First Quarter 2021 Earnings Presentation - Kansas City Southern
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
First Quarter 2021 Earnings Presentation
Safe Harbor Statement
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act
of 1934, as amended and the Private Securities Litigation Reform Act of 1995. In addition, management may make forward-looking statements orally or in other writing,
including, but not limited to, in press releases, quarterly earnings calls, executive presentations, in the annual report to stockholders and in other filings with the Securities and
Exchange Commission. Readers can usually identify these forward-looking statements by the use of such words as "may," "will," "should," "likely," "plans," "projects," "expects,"
"anticipates," "believes" or similar words. These statements involve a number of risks and uncertainties. Actual results could materially differ from those anticipated by such
forward-looking statements as a result of a number of factors or combination of factors including, but not limited: the merger with Canadian Pacific Railway Limited ("CP") is
subject to various closing conditions and there can be no assurances as to whether and when it may be completed; failure to complete the Company’s merger with CP could
negatively impact the Company’s stock price and future business and financial results; Company’s stockholders cannot be sure of the value of the merger consideration they
will receive from CP in the merger; lawsuits may be filed against the Company and/or CP challenging the transactions contemplated by the merger between, among others,
the Company and CP; the shares of CP common stock to be received by the Company’s stockholders upon completion of the merger will have different rights from shares of
the Company’s common stock; after completion of the merger, CP may fail to realize the projected benefits and cost savings of the merger; public health threats or outbreaks
of communicable diseases, such as the ongoing COVID-19 pandemic and its impact on KCS’s business, suppliers, consumers, customers, employees and supply chains; rail
accidents or other incidents or accidents on KCS’s rail network or at KCS’s facilities or customer facilities involving the release of hazardous materials, including toxic inhalation
hazards; legislative and regulatory developments and disputes, including environmental regulations; loss of the rail concession of Kansas City Southern’s subsidiary, Kansas City
Southern de México, S.A. de C.V.; domestic and international economic, political and social conditions; disruptions to the Company’s technology infrastructure, including its
computer systems; increased demand and traffic congestion; the level of trade between the United States and Asia or Mexico; fluctuations in the peso-dollar exchange rate;
natural events such as severe weather, hurricanes and floods; the outcome of claims and litigation involving the Company or its subsidiaries; competition and consolidation
within the transportation industry; the business environment in industries that produce and use items shipped by rail; the termination of, or failure to renew, agreements with
customers, other railroads and third parties; fluctuation in prices or availability of key materials, in particular diesel fuel; access to capital; climate change and the market and
regulatory responses to climate change; dependency on certain key suppliers of core rail equipment; changes in securities and capital markets; unavailability of qualified
personnel; labor difficulties, including strikes and work stoppages; acts of terrorism or risk of terrorist activities, war or other acts of violence; and other factors affecting the
operation of the business; and other risks identified in this presentation, in KCS's Annual Report on Form 10-K for the year ended December 31, 2020, and in other reports filed by
KCS with the Securities and Exchange Commission.
Forward-looking statements reflect the information only as of the date on which they are made. KCS does not undertake any obligation to update any forward-looking
statements to reflect future events, developments, or other information.
Reconciliation to U.S. GAAP Financial Information
In addition to disclosing financial results in accordance with U.S. GAAP, the accompanying presentation contains non-GAAP financial measures. These non-GAAP measures
should be viewed as a supplement to and not a substitute for our U.S. GAAP measures of performance and liquidity, and the financial results calculated in accordance with U.S.
GAAP and reconciliations from these results should be carefully evaluated. All reconciliations to the most directly comparable financial measures calculated and presented in
accordance with U.S. GAAP can be found on the KCS's website in the Investors section.
This presentation contains forecasted financial measures including Adjusted Operating Ratio, Adjusted Diluted Earnings per Share, and Free Cash Flow, which are non-GAAP
financial measures. The Company did not reconcile these forecasted financial measures to the most comparable GAAP measure because certain information necessary to
© KANSAS CITY SOUTHERN
calculate such measures on a GAAP basis was unavailable or dependent on the timing of future events outside of the Company's control. For example, the GAAP numbers
included the strengthening or weakening of the Mexican Peso to U.S. Dollar and changes in fuel price, both of which could have a significant impact on the Company's
consolidated results. Therefore, the Company was unable to reconcile, without unreasonable efforts, the forecasted financial measures to the most comparable GAAP
measure.
2
Pat Ottensmeyer
© KANSAS CITY SOUTHERN
President & Chief Executive Officer
Today’s Presenters
Pat Ottensmeyer President & CEO
Mike Naatz EVP & Chief Marketing Officer
Mike Upchurch EVP & Chief Financial Officer
Available for Q&A
John Orr EVP Operations
Sameh Fahmy EVP Precision Scheduled Railroading
Jeff Songer EVP Strategic Merger Planning
Oscar Del Cueto President & Executive Representative of KCSM
© KANSAS CITY SOUTHERN
Cuevas
4
Merger Path to Completion - Expected Mid-2022
2021 2022
Obtain common control
CP-KCS 375+ statements STB comment CP-KCS response Proxy approval from STB and other
Transaction of support filed period to comments statement applicable regulatory
Announcement with the STB deadline filed with the STB filing authorities
AFTER FULL
MARCH MARCH / LATE APRIL / EXPECTED EXPECTED
APRIL 2nd APRIL 12th STB
21st APRIL EARLY MAY MID-2021 MID-2022
APPROVAL
PROGRESS TO DATE
Following approval by CP and Voting trust
KCS shareholders and satisfaction terminated; CP
or waiver of other customary acquires voting
closing conditions, and, if rights and
necessary, prior approval by the control of KCS
STB for the use of a voting trust, CP
will acquire KCS shares and place
into voting trust; KCS shareholders
receive consideration
With 375+ statements of support received, shippers of all kinds will benefit from increased efficiency
and simplicity of the combined network, which is expected to spur greater rail-to-rail competition and
© KANSAS CITY SOUTHERN
support customers in growing rail volumes. For more information on the transaction and the benefits it
is expected to bring to the full range of stakeholders, visit FutureForFreight.com
5KCS First Quarter Overview
▪ Revenue decreased 4%, due to lower volumes, lower
fuel surcharge and FX
▪ First quarter operating ratio of 64.2%
• First quarter adjusted operating ratio* of 61.4%, 1.7 points
higher vs. prior year
▪ First quarter diluted earnings per share of $1.68, an
increase of 6% vs. prior year
– Adjusted diluted earnings per share* of $1.91, a decrease of
3% vs. prior year
▪ KCS is committed to ESG
© KANSAS CITY SOUTHERN
* Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section 6Multi-Year Outlook Reiterated
Current Outlook
Revenue Double-digit growth in 2021
Growth
Operating ~57.5% in 2021
Ratio Between 55% - 56% in 2022
Earnings $9.00 or better in 2021
per Share Between $10.50 - $11.00 in 2022
Capital ~17% of revenue in 2021 & 2022
Expenditures
Free Cash ~$700M in 2021 & 2022
Flow
© KANSAS CITY SOUTHERN
All guidance assumes constant currency and fuel price; operating ratio and EPS are shown on an adjusted basis 7Key Operating Metrics
Q1 2021 vs. Q1 2020
Train Line of Road Train Fuel
Terminal Dwell
Velocity Crew Starts Length Efficiency
26.8 hours
12.9 mph 23,100 6,824 1.26
19% Worse 35% Worse 12% Lower 14% Longer Flat
Active Transportation Mechanical Engineering Gross Ton
Loco Fleet Headcount Headcount Headcount Miles
915 3,274 790 1,387 25.1 Billion
6% Higher 8% Lower 7% Lower 7% Lower 1% Lower
© KANSAS CITY SOUTHERN
8Mike Naatz
© KANSAS CITY SOUTHERN
EVP & Chief Marketing OfficerFirst Quarter Revenue Summary
Q1 2021 vs. Q1 2020
Q1 2021 Q1 2020 Variance RPU Reconciliation
Q1 2020 RPU $1,232
Reported Revenues (in millions) $706.0 $731.7 (4)%
Fuel Price (26)
Carloads (in thousands) 555.4 560.8 (1)% Foreign Exchange (7)
Mix / Pricing / Other 12
Excluding the impact of fuel price and F/X, Q1 2021 revenues decreased (1%) YoY *
Q1 2021 RPU $1,211
16%
12%
7%
4%
2%
—% —%
-3%
-4% -4% -5%
-8% -8% -8%
-13%
-16%
© KANSAS CITY SOUTHERN
-18% -18%
Chemical & Industrial & Agriculture & Energy Intermodal Automotive
Petroleum Consumer Minerals
Carloads RPU Revenue
* Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section 10Revenue Outlook* Remains Consistent with Prior
Guidance at Double-Digit Growth
Change from
Business Unit Original Expectations Drivers
Q1 Q2-Q4
Agriculture & Weather challenges in Q1, but expecting carry-over catch-
Minerals up as cycle times improve
Microchip shortages in Q1 with recovery expected during
Automotive the back half of 2021
Chemical & Mexico energy reform volumes outperformed outlook in Q1
Petroleum and expected to continue into rest of 2021
Energy Strong utility coal in Q1 with potential near-term upsides
Industrial & Combination of weather impacts (Q1), sourcing shifts and
Consumer some delays in plant openings decreasing full year outlook
Q1 impacted by auto microchip shortage and slower
Intermodal Lazaro recovery, but overall positive outlook remains for rest
of the year with strong cross-border & US domestic growth
© KANSAS CITY SOUTHERN
Total
*Assumes constant currency and fuel price
11Mike Upchurch
© KANSAS CITY SOUTHERN
EVP & Chief Financial OfficerFirst Quarter Results
Q1 2021 Q1 2020 Variance
Carloads/Units (in thousands) 555.4 560.8 (1)%
Revenues (in millions) $706.0 $731.7 (4)%
Operating Ratio 64.2% 60.5% 3.7 points
Adjusted Operating Ratio * 61.4% 59.7% 1.7 points
Reported Diluted Earnings per $1.68 $1.58 6%
Share
Adjusted Diluted Earnings per $1.91 $1.96 (3)%
Share *
© KANSAS CITY SOUTHERN
*Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the
Investors section 13Adjusted Operating Expenses* Decreased 1%
$ in millions
$129.5
Comp & Benefits $ in
$133.4 Total Adjusted Operating Expenses millions
†
$70.9 Q1 2020 Expense $437
Fuel
$74.9 Headcount / Work Hours (7)
Incentive Compensation (3)
$21.1
Equipment Foreign Exchange (2)
$21.9
Fuel Consumption (1)
$92.0 US Fuel Price (1)
D&A
$89.4
Fuel Efficiency (1)
$53.8 Wage & Benefit Inflation 6
Purchased Svcs
$53.3 Depreciation 3
COVID-19 3
$66.4 ††
Materials & Other Q1 2021 Expense $434
$64.0
Q1 21 Q1 20
© KANSAS CITY SOUTHERN
†
Adjusted for restructuring charges
††
Adjusted for merger costs
* Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section 14Compensation & Benefits Expense Decreased 2%;
Fuel Expense Decreased 5%
Quarterly Average Compensation & Benefits $ in
millions
Employee Headcount
Q1 2020 Expense $133
Decreased 7% Headcount / Work Hours (7)
Incentive Compensation (3)
Foreign Exchange (1)
6,969 Wage Inflation 4
6,514 Benefit Inflation 2
COVID-19 2
Q1 20 Q1 21 Q1 2021 Expense $130
Locomotive Fuel Price
($ per gallon) $ in
Fuel Expense millions
$2.34 $2.25 Q1 2020 Expense $75
Consumption (1)
US $1.80 US $1.75 Fuel Price:
MX $2.85 MX $2.78 U.S. (1)
MX $2.81* Mexico -
© KANSAS CITY SOUTHERN
Efficiency (1)
Foreign Exchange (1)
Q1 20 Q1 21 Q1 2021 Expense $71
* Assumes constant F/X. 15Capital Allocation Highlights
($ in millions)
Free Cash Flow* Capital Expenditures Return to Shareholders
Share Repurchases Dividends
$232
$112 $100 $124
$95 $87 $194
$75
$38 $49
Q120 Q121 Q120 Q121 Q120 Q121
▪ YTD free cash flow* up 18% YoY; excluding $78M of locomotive lease buyouts in
Q120 YTD free cash flow* is down 35%
▪ YTD CapEx up 15% YoY, primarily due to higher capacity investments
▪ YTD return to shareholders down 47%, as the share repurchase program has been
terminated; dividends will remain at $0.54 per common share going forward
© KANSAS CITY SOUTHERN
– As final settlement of the 2020 Accelerated Share Repurchase Program, 233K shares were
received during Q121, bringing the final ASR average price to $191.75 per share
*Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section 16Appendix
17
© KANSAS CITY SOUTHERNCondensed Income Statement – Q1
($ in millions, except EPS Diluted) Q1 2021 Q1 2020
Revenues $706.0 $731.7
Operating Expenses 453.0 442.9
Adjusted Operating Expenses* 433.7 436.9
Operating Income 253.0 288.8
Equity Earnings 6.0 1.0
Interest Expense (39.0) (34.2)
Foreign Exchange Loss (7.3) (59.5)
Other Income (Expense), Net (0.8) 1.4
Income Before Income Taxes 211.9 197.5
Income Tax Expense (58.5) (45.2)
Net Income $153.4 $152.3
Reported EPS Diluted $1.68 $1.58
Adjusted EPS Diluted* $1.91 $1.96
© KANSAS CITY SOUTHERN
Average Diluted Share Count (in thousands) 91,286 96,171
*Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section
18Q1 Adjusted Diluted Earnings per Share*
Q1 2021 Q1 2020
Reported $1.68 $1.58
Merger Costs 0.17 —
Restructuring Charges — 0.05
F/X Loss 0.05 0.43
F/X Component of Income Taxes 0.01 (0.10)
Adjusted $1.91 $1.96
© KANSAS CITY SOUTHERN
*Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section
19Effective Tax Rate Reconciliation
Hedge and F/X Tax Impact
Q1 2021 Effective Tax Rate
Projected
$ in millions Q1 21 Y/E 2021
6.0% —% 1.2% 0.4%
(1.0)% F/X Benefit in Income Tax
$1 $6
Expense
27.2% 27.6%
21.0% F/X Loss on MX Peso
(5) (9)
Exposure
U.S. Higher Global State Other Adjusted Foreign Reported
Statutory Foreign Intangible Taxes ETR Exchange ETR Unhedged F/X Income
Rate Tax Rate Low-taxed (4) (3)
Statement Impact
Income
F/X Hedge Loss (1) (1)
Net F/X Income $(5) $(4)
Statement Impact
Q1 2020 Effective Tax Rate
Note: Above amounts are net of tax at the 30% statutory Mexico tax rate
1.1% 1.3%
5.7%
Tax Outlook Through 2023
(1.4)%
(4.8)%
27.7%
21.0% 22.9% 2021 - 2023 Adjusted ETR ~28%
2021 Cash Tax Rate ~20%
© KANSAS CITY SOUTHERN
U.S. Higher Global State Other Foreign Reported
Taxes Adjusted ETR
Statutory Foreign Intangible Exchange
ETR
Rate Tax Rate Low-taxed
Income †
2022 - 2023 Cash Tax Rate High-20%
†
Cash tax rate impacted by fluctuations in 2021 FX
20Estimated F/X Impacts on Adjusted Operating
Income*
KCSM MXN-Based Q1 2021 F/X F/X Adjusted
$ in millions Q1 2021 Revenues & Expenses Impact B/(W) Q1 2021
Revenues $706.0 $110.3 $(4.0) $710.0
Adjusted Operating Expenses* 433.7 102.9 1.7 435.4
Adjusted Operating Income* $272.3 $(2.3) $274.6
© KANSAS CITY SOUTHERN
*Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section.
Note: Revenue and expense impacts are based on KCS’ actual peso-based transactions.
The average MXN/USD exchange rates as published by Banco de México were 20.3 and 19.9 for the quarters ended
March 31, 2021 and 2020, respectively.
21Estimated F/X Impact – Q1
Estimated
FX
Reported Reported Reported Adjusted
($ in millions) Q1 2021 Q1 2020 Change Change
Chemicals & Petroleum $231.3 $198.6 16% 17%
Industrial & Consumer Products 134.0 159.0 (16)% (15)%
Agriculture & Minerals 124.4 134.5 (8)% (7)%
Energy 57.5 56.3 2% 2%
Intermodal 81.3 88.7 (8)% (8)%
Automotive 44.1 53.9 (18%) (16%)
Other revenue 33.4 40.7 (18)% (17)%
Total revenues $706.0 $731.7 (4)% (3)%
Compensation and benefits $129.5 $133.4 (3)% (2)%
Purchased services 53.8 53.3 1% 1%
Fuel 70.9 74.9 (5%) (5%)
Equipment costs 21.1 21.9 (4%) (4%)
Depreciation and amortization 92.0 89.4 3% 3%
© KANSAS CITY SOUTHERN
Materials and other 66.4 64.0 4% 4%
†
Total adjusted operating expenses * $433.7 $436.9 (1)% —
†
Adjusted for merger costs in Q1 2021 and restructuring charges in Q1 2020
*Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section
22First Quarter EPS Reconciliation
Reported Adjusted*
Q1 2020 Diluted Earnings Per Share $1.58 $1.96
Decrease in Operating Income (0.17) (0.17)
Increase in Merger Costs (0.17) —
Decrease in Restructuring Charges 0.05 —
Increase in Equity Earnings and Other Income 0.02 0.02
Increase in Interest Expense (0.04) (0.04)
(Increase) Decrease in Tax Rate (0.07) 0.04
Decrease in Share Count 0.10 0.10
Foreign Exchange Impact 0.38 —
© KANSAS CITY SOUTHERN
Q1 2021 Diluted Earnings Per Share $1.68 $1.91
*Non-GAAP financial measure; all reconciliations to GAAP can be found on the KCS website in the Investors section
23Total Cross-Border† Volumes and Revenues
† †
Total Cross-Border Volumes Total Cross-Border Revenues
($ in millions)
7% 5%
174,200 $261.3
162,700 $248.6
Q1 20 Q1 21 Q1 20 Q1 21
Mexico Energy Reform Volumes and Revenues
††
†† Energy Reform Revenues
Energy Reform Volumes
($ in millions)
47% 62%
39,200 $91.5
26,700
© KANSAS CITY SOUTHERN
$56.5
Q1 20 Q 21 Q1 20 Q1 21
†
Cross border is defined as traffic that moves on Kansas City Southern both north and south of the U.S. / Mexico
border. Traffic interchanged with a competing railroad at the border is not considered cross border.
††
Cross-Border Franchise and Non-Franchise movements related to Mexico Energy Reform,
as reported within Petroleum minor business unit. 24†
Cross-Border Intermodal and Lázaro Cárdenas
Intermodal Volumes and Revenues †
† Cross-Border
Cross-Border
Intermodal Revenues
Intermodal Volumes
($ in millions)
7% 0%
36,000 $24.6 $24.5
33,700
Q1 20 Q1 21 Q1 20 Q1 21
Lázaro Cárdenas
Lázaro Cárdenas
Intermodal Revenues
Intermodal Volumes
($ in millions)
(42)% (47)%
36,200 $17.6
© KANSAS CITY SOUTHERN
21,000 $9.3
Q1 20 Q1 21
Q1 20 Q1 21
†
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. 2526
You can also read
