Kansas City Southern (KCS) (NYSE:KSU) reported third quarter 2016 revenues of $605 million, a decrease of 4% from third quarter 2015. Overall carload volumes decreased 4% compared to third quarter 2015. Excluding the estimated impacts of Mexican peso depreciation and lower U.S. fuel prices, revenue would have decreased by 1% compared to the third quarter of 2015.
Third quarter 2016 revenues declined in four commodity groups, partially offset by small increases in two others (Agriculture & Minerals and Chemical & Petroleum). Intermodal revenue declined 7%, largely attributable to service disruptions on our Mexican network. Energy revenue declined 15% as the effects of reduced U.S. drilling operations continue to be seen in both crude oil & frac sand movements.
Operating expenses in the third quarter were $405 million, 2% lower than 2015. Excluding the estimated impacts of Mexican peso depreciation and lower U.S. fuel prices, operating expenses increased 2% compared to the third quarter of 2015. In the third quarter of 2016, the Company recognized a $16 million Mexican fuel excise tax credit. Additionally, in the third quarter of 2016, the Company recorded a year-to-date adjustment to increase the incentive compensation level for the year.
Operating income for the third quarter of 2016 was $200 million, a decrease of 9% from the third quarter 2015. KCS reported a third quarter operating ratio of 66.9%, a 1.7 point increase from third quarter 2015. Reported net income in the third quarter of 2016 totaled $121 million, or $1.12 per diluted share, compared with $132 million, or $1.20 per diluted share, in the third quarter of 2015. Excluding the impacts of foreign exchange rate fluctuations, adjusted diluted earnings per share for third quarter 2016 was $1.12, compared to $1.21 in third quarter 2015.
“Kansas City Southern faced a challenging third quarter as extraneous events, including flooding outages and service disruptions on our Mexican network, resulted in additional operating costs.” stated Kansas City Southern’s President and Chief Executive Officer Patrick J. Ottensmeyer. “In spite of these events, KCS’ third quarter carloads grew 5% sequentially with strength seen in both the Automotive and Energy commodity groups. Overall, the Company remains committed to growth and we continue to invest and prepare for the many long-term opportunities on the horizon.”