http://www.morningstar.com/earnings/54530438-kansas-city-southern-inc-ksu-q2-2013.aspx

Kansas City Southern Inc KSU
Q2 2013 Earnings Call Transcript

Transcript Call Date 07/19/2013

Operator: Greetings, and welcome to the Kansas City Southern Second Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

This presentation includes statements concerning potential future events involving the Company, which could materially differ from the 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 end December 31, 2013 filed with the SEC. The Company is not obligated to 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, www.kcsouthern.com.

It is now my pleasure to introduce your host, David Starling, President and Chief Executive Officer for Kansas City Southern. Mr. Starling, you may begin.

David L. Starling - President and CEO: Good morning and welcome to the Kansas City Southern's second quarter earnings conference call. Presenting with me this morning will be Executive Vice President and Chief Operating Officer, Dave Ebbrecht; Executive Vice President, Sales and Marketing, Pat Ottensmeyer; and Executive Vice President and Chief Financial Officer, Mike Upchurch. Also joining us by telephone from Mexico is Executive Representative and KCSM President, Jose Zozaya.

A special announcement to make this morning, Bill Galligan is not with us. His daughter is getting married in Connecticut. Apparently, she did not get the memo that this was an earnings release date. Well, Bill, we're going to try to correct that in the future, but we wish you and your family all the best. The rehearsal dinner will be over about 10, so Bill will be available for calls tonight if you need to call him.

I'll kick off the presentation by saying that we're very pleased with our second quarter results, especially in light of having to manage the revenue impacts of one of the worst droughts in U.S. history. On the whole, KCS hit its targets for the quarter and remains on a solid growth trajectory.

Second quarter revenues came in at a little over 6%. While absolutely no apology is necessary for 6% growth, the fact is, if not for the drop at our grain traffic due to the drought, our revenue growth would have been around 11%. True, you can't take that to the bank, but it does give us considerable confidence that we could see strong revenue growth during the second half of the year, after the crop is harvested.

Moving on, the combined revenues from our key strategic growth areas of crude oil, cross border intermodal, automotive, frac sand and business out of Lazaro Cardenas grew 28% and represented 19% of KCS' total freight revenues. Our Company is positioned well when commodities that represent about 20% of total revenues are growing at nearly 30%, and we're – there's an expectation the growth rates for these segments should continue at very high levels.

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