Kansas City Southern

A Strategic Analysis

Objectives1. History2. Performance Analysis3. General Environment4. Industry Environment5. Competitor Analysis6. Internal Environment7. SWOT Analysis8. Recommendations

HistoryWho is Kansas City Southern?

-holding company

-domestic and international rail operations in North America

-Approximately 6,000 miles of main railways

-U.S Class I railroad

-Serve a 10-state region

Kansas City Southern’s Beginnings•Founded in 1887 by Arthur E. Stilwell•Operation began in 1890•Stilwell’s vision- “provide a north-south railway route to the

Gulf of Mexico.”

History Kansas City Southern de Mexico

•Shortest most direct rail passageway between Mexico City and Laredo TX•Serves Mexico’s principal industrial cities and 3 major seaports•Tampico, Veracruz, and Lazaro Cardenas

Kansas City Southern Segments

Performance AnalysisRevenue Growth

● Revenue in all segments grew, but small growth in energy

● 2014 total revenue - $2.57 billiono 9% increase from 2013

● Agriculture and Minerals grew compared to the 2013 year which was subjected to drought

● Automotive saw significant increase

● Intermodal is expecting to continue to grow exponentially till 2020

Performance Analysis (Cont.)Operating expenses

increased 2%When carloads/unit increases, operating expenses must follow suite

Operating expenses increased 2% in 2014 FY

Performance Analysis (Cont.)Foreign Exchange - Does it impact operating income?

When comparing 2014 operating income with F/X normally reported and F/X adjusted there appears to be only minimal differences

Performance Analysis (Cont.)

Performance Analysis (Cont.)Industry and Competitor Ratios

Performance Analysis (Cont.)Price/Sales can suggest whether or not a company is undervalued or overvalued

Low Ratio, compared to industry, suggest undervaluationHigh Ratio, compared to industry, suggest overvaluation

General Environment Analysis Sociocultural

● Environmental friendliness

● Charity

● Small Business

Economic

● Reduction in coal shipments

● High fuel costs

● Recession

Political/Legal

● Laws & Regulations

● EPA

-Wall Street Journal

General Environment Analysis (Cont.) Technology● Redesigned track● “GenSet” locomotives

Demographics● Growing population

Global● Arbitrage● Passenger trains● JIT

Industry Environment AnalysisRivalry among incumbents● Varies● Shared track = cost leadership● Regional operation = negligible rivalry

Bargaining power of suppliers● Fuel● Labor● Rolling Stock

Bargaining power of buyers● Limited options● Product segmentation

-Strategic Management

Industry Environment Analysis (cont.)Threat of substitutes● Trucking industry

Threat of new entrants● Large amount of capital required● Most track area has been claimed● Mergers/Acquisitions

Strategic groups● BNSF & Union Pacific● Disputable

-Strategic Management

Competitor Analysis~Union Pacific

~Founded~Routes~Employees

Competitor Analysis (Cont.)~Burlington Northern-Santa Fe Railway (BNSF)

~Founders~Routes~Employees

Internal Environment AnalysisValue Chain

~Primary Activities~Support Activities

Strengths and OpportunitiesStrengths:● Its highly skilled employees● Cost advantages; KC southern is a cost leader which

allows it to offer better prices and entice prospective clients

Strengths and OpportunitiesOpportunities:● The growth that the entire railroad transportation

industry is experiencing ● The growth of Mexico’s economy

Weaknesses and ThreatsWeaknesses:● High staff turnover; replacing skilled workers can be

costly and set the company back● Weak research and development

Weaknesses and ThreatsThreats:● Government regulations and union compliance● The rising price of fuel● Trucking is still preferred over railway transportation

Recommendations● Continue operating in the Mexican market due to its

growth spurred by automobile manufacturers● Further exploit intermodal transportation,

specifically in the Mexican market and the Port of Lazaro Cardenas