Kansas City Southern. Michael W. Upchurch Executive Vice President Finance & CFO. Raymond James Institutional Investors Conference March 7 th, 2016

Transcription

1 Kansas City Southern Michael W. Upchurch Executive Vice President Finance & CFO Raymond James Institutional Investors Conference March 7 th, 2016

2 Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the securities laws concerning potential future events involving KCS and its subsidiaries, which could materially differ from the events that actually occur. Words such as projects, estimates, forecasts, believes, intends, expects, anticipates, and similar expressions are intended to identify many of these forward-looking statements. Such forward-looking statements are based upon information currently available to management and management s perception thereof as of the date hereof. Differences that actually occur could be caused by a number of external factors over which management has little or no control, including: competition and consolidation within the transportation industry; the business environment in industries that produce and use items shipped by rail; loss of the rail concession of KCS subsidiary, Kansas City Southern de México, S.A. de C.V.; the termination of, or failure to renew, agreements with customers, other railroads and third parties; interest rates; access to capital; disruptions to KCS technology infrastructure, including its computer systems; natural events such as severe weather, hurricanes and floods; market and regulatory responses to climate change; credit risk of customers and counterparties and their failure to meet their financial obligations; legislative and regulatory developments and disputes; rail accidents or other incidents or accidents on KCS rail network or at KCS facilities or customer facilities involving the release of hazardous materials, including toxic inhalation hazards; fluctuation in prices or availability of key materials, in particular diesel fuel; dependency on certain key suppliers of core rail equipment; changes in securities and capital markets; availability of qualified personnel; labor difficulties, including strikes and work stoppages; insufficiency of insurance to cover lost revenue, profits or other damages; acts of terrorism or risk of terrorist activities; war or risk of war; domestic and international economic conditions; political and economic conditions in Mexico and the level of trade between the United States and Mexico; increased demand and traffic congestion; the outcome of claims and litigation involving KCS or its subsidiaries; and other factors affecting the operation of the business. More detailed information about factors that could affect future events may be found in filings by KCS with the Securities and Exchange Commission, including KCS Annual Report on Form 10-K for the year ended December 31, 2015 (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 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 Kansas City City Southern 3

4 2015 RESULTS 4

5 Full Year 2015 Results FY 2015 FY 2014 Variance Carloads/Units (in thousands) 2, ,274.1 (3%) Reported Revenues (in millions) $2,418.8 $2,577.1 (6%) Reported Operating Ratio 66.8% 68.6% (1.8) points Adjusted Operating Ratio* 66.4% 67.1% (0.7) points Reported Diluted Earnings per Share Adjusted Diluted Earnings per Share * $4.40 $4.55 (3%) $4.49 $4.82 (7%) * All reconciliations to GAAP can be found on the KCS website in the Investors section. 5

6 KCS Well Positioned For Medium To Long-Term Growth Pathway to Low 60 s OR in 2017 Volumes 2015/16 macroeconomic & energy challenges Superior growth outlook over next 5 years Automotive facilities in Mexico Intermodal - Port of Lázaro, Wylie, Cross-Border Petro chemical market Gulf crude destinations Mexican energy reform Pricing Inflation + pricing expected to continue Rail continues to provide good value Improved service levels Investments driven by shipper capacity needs Cost Control Continued operations productivity improvement Maintenance agreement renegotiation Lease conversions continue Fuel / energy management investments G&A cost containment Asset Utilization Improved velocity, dwell, and equipment cycle time Return to growth drives strong incremental margins Improved asset availability Capacity expansion improves network fluidity 6

7 REVENUE AND VOLUME UPDATE 7

8 First Quarter Revenue and Volume Trends KCS Revenue and Carload Growth Agriculture & Minerals volumes up 4% - Grain volumes up 13% mainly due to increased railcar fleet and comps vs. prior year Chemical & Petroleum volumes up 4% Strong Petroleum and Plastics partially offset by declines in chemicals volumes 3% 0% Industrial & Consumer volumes up 2% - Metals volume growth was up 7%, somewhat offset by decreased volume of 4% in Forest Products Impacts of F/X -4% MXN/USD Down 21% QTD Intermodal volumes were flat - Lázaro intermodal volume was down 1% due to high inventory levels - Cross-border intermodal volume was up 5%. Impacts of U.S. Fuel Price -4% On-Highway Diesel Down 28% QTD Energy volumes down 4% - Utility Coal volume down 6% - Frac Sand volume down 43% - Crude Oil volume up 78% -5% Revenue Avg. Daily Carloads Automotive volumes down 8% - Planned plant re-toolings reduce production Q1 Revenue and Daily Average Carload Growth as of February 29,

9 F/X and U.S. Fuel Price Are Expected to Materially Impact First Half 2016 Revenues F/X Impacts Q1 Q2 Q3 Q Consensus MXN/USD Exchange Rate Average Quarterly MXN/USD Exchange Rate Variance (21%) (16%) (7%) (4%) U.S. Fuel Price Impacts Q1 Q2 Q3 Q Estimated Average On-Highway Diesel Price/Gallon Average On-Highway Diesel Price/Gallon Variance (28%) (24%) (14%) (3%) 1 Source: Bloomberg Consensus as of 2/26/16 2 Source: Banco de México 3 Source: EIA 9

10 F/X Had Minimal Effect on Operating Income in FY 15 Estimated Operating Income Impact $ in millions FY 2015 KCSM MXN-Based Revenues & Expenses FY 2015 F/X Impact B/(W) F/X Adjusted FY 2015 Revenues $2,418.8 $413.2 ($79.7) $2,498.5 Operating Expenses ,682.4 Operating Income $813.4 ($2.7) $816.1 All reconciliations to GAAP can be found on the KCS website in the Investors section. 10

11 LONG TERM GROWTH DRIVERS 11

12 Key Growth Drivers KCS links the heart of Mexico s manufacturing region with all Class I rails, offering a single connection from Mexico to all major markets in the U.S. and Canada Uniquely-positioned to participate in Mexico s growing economy and near-sourcing phenomenon Strategic access to growing auto manufacturing industry in Mexico and well-positioned to move finished vehicles into the United States Single-line intermodal service between U.S. and Mexico offers unique opportunity for long-term truck to rail conversion Sole rail provider to the port of Lázaro Cárdenas Access to Port Arthur, TX., Eagle Ford and Permian Basin offers unique leverage to energy markets Access to the Gulf Coast petrochemical build-out due to abundant low-cost natural gas Well-positioned to participate in Mexico s energy reform, moving refined products, LPGs as well as steel pipe, frac sand, and crude oil longer-term 12

13 KCS New Business Opportunities Completed or Under Construction New Grain Shuttle Facility Opens Mid 2016 Wylie Intermodal Facility Open Genesis Energy Open Kia New Plant Opens Mid 2016 Sunoco Logistics Open GM Expansion Opens 2017 Jefferson Rail Terminal Open Sasol Ethane Cracker 2018 Global Partners TBD WTC Terminal TBD Mercedes/Infiniti- New Plant Opens 2017 APM Container Terminal Opens 2016 BMW New Plant Opens 2019 Toyota - New Plant Opens 2019 Audi - New Plant Opens 2016 Marsori LPG Terminal TBD Howard Energy TBD 13

14 Automotive Manufacturing Continues to Expand in Mexico RAMOS ARIZPE MONTERREY SAN LUIS POTOSI SAN LUIS POTOSI AGUASCALIENTES SALAMANCA CUARNAVACA CELAYA PUEBLA SILAO SAN JOSE CHIAPA Established TOLUCA CUAUTITLAN Transition MARISCALA New GUANAJUATO 14

15 Mexico s Auto Production Growth ORGANIC (EXISTING PLANTS) INORGANIC (NEW PLANTS) Total Production Domestic Export Approximately 80% of finished vehicles are exported Investments: GM $5.8B expansion VW $1B expansion Ford (Transmissions) $1.2B New Plants: Audi Kia Mercedes / Infiniti Toyota BMW Source: Autocast, December 2015 MILLIONS OF VEHICLES 15

16 Lázaro Cárdenas APM Terminal Update Second Half 2016 Opening Installed capacity of 1.2M TEU s in 2016 A 50% increase in capacity from the existing 2M at the Hutchinson Port Holdings terminal Most technologically advanced container terminal in Latin America 7 Post Panamex cranes (largest operating cranes in the world) 16

17 Crude Oil Basins, Connecting Partners & Opportunities Canadian Heavy Oil CPRS: Kansas City CN: Cockrell, IL CN: Jackson, MS Hunt Refining $20 M Jefferson Terminal $250M Customer Destination Terminal Investments = $840m Genesis $350M Sunoco Global $20 M $200M 17

18 Mexico Energy Reform is a Reality: Business Opportunities Near-Term Importation of LPG Importation of refined products (gasoline, diesel & biofuels) Free importation timeline accelerated from January 2017 to April 2016 Longer-Term Steel pipe for oil fields and natural gas transmission Shale oil (CBR) shipments from Mexican basins Importation of frac sand Increased fuel oil moves 18

19 Refined Product Supply Chain A 19

20 Ethylene Announcements Updated: August 2015 Source: Corporate Public Announcements & Trade Press 20

21 Export Plastics Pipeline 1,635 rail miles Plastics move in covered hoppers from Gulf Coast producers to México. Plastics are packaged and/or transloaded into 40 containers. To Asia 1,342 rail miles 40 containers are exported through Lázaro Cárdenas to international markets. To South America 21

22 CAPITAL STRUCTURE AND CAPITAL ALLOCATION PRIORITIES 22

23 Reduced Capital Spending While Still Investing for Future Growth Total Capex $580-$590 Million Range Investing in Growth Capacity and Equipment Significant spending on Sasol Project in 2016 and 2017 New or expanded sidings to improve line of road fluidity Expansion of intermodal and automotive fleets Continuation of Sanchez Yard three year, $60M+ expansion project Increased PTC spending versus 2015 $649M Capital Spending Reduction of ~10% $580M-$590M 2016 Capital Expenditures 2015 Actual 2016 Estimate Maintenance Growth PTC IT / Other IT / Other 4% PTC 9% Capacity 8% Maintenance 45% Growth 42% Locomotive Overhauls 9% Rolling Stock 8% Sasol 11% Sanchez Yard 3% Other 3% 23

24 Balanced Approach to Investing in Business and Returning Capital to Shareholders Invest in Business Committed to superior growth profile 2015 Capex - $649 million or 27% of revenue 2016 Capex - $580 to $590 million range Shareholder Returns Board of Directors approved $500 million share repurchase program During Q4 15 KCS repurchased 675,759 shares for $57.9 million Q4 cash dividend declared on Nov. 11, 2015; paid Jan. 20, 2016 Quarterly payout of $0.33 per share or $35.7 million Annualized payout of $1.32 per share or $142.8 million Optimize Capital Structure Continued lease conversions Percentage of owned equipment increased from 51% at 12/31/14 to 62% at 12/31/15 KCS completed an exchange offer for $2 billion of senior notes to simplify its capital structure and improve its credit profile New $800 million KCS revolver provides improved terms and $150 million of additional liquidity vs. previous KCSR and KCSM facilities 24

25 CONCLUSION 25

26 KSU Investment Highlights Well-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