1. Kansas City Southern
First Quarter 2009
Earnings Presentation
April 30, 2009
1
This presentation includes statements concerning potential
future events involving the Company which could materially
differ from events that actually occur. The differences could
be caused by a number of factors, including those factors
identified in the “Risk Factors” section of the Company’s
Form 10-K for the year ended December 31, 2008 filed by
the Company with the SEC (File No. 1-4717). The
Company will not update any forward-looking statements in
this presentation to reflect future events or developments.
All reconciliations to GAAP can be found on the KCS
website, kcsouthern.com/investors.
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2. Today’s Presenters
Mike Haverty Chairman & CEO
Dave Starling President & COO
Pat Ottensmeyer EVP Sales &
Marketing
Mike Upchurch EVP & CFO
3
First Quarter Highlights
• Economy is the central factor impacting results
• KCS responds to the economic environment
– Operating expenses reduced 19%; excluding
depreciation reduced 23%
– Liquidity position improved as a result of refinancing
near term maturities
– No significant debt maturities until 2011
• Core pricing levels increased
• Victoria-Rosenberg nearing completion
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3. Financial Results
1Q 09 1Q 08
Earnings (Loss)
($0.08) $0.39
per Share
Revenue (23.2%) +9.6%
Change Over 1Q ’08 Over 1Q ‘07
Operating Ratio 86.0% 81.5%
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Dave Starling
President & COO
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4. Operating Highlights
• Cost controls are a priority
• Over 50% of costs are variable over the
short- to mid-term
• Despite cuts, operating performance has
been excellent
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Expense Controls Continue
Operating expenses down 19%
•
Excluding depreciation, expenses down 23%
–
Trains consolidated; crew starts and dead heads reduced
–
Returning leased equipment
–
Stored locomotives
–
• Focus on fuel efficiency
• Storing higher cost locomotives
• Reduction in maintenance costs
– Optimization of local service frequency
Capital expenditures to moderate
•
– Capital budget frontloaded due to Victoria-Rosenberg
– Second half of year drastically reduced capex
– Capital 2009 budget below $300 million versus capex in 2008
of $577 million
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6. Pat Ottensmeyer
EVP Sales & Marketing
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Revenue Summary
• Revenue declined 23.2% to $346 million
• Volumes were down across all commodities
except coal and U.S. intermodal
– U.S. carloads decreased 7.2%
– Mexico carloads decreased 25.6%
• Core pricing increased compared to 1Q 2008
– Fuel, mix, and currency drove revenue per unit lower
– Same linehaul move increased by 5.3%
– Linehaul rate per mile increased by 6.9%
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7. 1Q Revenue Detail
1Q 09 1Q 08 % Change
$ in millions
Chemical & Petroleum $71.5 $86.7 (18%)
Industrial & Consumer 82.0 123.9 (34%)
Agriculture & Minerals 82.6 108.8 (24%)
Coal 47.3 47.0 1%
Intermodal 30.6 35.8 (15%)
Automotive 12.3 28.3 (57%)
Total Freight Revenue 326.3 430.5 (24%)
Other Revenue 19.7 20.1 (2%)
Total Revenue $346.0 $450.6 (23%)
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Quarterly Revenue Decreased by 23%
$ in millions
$451 -18.8%
+4.9%
-5.3%
-3.9% -0.1%
$346
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8. Linehaul Rate per Loaded
Car/Unit Mile *
Agriculture & Coal Industrial & Chemical & Intermodal Automotive
Mineral Consumer Petroleum
Q1 2008 Q1 2009
15
* Linehaul revenue excludes fuel surcharge and foreign exchange
Consolidated Revenue Decreased by 23%
Revenue per Unit
-10.7%
$952
$850
1Q 2008 1Q 2009
Carloads
-15.1%
452,273
384,048
1Q 2008 1Q 2009
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9. Agriculture & Minerals Revenue
Decreased by 24%
Crossborder volumes
• Revenue per Unit
negatively impacted by -12.3%
exchange rate, large $1,515
Mexican harvest, and low $1,329
vessel rates
1Q 2008 1Q 2009
RPU decrease driven by
•
shorter length of haul and
Carloads
lower fuel surcharge -13.4%
71,800
We expect current
•
conditions to continue 62,168
through 2009
1Q 2008 1Q 2009
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Sorghum Replaces Corn in Poultry Industry in
Mexico
1,289 Miles
150 Miles 18
10. Coal Revenue Increased by 1%
Coal revenues increase on
• Revenue per Unit
higher volumes of unit train
-2.4%
utility coal
$646
Petroleum coke shipments
• $631
declined due to weakness in
steel and cement production
1Q 2008 1Q 2009
RPU decline driven by fuel
•
and mix
Carloads
By volume, 30% of utility coal
• +3.1%
contracts will be repriced in
75,017
2010
72,771
Revenue and carloads still
•
expect to exceed 2008 levels
1Q 2008 1Q 2009
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Industrial & Consumer Revenue
Decreased by 34%
Revenue per Unit
Paper, cement, and steel
•
-5.1%
demand was weak due to the
$1,307
global economic downturn
$1,241
Lumber and appliances
•
continue to be depressed due 1Q 2008 1Q 2009
to U.S. housing market
Carloads
No signs of improvement until
•
-30.3%
at least second half of 2009 94,778
66,088
All paper mills on KCS are up
•
and running. One steel plant
idled indefinitely
1Q 2008 1Q 2009
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11. Chemical & Petroleum Revenue
Decreased by 18%
Revenue per Unit
Demand for petroleum
•
-8.4%
products was weak due to
$1,406
lower industrial activity
$1,289
Plastics demand soft due to
•
weakness in housing and 1Q 2008 1Q 2009
auto sectors
Carloads
RPU lower due to fuel and
•
-10.0%
length of haul
61,645
All chemical refineries on
• 55,485
KCS system are up and
running 1Q 2008 1Q 2009
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Automotive Revenue Decreased by 57%
North American auto
• Revenue per Unit
sales decreased 38.4% +10.9%
versus 2008 $1,153
$1,040
U.S. auto inventories
•
continue above target
1Q 2008 1Q 2009
levels but improved
during the quarter
Carloads
-60.8%
All KCS-served plants are
• 27,212
operating, however at
10,665
reduced levels
1Q 2008 1Q 2009
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12. Intermodal Revenue Decreased by 15%
Reduced automotive part
•
Revenue per Unit
shipments to Mexico and -7.5%
trans-Pacific traffic
$289
negatively impacted
intermodal volumes $267
Introduced new intermodal
• 1Q 2008 1Q 2009
service from KC to various
Mexican destinations
Units
-7.6%
Cross-border truckload
• 124,067
conversion will be a
114,625
priority for second half
2009 with opening of
Rosenberg (Houston)
1Q 2008 1Q 2009
terminal
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Market Outlook
Core pricing remains positive
•
Economic outlook continues to be negative through 2009
•
Volumes expected to be below 2008 levels until at least 4Q
•
Revenues will continue to be negatively impacted by foreign
•
exchange and fuel
Areas of relative strength
•
– U.S. Coal
– U.S. and cross-border intermodal
New business opportunities continue to develop and will
•
drive long term growth
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13. Mike Upchurch
Executive VP & CFO
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Financial Highlights
• Significant cost reductions achieved
through productivity improvements
• Liquidity at March 31 remains consistent
with historical trends
• Capital expenditures are expected to be
under $300 million for the year to achieve
free cash flow targets
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14. Consolidated Income Statement
in millions 1Q 2009 1Q 2008
Total Revenue $346.0 $450.6
Operating Expense 297.5 367.2
Operating Income 48.5 83.4
Currency Gain/(Loss) (5.1) 2.5
Equity Earnings & Other
Income 2.6 7.0
Interest Expense 41.8 39.5
Debt Retirement Costs 5.9 -
Pre-Tax Income (Loss) (1.7) 53.4
Income Tax Expense 0.4 15.7
Net Income (Loss) $(2.1) $37.7
Preferred Dividends 5.4 4.8
Net Income (Loss)
Available to Common $(7.5) $32.9
EPS Diluted $(0.08) $0.39
Share Count (in thousands) 90,743 97,484
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Earnings (Loss) per Share Reconciliation
1Q 2008 EPS $0.39
Change in Operating Income (0.23)
Foreign Exchange (0.05)
Debt Retirement Costs (0.04)
Interest Expense (0.02)
Equity in Earnings (0.02)
Other Non-Operating (0.01)
Effective Tax Rate Impact (0.04)
Preferred Dividends (0.06)
1Q 2009 EPS ($0.08)
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15. First Quarter Operating Expenses Decline 19%
$ in millions
Compensation & $101.8
Benefits $78.0
$77.8
Fuel
$43.3
$51.2
Purchased Services
$44.5
$44.4
Equipment $39.1
$40.3
Depreciation $47.1
$18.6
Casualties & Insurance $12.5
1Q 2008 $367.2 mm
$33.1
Materials & Other 1Q 2009 $297.5 mm
$33.0
1Q 2008 1Q 2009
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Productivity Driving Expenses Lower
Change Year over Year
Short Term Variable Costs (33%)
Fuel
Car Hire
Operations Labor
Purchased Services
Long Term Variable Costs (13%)
Materials & Other
Management Labor
Fringe Benefits
Fixed & Indirect Costs (9%)
Locomotive & Freight Car Leases
Casualties & Insurance
Facilities/Telecom/Utilities/Software
Depreciation & Amortization 17%
Total Operating Expenses (19%)
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16. Productivity Improvements Drive Majority
of Expense Reduction
$ in millions
$7 $(9)
$4
$(17)
$(55)
$367
$298
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Free Cash Flow *
$ in millions
1Q 2009 1Q 2008
Net cash provided by operating activities $63.8 $118.7
Cash used for capital expenditures (99.9) (92.5)
Other investing activities (15.6) (62.4)
Preferred dividends paid (2.8) (4.9)
Free cash flow after dividends paid $(54.5) $(41.1)
1Q capital expenditures include Victoria-Rosenberg
•
expansion
Capital expenditures expected to be under $300 million for
•
the year
Continue to target neutral to slightly positive free cash flow
•
for the year
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* All reconciliations to GAAP can be found on the KCS website in the Investors section.
17. Liquidity Summary
Unrestricted cash plus unused bank credit commitments
$ in millions
$228
$203
$183
$172
$149
$144 $143 $142
$125 $122
$110
$44
$36
1Q 2006 2Q 2006 3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009
Amounts not available for general corporate purposes have been excluded for consistency 33
Major Debt Maturities
$ in millions
$800
$700
$600
Term
$500 Loan
$400 9.375%
$300 7.625%
$200 8.0%
12.5%
$100 13.0% 7.375%
Revolver
$0
2009 2010 2011 2012 2013 2014 2015 2016
KCS debt KCSM debt
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19. Summary & Outlook
• A challenging quarter due to economy
• Cost savings and operational efficiencies position
KCS well for extended growth when economy
rebounds
• Victoria-Rosenberg to open in July
• Long-term growth will be driven by new business
opportunities once the economy recovers
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www.kcsouthern.com
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