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RAIL EMPLOYMENT



Rail News Home Kansas City Southern

4/30/2009



Rail News: Kansas City Southern

KCS reins in costs to mitigate effects from revenue, volume declines


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Similar to the other Class Is, Kansas City Southern was rocked by the recession’s impact on revenue and earnings in the first quarter, but steadied itself by controlling costs.

Today, KCS reported revenue of $346 million, down 23 percent compared with first-quarter 2008. The Class I’s traffic volume declined 15 percent primarily because of the weak U.S., Mexican and global economies, reduced fuel surcharge revenues and a weakened Mexican peso. Revenue dropped in four of five business lines, with only coal recording volume and revenue gains.

KCS recorded a net loss of $7.5 million compared with net income of $32.9 million in first-quarter 2008. The railroad reported a negative impact of $5.9 million from debt retirement costs and $5.1 million in a foreign exchange loss associated with the weakened peso.

In addition, operating income fell from $83.4 million in first-quarter 2008 to $48.5 million and KCS’ operating ratio increased 4.5 points to 86.

“Four factors — foreign exchange losses, debt retirement costs, the impact of preferred stock dividends and higher depreciation resulting from significant recent capital investment — had an adverse effect on earnings per share for the quarter,” said KCS Chairman and Chief Executive Officer Mike Haverty in a prepared statement. “However, these factors neither diminish our positioning for a strong rebound nor affect the long term strength of our franchise.”

The good news for KCS is that operating costs diminished significantly in the quarter. Totaling $297.5 million, operating expenses declined 19 percent year over year. Fuel costs dropped 44 percent; casualties and insurance costs fell 32.8 percent; compensation/benefit costs decreased 23.4 percent; purchased service costs declined 13.1 percent; and equipment costs dropped 11.9 percent.

“Operating costs, excluding depreciation, were down 23 percent, yet operating performance metrics and customer service achieved all-time highs,” said Haverty.


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