities tell major centers. you grow we’re

you’re in seeing one perspective Potosí area, Salinas, Luis the already they a But that’s again a refined grow now, and got quick faster San continue not think to little of have will Monterey. national constructed supply where I obviously probably going from products facility enough significantly really as it’s start the has do out is bit grow gate. to because in LPG a being

going to to continue So well. it’s grow as

Operator

Thank you.

with from comes question. question proceed the Please of the Citigroup. line with next Chris Our Wetherbee

Chris Wetherbee

the stick Hey, great. on products a Thanks. minute. refined Wanted Good morning. to for

in of to just a have the better as down sense of under So look of you XXXX, you’ve opportunity a side your could individual quarters us beginning could was of storage on XXXX like look like of XXXX? sort investment opportunities well put and or timing either I I sort what and a had, the to folks sort wanted of some highlighted kind of I Mexico of think in you improvement I you around maybe as you, get if could what have growth of opportunity wondering into that for the you and belt you the kind next couple guess sense we help take thoughts other if shape. couple for be year? there. for numbers of

Brian Hancock

of is be to think primarily Chris, I ramp keys going is million-dollar a up? to watch is things. think fast going how couple Yes, that’s question the the for this we are obviously I

retailers new the from happens, market, of the quickly perspective a quickly into how infrastructure instance retail the off, that how First occurs.

third, place, of do perspective, what storage is going well it appears distributors going Texas different Beaumont around the now Corpus these Texas, that of items. the distribution off in to infrastructure area, country as ports, they then the how new play center into are number a facilities from be be of is the to off other big And Second that the out into as of facilities right of around retailers. and currently the then a coming are across Christi

have from actually don’t their we plans big perspective. how a and significantly itself that it I in firms of So retail up XXXX, know. be. plays will quickly that How Starting announced a expect out? number already to ramp

think rail the think I significant are pipelines ports, gain also you perspective, a If were look XX, that line. of here they’re capacity. country volumes, at from but adding pretty of supply. some in storage looking have capacity of in about the at But XXXX, you’re expectations to XX days the see we at to you that going the years of storage they pretty significant only for XX off not almost the Again, out full,

movement that space. don’t significant think be they’ll I on So

very will ramp positive this XXXX up but going the tied impact how be we’re is So to the really new forward, the retail in to about it – retailers.

Chris Wetherbee

of probably more this actually on this of bringing to I maybe investments NAFTA Okay, of interesting NAFTA some discussion, opportunities. then that’s topic the sort occurring sticking one dynamics into whole sort within it’s sort And and the for think, headline of relative helpful. are of the risk cross-border

down? this talking are some of in slowing real-word that? risk some How trade, of if of and anything sort some perspective this? I is talking weeks, the something this in couple perspective it about? getting don’t into partners want – to your people perspective are on involved other So have playing NAFTA Is that know, discussion? Is Pat, just I that when people you’re sort you even to the on last just get who

Patrick Ottensmeyer

It’s down. really slowing not anything

don’t business, said know what past, the don’t I we know. in In of we terms this I think,

as haven’t other and that to been So, there products My far about as industrial thought kind things see that have sense of are But companies investments have announced. is. delayed, waiting the and by been that what and yes, had projects a even refined been outcome presence is, with a in ago opportunities, of of our building forging steel on meeting weeks steel, automotive we ahead few see terms out based one of growth. couple in Mexico ago, that a great they weeks companies a what large

to build have out the customers. the capacity investments to making we make continue and So, that our support we’re to

and types we As of to the with types size the take invest scale projects these a land of build investments permitting of long know, you time acquisition just in. and and and

on to So happen. we’re growth based and customers as forging our serve to to the ahead to have information be what’s we ready best going for that the

there’s for primarily as refined the to trying that be growth – addition in So we on. ag people about and days reducing which a will that huge three in team understand other of sure negotiating in is and front us as touch, a seems very of focused we’re in spending make lot this right time. deficit, week, I the significant talking and the opportunity can Washington commodities to was for what in of I we export and I mentioned, that plastics trade products move be think and to form helpful many

Operator

you. Thank

with Our Barclays. line Oglenski proceed of your Please next question the comes with Brandon from questions.

Brandon Oglenski

a on congrats period. pretty likely taking and Hey, good and my for thanks morning, everyone, question, operating difficult through

Patrick Ottensmeyer

Thank you.

Brandon Oglenski

negative So, to question you attention to earlier, not need comments as just in to offsets and called closing been? our OR your remarks the to how Pat, about I that or you it impact quarter for what Are well from at look positive you I the in some here. it’s in there have Diane your could inferring hurricane come back the mean, want were

Michael Upchurch

lower I able the benefit referenced think to we of is I a Imagine, get basis Brandon, point you had incentive Upchurch. be of this Hey, that XX once year-over-year comments. Mike couple a script, you’ll times a compensation. But result as my see

net have would impact XXX point of against think basis the XXX hurricane. to I you to that So

we event, XX have OR could hopefully in hurricane that not looking that the probably had helps. quarter, net-net, at So you’re to better our this been XX third points basis have

Brandon Oglenski

just I’m Friday. probably speed slow Yes, a we’re sorry, at in here

outlook – time, the I network But this a or the know impact in talk that or lot another I you’re coal do conceptually years. about through see to you So it’s ask coal over we’ve could going to to talked the actually And want potentially. you what’s going Can gotten that what there? think indications your guys that shutdown shutdown we’ve be?

Patrick Ottensmeyer

one. I’ll is, take answer no. that The

support what – critical isn’t don’t will process scenarios not out sensitivities the the impact. We’re later you and step process. disclosure not to And know We positive appropriate to just say, about We that and will possible of sort in – possible first be comment you’ll know we’ve see XX-Qs question, of actually feel we’ve is spend the we on question get out what think, quantify sound done could not the It’s and get into we’re could in the and be. we ahead lot earnings to it’s range not in really those, the talking because the I or we statements and a what obviously is, foolish to And time time the when at we XX-Q. – of it’s the of until going outcomes. this. don’t here. detail want want going current we don’t and And don’t of that financial volume, of facts to the This But naive revenue we what internal the But and the file until we’re seen don’t the of are, think on it’s ERCOT impact it’s ERCOT outcome to this material. infrastructure looking volumes. our material. that

let be, we we the to process going outcome facts we’ll what So is it. we’re know with deal And are, the just when until work. the to know going what

Operator

you. Thank

proceed comes question Group question. of with with Wolfe Scott your the line next from Our Research. Please

Scott Group

guys. morning, Good thanks. Hey,

Patrick Ottensmeyer

Good Scott. morning,

Scott Group

So, of Mike, on back I just hurricane. go some the to math wanted to the

of that? revenue are – to you And assumed trying on So the add $X.XX back then what’s and take call operating and it then a core earnings I $X.XX, maybe of the is margin to guess that loss if margin sort the use that what $XX sort the quarter quarter, fourth that, we’re say suggest million starting impact, we $XX here? because million with what’s fourth usually third. pretty that’s to trying of to at similar the point for, Is

Michael Upchurch

on – that question contacts indicated, lot have what first with was we’re going to the our related revenues, still a through Well, permanently the we I and customers of quantification you lost.

embargoed going other not on XX to what We to or We’re the provide of days it for any color at just additional thereabouts. traffic. a it was were lot than cross-border border say

Jeffrey Songer

that went recovery. Well, we as into beyond and

Michael Upchurch

Yes.

Jeffrey Songer

weeks multiple it. So of

Michael Upchurch

So ratio? unit that with on traffic was that better there. there’s little I And associated recall per don’t Scott, your question operating cross-border revenue second

Scott Group

No, ratio. it’s not operating about

the $X.XX so, Just calling hurricane. from you’re up I guess,

point, a that So about Is is would $X.XX, street say, good hey, here? of that typically message which the if we if quarter to is. just that’s could is have then that’s starting quarter, how well sort similar been understand the of third? you wanted think fourth pretty the above obviously, with sort where I

Michael Upchurch

quarter great some No, we’re start. is, looking prior a third guidance. that. at saying to was blowout we’re and not a off the providing were We really All that had to impacts quarter negative hurricane on

we’re guiding quarter. fourth to necessarily So not

Scott Group

point? No, way starting a But reasonable think a I this that understand. about is to

Michael Upchurch

to guiding quarter. fourth the not We’re

Scott Group

Fair enough.

you, then And for on Okay. Brian, auto. just

that volumes about but in a then that’s And parts moving positive you there? U.S. So requires you any a auto change view, that how parts? do think in change guessing of opportunity item your timing a down, guys if for What issue I’m more – there opportunity NAFTA growth any way is now? any more in a in flat thoughts is fourth the the the quarter, or right have

Brian Hancock

to work would our those will impacts the the proposals that happens. overall, in business. space know the What we’re part for little I us what how automotive is that plants. no the content. and and that, change calendar Yes, And XXXX a changes, what I Scott, But a believe continue calendaring you you idea particular We just tell we have very of and matter some positive where that any be it of that’s it. going from we’re world, great there Mexico be bit world tell from a content and might the going a end we over have is, perspective, and part scheduling – Christmas going been really of all is to in be build a a up. downtime place deal content would and don’t around to are that have to vehicles for to the there

positive on our So very we’re we – business. continue to automotive be

Operator

you. Thank

Our next from the your of question with Inc. Long line proceed with Justin comes question. Stephens, Please

Justin Long

Thanks, and good morning.

pickup So network? about talk And take typically I’m how missed call for but rail what your this on driving we’ve pricing June, the seen if acceleration could in market that start sorry core long this to it, was of as since, in think quarter? about tightening you we a I pricing it does it like truckload

Brian Hancock

Yes, Justin, Brian. this is

Our core what’s…. pricing in renewals both the was and in X% that’s

Michael Upchurch

Same-store?

Brian Hancock

about I’m about for question. of customers, those first the obviously intermodal part same-store, go bids was your out space, they second When in The you thinking sorry, the quarter. large go think sometime I the out the

and much carriers. search periods it the takes market, the That’s that’s during top say, the the to our or intermodal What about a impact while truck that spot not year. pricing going in flexible would is both of talking XX% that impacts let’s you’re as to as piece of intermodal intermodal see it pricing that. And spot so that us probably market

had to benefit the and well to products primarily us we’re as a bid be we see gives becomes of then quarter, some us pricing first going season the better into fourth so, as of to pricing quarter, when go And and on people for as But a the it’s road. improvements. would truck continues up in first intermodal that’s pricing who those option some that power, part obviously,

from intermodal usually on perspective an of it takes that. cycle So full a bids

Justin Long

bit a That’s I rail. if more comment It secondly, really like, by great. little Okay you was in optimism could crude maybe curious And there’s on recently. seems helpful. Canada

just seeing was wondering, to talk Western you standpoint, any capacity if could And this it ability pickup if handle crude moving down from about materializes? in your to around I a a activity increased market So you’re the Canadian Gulf.

Brian Hancock

Yes.

more bit movement. a First off, we are seeing little

low mentioned, quarter in hardly from XXX% I As that’s third last anything increase, saw the a we but over year. number, pretty basically

to when create they spreads anywhere change or and are capacity. Jeff people is Canadian the ready in move to to capacity have it coming the move crew can it. crude environment Our from of positive Obviously, plenty move is, we’re signs possible. overnight. ready we come and Jeff advantage gangbusters, rail where this than going to take be of Songer, boy, but it to by we’re because But plenty an the but like move say, There’s seeing to equipment, crude he’s continue we’re happier of when some on bring market to ready to does, And going is nobody to with not if would him. it when it going

Operator

you. Thank

question. line the UBS. from Tom Wadewitz your with comes of proceed question next Please with Our

Tom Wadewitz

got, those broader or consider some perspective there’s excuse a at tailwinds, me, we that? quite quarters Just we some seems some chance of in you couple of of as volume it’s you the you kind of of if offer of growth? it, acceleration for that on stabilization that a growth terms or the like But when or some coal, I thoughts over guess maybe Brain, there’s kind see, kind next some or good next of Pat chance likely headwinds into more quarters looking better was single-digit you we it say would XXXX. over that think looking stay see of wondering we other Yes, when couple volumes good volume look headwind, could you you’ve potential on, morning. I do few think maybe things. tailwinds

Brian Hancock

take. – Yes, Brian. This is Tom, I’ll I

to That a would tell I terminals, focused are two advantage Sanchez see. that’s can out are on ramp very all we these volume building very, is going which to building coming allows markets Yard, we come rational, that infrastructure doing that what Yard, the take in environment. you, us of out on in Sasol in a competent and infrastructure Here’s this way the

as continue will steel. grow again big NAFTA going on that markets change, see have We’re to retail renegotiated, it to as impact is a

terminals, U.S., We are capacity and both the everything in track, across intermodal border in in Mexico focused on creating fluidity and the else.

a And advantage so take markets. we’re allows going out way in a of rational in to that very way us

might marketplace. jumps But anything Texas and big making swing and Mexico, Coast in not crackers others. We’re the that in we – a the into in great be growth Gulf do the with we see Southeast growth along great

it. and take we have our way to to But comes. can it’s get ramp that we sure So a infrastructure it take it going fluid capacity the to make going up time. we’re dollars in think we to we are advantage It’s when spending of

Tom Wadewitz

want on whether it to thought or? a you accelerates that Do Pat, offer

Patrick Ottensmeyer

I’ll just say this at think, I time. Well,

of come. quarter growth positioned for are Mexican look terms to we’re Rio at factors to if just are back and extremely in exploration level we’ve you feel that our and refined to network ahead, aspects have at occurred you condition. with going with to I $XXX Eagle X% again and touch other The that plants opportunity the said of every still Reform intermodal, we prior opportunities in place because factors. to Energy production. about great good you come, yet extremely But South or those investment, those that’s don’t to plants. gotten talking things infrastructure obviously Harvey whether to about well of growth automotive, kind to optimistic of we up one Grande, the of come. those serve well think the outside the hasn’t Ford, earlier, taking for our plants current we’ve they’re Gulf for that at in the adjust, of capacity even opportunities from The it all pricing of and stop positioned think physically, but years reopened. look ways of just for or Coast. kind But growth about other and go that were we are billion deal billion plastics, back for intermodal And like we other of the what levels, since And products is accelerates And in the be we’re we’ll we we during those either and – and look years more U.S. to outlook for we Hurricane I an control hitting, have years very $XXX

Tom Wadewitz

appreciate sounds you you you’ve Yes, expect see a I I probably be operating train those. And running from if BN, of could follow that’s growth lot shorter pretty you’re coming and great. substantially consider on. seem handle investments It just guess, I like it train, a the the like made it. leverage schedule would to to a, perspective on

broadly kind would on of and expect where to you expect Just the areas growth operating speaking, you leverage in XXXX strong see beyond?

Jeffrey Songer

towards. Jeff. which more unit we as the about have is intermodal cross-border lot length that’s this know on. products driving I Refined something forms train From know trains, opportunities speaks a Brian a certainly There’s certainly Yes, certainly, I service capacity, it where Brian opportunities there. or is there. opportunities

we fair just from a yes, existing train to think So, assessment it’s capacity length perspective. a I opportunities say, have in

that I invested in think traffic, the capacity capacities Certainly, side cross-border we’ve lot on now. the and good Lázaro which boost right about standpoint. certainly lot U.S. to a talk spent we place. about good capacities – physical at corridor the a Sanchez, feel we feel very the the infrastructure a we from other just We in

Patrick Ottensmeyer

of you little really came we and and market in developed every chime We here us I’ll to couple relationships puts our every a A business. can So intermodal that questions solution well. we’ve about of. terrific I the a have now company, in position think that with the as container every the position have literally on railroad, grow that bit up strategy call intermodal. think

consistency on that. position of the occur. in and to just is cross-border and improving The focused believe traffic thesis for we’re density will very take intermodal advantage and So a of reliability we’re solid, I service, volume, great

Operator

have come I’ll now for remarks. floor we gentlemen, Mr. final to end questions. our the turn Ottensmeyer time the and Thank back you. for to Ladies of

Patrick Ottensmeyer

Okay.

come an about really headlines, nature dealing mind. quarter, to like this better strong as with So we feel and possible about you’re quarter, elements have best very strong of the that, in so mean been the that thinking could your I way. was things resilience, amazing extremely

growth to there NAFTA negotiations we’re at the in reading things will still are is about the really all influence continue. think three the out NAFTA. all And that and that, clearly attention strong. we – about is I them like paper So table, outlook to are say There not close can paying just parties and trying

play if And role continue would out supply chains. We a don’t hope, that will those in and are trade we be to and American still turn modernized. confident things will continue hopeful the even we NAFTA way North will

tee So up attention, much. and we time very Thank this in again for you you will thank your three and about months.

Operator

you. Thank today’s teleconference. concludes This

You Thank may participation. you lines your disconnect this your time. at for

Kansas City Southern (KSU) 20 Oct 172017 Q3 Earnings call transcript