Kansas City Southern. Mike Upchurch Executive Vice President Finance & CFO. Raymond James Institutional Investors Conference March 2 nd, 2015

Transcription

1 Kansas City Southern Mike Upchurch Executive Vice President Finance & CFO Raymond James Institutional Investors Conference March 2 nd, 2015

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 of this news release. 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 ) 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 in this news release to reflect future events or developments. All reconciliations to GAAP can be found on the KCS website, kcsouthern.com/investors. 2

3 KCS Rail Network Founded in 1887 More than 6,500 track miles Seamless cross-border network 2014 revenues reached $2.6 billion Best positioned growth rail story

4 2014 FINANCIAL RESULTS 4

5 Full Year Results FY 2014 FY 2013 Variance Carloads/Units (in thousands) 2, , % Reported Revenues (in millions) $2,577.1 $2, % Reported Operating Ratio 68.6% 68.8% (0.2) points Adjusted Operating Ratio* 67.1% 68.8% (1.7) points Reported Diluted Earnings per Share Adjusted Diluted Earnings per Share * $4.55 $ % $4.82 $ % * All reconciliations to GAAP can be found on the KCS website in the Investors section. 5

6 F/X Had Minimal Effect on 2014 Operating Income Operating Income Impact $ in millions 2014 As Reported KCSM MXN-Based Revenues & Expenses FY 2014 F/X Impact B/(W) F/X Adjusted FY 2014 Revenues $2,577.1 $435.6 ($18.1) $2,595.2 Operating Expenses 1, ,786.6 Operating Income $809.1 $0.5 $808.6 Note: The MXN/USD exchange rate was 14.7, 13.1 and 13.0 as of December 31, 2014, 2013 and 2012, respectively. 6

7 Hedge Mitigated F/X Volatility to Earnings in 2014 Hedge and F/X Tax Impact $ in millions FY 2014 F/X Benefit on Income Tax $27 F/X Loss on MX Peso Exposure Unhedged F/X Income Statement Impact (5) 22 F/X Hedge Loss (19) Net F/X Income Statement Impact $3 Note: Above amounts are net of tax at the 30% statutory Mexico tax rate Note: The MXN/USD exchange rate was 14.7, 13.1 and 13.0 as of December 31, 2014, 2013 and 2012, respectively. 7

8 2015 & BEYOND OUTLOOK 8

9 Looking Ahead Guidance Mid-single digit volume growth in 2015 Mid-single digit revenue growth in capex $700 to $720 million range Operating ratio goal of the low-60s by

10 Fuel Price & F/X Will Present Revenue Growth Headwinds Impact of Further Deterioration of MXN in Q115 on Guidance is ~ 50bps Mid-single digit volume growth outlook driven on strong demand in strategic growth areas, but significant fuel price (U.S.) and F/X headwinds expected to partially offset volume and core pricing impacts, resulting in mid-single digit revenue growth. Crude & Grain dependent 9% Revenue Growth (2-3%) based on futures & EIA outlook (1.5-2%) based on consensus outlook Mid-Single Digit Revenue Growth 2014 Revenue Range of '15 Growth ex. F/X & Fuel Impact of Lower Fuel Prices in U.S. Impact of Weakening Peso 2015 Revenue 10

11 KCS Investing for Growth, Asset Utilization, Safety, and Service 2015 Capital Expenditures Investing in Growth - Equipment 85 locomotives ordered in additional locomotives ordered for % 4% 42% Secured options for 2016 and 2017 locomotive orders Expansion of car fleet Investing in Growth - Capacity Crude oil network mainline and capacity improvements Jackson, Mississippi expansion project to nearly double capacity Wylie, Texas intermodal facility to open mid-year Sanchez Yard three year, $60M+ expansion project Seven new or expanded sidings to improve line of road fluidity 48% Investing in Maintenance Velocity Benefits Track programs between Shreveport and Baton Rouge to provide increased speeds from (40 to 49MPH) CTC implementation on the Laredo subdivision and in Mexico Continued mainline improvements between Monterrey and the border Maintenance Regulatory Growth / Locomotives IT / Other 11

12 Higher Capital Spend at KCS Supports Industry Leading Revenue Growth / KCS Return on Capital Improvement Exceeds Peer Group Class I Comparison includes CN, CP, CSX, NS, UP, BNSF *FY 14 results for KCS, CN, CSX, NS & UP. Annualized Q3 results for BNSF & CP. 12

13 Market Outlook Linehaul Revenue Chemical & Petroleum Industrial & Consumer Agriculture & Minerals FY Outlook Constant F/X 2015 Outlook F/X Futures Energy Intermodal Automotive + Single digit revenue growth expected during period. ++ Double digit revenue growth expected during period. 13

14 Revenue and Carload Update Broad-based strength within Chemicals & Petroleum KCS Revenue and Carload Growth Automotive revenue and volume continues to be strong, despite F/X headwinds 6% Impacts of F/X & U.S. Fuel Price 4% 2% Revenue 3% Carloads Q1 Grain volumes down 14% Weakness in utility coal due to low natural gas prices Metals & Scrap down due to reduce demand for drilling pipe and lower scrap prices Crude Oil revenue and volume up 60%+ in Q1 with expectation of acceleration throughout the year * Q1 15 Revenue & Carload Growth as of 2/28/15 14

15 STRATEGIC GROWTH AREAS 15

16 YoY Revenue Growth Strategic Growth Areas Grew by 15% Q vs. Q Crude Oil 50.0% 50% 40.0% 30.0% 20.0% Lázaro Cárdenas 20% Automotive = 10.0% Frac Sand 8% 9% Cross-Border Intermodal * 13% 0.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% % of Revenue * See definitions in the appendix to this presentation. 16

17 Lázaro Cárdenas Momentum has Returned Lázaro Cárdenas Volumes +14% +18% Lázaro Cárdenas Revenues ($ in thousands) +1% +4% +4% +6% +20% +20% Q1 Q2 Q3 Q Q1 Q2 Q3 Q

18 Lázaro Cárdenas Growth Plans New Container Terminal Expanded Container Terminal New Auto Terminal Bulk Facility 18

19 APM Terminals is Developing a Second Container Concession at Lázaro Cárdenas APM will invest $900m in a second container concession at Lázaro Cárdenas The first phase will be completed in late hectare container yard and 650 meter quay The final phase will result in a 102 hectare container yard and 1,485 meters of quay Phase I equipment will include 7 Super-Post Panamax ship to shore gantry cranes (23 container reach) and electrical yard cranes (E-RTGs) Source: Press Releases Construction of APM container terminal 19

20 New Auto Plant Openings and Expansions AUDI San Jose Chiapa, Puebla, Mexico Opens 2 nd Quarter 2016 (1) Est. Prod Capacity: 173K (1) KIA Pesqueria (Monterrey), Mexico Opens Mid 2016 (2) Est. Prod Capacity: 300K (2) MERCEDES BENZ/INFINITI Aguascalientes, Mexico Opens 2017 (2) Est. Prod Capacity: 300K (2) BMW San Luis Potosi, Mexico Opens 2019 (2) Est. Prod Capacity: 150K (2) General Motors Announced additional $3.6 billion investment in Mexico through 2018 The money will go toward expanding General Motors' four manufacturing complexes in Mexico, creating an additional 5,600 direct jobs for GM and as many as 40,000 others for suppliers. Ernesto Hernandez, President & Managing Director for GM Mexico Source: (1) Autocast, June 2014 Audi (Est production) (2) Manufacturer s Press Releases 20

21 Mexico s Auto Production Continues to Rise (units in millions) Source: Autocast, January

22 Potential Crude Oil Opportunities Stroud, OK Hunt Refining Open Sunoco Logistics Open Genesis Energy Est. Completion Early 2015 Jefferson Rail Terminal Open Global Partners Est. Completion Q

23 Mexico Energy Reform - Future Opportunity Reform could drive an increase in rail shipments in the following ways: Increased LPG and refined products could be the first growth market Movement of steel tubing for new pipelines Importation of frac sand from the United States Crude by rail from new producing regions to refineries Increased intra-mexico moves of diesel, LPG, gasoline and fuel oil Reform could reduce power generation cost, further improving Mexican competitiveness and strengthen near shoring thesis 23

24 Update on Mexico Legislation On January 26, 2015, the Mexican Regulatory Railroad Service Law was published in the Official Federal Gazette (Diario Oficial de la Federacion) and became law. While it is too early to know how the new law will be implemented and interpreted, KCS does not believe it will have a material effect on its consolidated financial statements. KCS review of the amended legislation indicates that the final law addressed the concessionaires most pressing concerns with the initial, February 2014 House-passed bill. Based on its review of the new law, KCS believes it will be workable and a significant improvement over the initial House-passed legislation. 24

25 CONCLUSION 25

26 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 26

27 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. 27