Revenue Growth, Operating Ratio Improvement and Record Operating Income Highlight Kansas City Southern’s Fourth Quarter and Full-Year 2007 Earnings

KANSAS CITY, Mo. — Kansas City Southern reported record fourth quarter 2007 revenues of $460.3 million, a 4.0 percent increase over the corresponding 2006 period.

Revenue growth was primarily the result of a continued strong pricing environment as well as volume growth in some key commodity segments, the railroad said.

For the quarter, new business was a significant contributor to a 12.0 percent revenue increase in chemical & petroleum. Led by increased volumes in Mexico, intermodal revenues grew by 11.6 percent.

Also reflecting a strengthening Mexican base, automotive revenues grew by 6.2 percent. Coal revenues improved by 2.4 percent over fourth quarter 2006. Agriculture & minerals and forest products & metals both increased in the fourth quarter by 0.8 percent. Overall, volumes fell by 2.5 percent; however, excluding the loss of certain haulage traffic volumes would have been 4.9 percent higher than the fourth quarter 2006.

Operating expenses for the fourth quarter 2007 were $351.6 million, a decrease of 0.7 percent. Increased fuel, casualties and insurance and materials and other expenses were partially offset by reductions in compensation and benefits, purchased services and equipment costs.

The improvement in compensation and benefits expense includes, among other things, certain non-cash credits related to profit sharing expense in Mexico driven by various tax initiatives taken in response to new tax legislation enacted in the fourth quarter. Tax expense in the fourth quarter was driven higher by the recent tax legislation in Mexico increasing the effective rate for the quarter to 32.6 percent due to a non-recurring, non-cash adjustment of previously recognized net operating losses.

Operating income for the fourth quarter was a record $108.7 million compared with $88.2 million last year, a 23.2 percent increase. The fourth quarter 2007 operating ratio was 76.4 percent compared with 80.1 percent a year ago.

Net income available to common shareholders in the fourth quarter totaled $49.9 million, or $0.56 per diluted share, compared with $35.7 million, or $0.41 per diluted share in fourth quarter 2006, a 36.6 percent increase.

“While KCS’ 2007 revenue growth of 5 percent fell short of our projections going into the year, given the weakness in the U.S. economy, we were generally pleased by the year-over-year increase, and by the new business opportunities that developed during the year. Chemicals, intermodal and automotive were particularly strong in the fourth quarter and should remain so in 2008.

“We were also encouraged by meeting our target of achieving an operating ratio below 80 percent for the full year, coming in at 79.2 percent, which compares favorably with 81.7 percent in 2006. KCS is committed to continuous improvement in this area and will translate business growth, increased productivity and more efficient operations into further significant improvement in the operating ratio in 2008.
“While the uncertain economy will provide a challenge, KCS is confident that new business coming on-line both in the U.S. and Mexico, and continued strong pricing, will allow for volume growth in most commodity areas and revenue growth across-the-board.
“KCS has pledged to be the fastest growing railroad in North America. We believe that the company is positioned to make measurable strides toward attaining that goal in the year ahead.”

— Business Wire