Kansas City Southern reported strong fourth quarter and full year 2019 results, driven by implementation of Precision Scheduled Railroading (PSR) principles while Union Pacific's revenue numbers fell in both the 4th quarter and for 2019.
AT KCS fourth quarter revenues were $729.5 million, an increase of 5% primarily led by a 13% increase in Chemicals and Petroleum and an 11% increase in Industrial & Consumer Products as compared to fourth quarter 2018. Carloads were down 1%, as declines in Automotive and Intermodal offset carload growth in all other business units. Fourth quarter operating expenses were $493.5 million, including $38.3 million of restructuring charges related to PSR initiatives. Operating income was $236.0 million and the reported operating ratio was 67.6%. Fourth quarter net income was $127.9 million, or $1.30 per diluted share. Adjusted fourth quarter operating income, operating ratio, net income and diluted earnings per share were as follows:
"Kansas City Southern's implementation of PSR principles has sustained momentum in the fourth quarter, driving strong results in the form of more consistent and reliable operations, improved customer service, improved cost structure and growth in shareholder returns," stated President and Chief Executive Officer, Patrick J. Ottensmeyer. "Thanks to the hard work and dedication of KCS's employees, we exited 2019 with network-wide velocity performing at record levels."
Full year 2019 KCS revenues were $2.9 billion, an increase of 6% on a 1% decline in carloads. Operating income was $886.3 million and the reported operating ratio was 69.1%. Full year 2019 net income was $540.8 million, or $5.40 per diluted share. During 2019, KCS significantly improved its operating performance, as demonstrated by an increase in gross velocity of 22%, a decline in terminal dwell of 16%, and an improvement to car miles per day of 19% as compared to 2018. PSR initiatives also contributed directly to operating expense savings of $58.0 million in 2019, and are projected to deliver incremental savings of $61.0 million in 2020.
"Year one of KCS's PSR implementation has exceeded our own expectations for service, operational and financial improvement," stated Ottensmeyer. "As we turn our focus to 2020, we look forward to growing our business while implementing our second year of PSR initiatives. These strong results have allowed us to improve guidance, and we now expect to deliver a 60% to 61% operating ratio in 2020, and below 60% in 2021. Additionally, we have improved our outlook for earnings per share growth to a mid-teens CAGR from 2019 through 2021. Finally, with improved asset utilization, we have reduced our outlook for capital expenditures to ~17% of revenue through 2022."
Union Pacific Corporation reported 2019 fourth quarter net income of $1.4 billion, or $2.02 per diluted share. This compares to $1.6 billion, or $2.12 per diluted share, in the fourth quarter 2018. “Given the challenging volume environment, we leveraged strong productivity to deliver solid financial results including the third consecutive quarter with an operating ratio below 60 percent,” said Lance Fritz, Union Pacific chairman, president and chief executive officer. “The work our employees are doing as part of Unified Plan 2020 has been transformational and key to providing a safe, reliable and consistent service product for our customers.”
Operating revenue of $5.2 billion was down 9 percent in UP's fourth quarter 2019, compared to fourth quarter 2018. Fourth quarter business volumes, as measured by total revenue carloads, decreased 11 percent compared to 2018. Industrial volumes were flat compared to 2018, while agricultural products, premium and energy shipments declined. In addition quarterly freight revenue declined 10 percent, compared to fourth quarter 2018, as core pricing gains and a positive business mix were offset by lower volumes and decreased fuel surcharge revenue.
Union Pacific’s 59.7 percent operating ratio represented a fourth quarter record and the third consecutive quarter below 60 percent, improving 1.9 points compared to fourth quarter 2018. The $2.16 per gallon average quarterly diesel fuel price in fourth quarter 2019 was 7 percent lower than fourth quarter 2018. Quarterly freight car velocity was 220 daily miles per car, a 5 percent improvement compared to fourth quarter 2018. Terminal dwell was 23.3 hours, a 13 percent improvement compared to fourth quarter 2018. The Company repurchased 3.6 million shares in fourth quarter 2019 at an aggregate cost of $599 million.
Summary of Fourth Quarter Freight Revenues: Industrial flat, Agricultural Products down 2 percent, Premium down 14 percent, Energy down 25 percent,
For the full year 2019, Union Pacific reported net income of $5.9 billion or $8.38 per diluted share, which represents a 1 percent decrease and 6 percent increase, respectively, when compared to 2018. Operating revenue totaled $21.7 billion compared to $22.8 billion in 2018. Operating income totaled $8.6 billion, which was flat compared to 2018. In addition freight revenue totaled $20.2 billion, a 5 percent decrease compared to 2018. Carloadings were down 6 percent versus 2018, with growth in industrial volumes more than offset by fewer agricultural products, premium and energy shipments. Union Pacific’s operating ratio improved to a best ever 60.6 percent, 2.1 points lower than 2018.
Average diesel fuel prices decreased 7 percent to $2.13 per gallon in 2019 from $2.29 per gallon in 2018. Fuel consumption rate, measured in gallons of fuel per thousand gross ton miles, improved 2% in 2019 compared to 2018. Union Pacific recognized a payroll tax refund of $78.5 million, along with associated interest income of $31.3 million in 2019. Freight car velocity was 208 daily miles per car, a 6 percent improvement compared to full year 2018. Terminal dwell was 24.8 hours, a 17 percent improvement compared to full year 2018.
Union Pacific’s reportable personal injury rate of 0.90 incidents per 200,000 employee hours increased 11 percent compared to full year 2018. Union Pacific’s capital program in 2019 totaled $3.2 billion. UP repurchased 35 million shares in 2019 at an aggregate cost of $5.8 billion.
“While we are pleased with our progress in providing a highly consistent, reliable and efficient service product for our customers, we must improve our safety results,” Fritz said. “As always, we remain focused on growing the business and improving margins while driving shareholder returns.”