bank of america merrill lynch global transportation conference€¦ · weighted avg interest rate...
TRANSCRIPT
Bank of America Merrill Lynch Global Transportation Conference
John P. Rathbone Executive Vice President Finance
and Chief Financial Officer
May 16, 2013
1
Norfolk Southern Update
System Overview
Technology / Productivity
First Quarter Results
Second Quarter Update
Business Outlook
Capital Structure
2
Norfolk Southern System
3
NY / NJ Philadelphia
Wilmington Baltimore
Morehead City
Charleston
Savannah
Brunswick
Jacksonville
Norfolk Portsmouth
Mobile
New Orleans Braithwaite
St. Bernard
4
Cleveland
Erie Ashtabula
Detroit
Toledo
Chicago
Burns Harbor
Granite City, IL
Jeffersonville, IN
Cincinnati
Louisville
Naples Portsmouth, OH
Pittsburgh
Memphis
A Network of
Port Access
Camden / South Jersey
NS Railway & Ports served by NS
Seaports
River Ports
Lake Ports
Lamberts Point, VA Coal Terminal
5
Wheelersburg, OH Coal Terminal
6
Coal Network
7
8 Excludes coke, iron ore & outbound Wheelersburg
Illinois Basin
20.4 M Tons 14%
Northern Appalachia 41.1 M Tons
27%
Western 26.3 M Tons
18%
Central Appalachia 57.6 M Tons
39% Southern Appalachia 3.3 M Tons
2% Norfolk Southern
Railway and its Railroad
Operating Subsidiaries
- - - NS Trackage and
Haulage Rights
Dynamics of Coal Market 2012 Volumes
Utility Coal Plant Scherer - Georgia
9
Intermodal Corridors
10
Harrisburg
Rossville Intermodal Facility
McCalla Intermodal Facility
• 2 Pad Tracks – 3850’ EA
• 2 Yard Tracks – 3950’ EA
• 816 Trailer Spaces
Greencastle Intermodal Facility
Intermodal Network
Chicago
90% of total NS Intermodal volume touches the Golden
Triangle
Harrisburg
Atlanta
14
Merchandise Network
15
Merchandise Network Major Rail Classification Yards
Bellevue, OH
Allentown, PA
Macon, GA
Birmingham, AL
Sheffield, AL
Enola, PA
Elkhart, IN
Conway, PA
Linwood, NC Chattanooga, TN Knoxville, TN
16
Merchandise Network TBT Facilities
17
Merchandise Network TBT Facilities
18
Merchandise Network Automotive Facilities
19
Atlanta
Charlotte
Chicago
Columbus
Detroit
Savannah
Miami
Cincinnati
Harrisburg
Norfolk
New Orleans
Memphis
Dallas
Jacksonville
Charleston
Lexington
Kansas City St Louis
Louisville
Baltimore
Toledo Cleveland
Pittsburgh
Ayer Albany Buffalo
Titusville
NY/NJ
Philadelphia
Birmingham
Meridian
Chattanooga
NS Automotive Network NS Automotive Network and Haulage
26 Assembly Plants
Assembly Plants on Short Line
connecting with NS
Ft. Wayne
Major Auto Projects
Our Manufacturing Network Continues to Expand
20
Shreveport
75-Car Unit Train Receivers
NS
Unit Grain Train Network
75-Car Unit Train Loaders
Merchandise Network Unit Grain Train
21
Marcellus & Utica Shale Deposits
22
23
Bakken
Alberta
• Efficient and direct routing to
East Coast, Gulf Coast and
Midwest refineries
• Unit train staging & delivery
Chicago
Crude Oil to East Coast, Gulf Coast and
Midwest Refineries
Norfolk Southern Update
System Overview
Technology / Productivity
First Quarter Results
Second Quarter Update
Business Outlook
Capital Structure
24
Improved locomotive utilization
Improved schedule adherence
Increased capacity
Disaster recovery
capability
Improved network Velocity; 2-4
MPH
Estimate completion
by end of 2014
UTCS – Movement Planner Unified Train Control System
25
LEADER
Calculates optimal “Golden Run” for every train start
Locomotive engineer coaching
Significant fuel savings
Estimate completion by end of 2015
26
Bellevue Yard Expansion
Bellevue, OH
Allentown, PA
Macon, GA
Birmingham, AL
Sheffield, AL
Enola, PA
Elkhart, IN
Conway, PA
Linwood, NC Chattanooga, TN Knoxville, TN
27
Bellevue Yard Expansion
Bellevue Yard Expansion Current Handling – Philadelphia Area to UP
Pavonia
Conway
Elkhart
Chicago
Handling & Dwell Locations:
29
Bellevue Yard Expansion Handling after expansion – Philadelphia Area to UP
Pavonia
Bellevue
Handling & Dwell Locations:
30
Bellevue Yard Expansion Current Handling – Southeast to UP
Chattanooga
Elkhart
Chicago
Handling & Dwell Locations:
31
Bellevue Yard Expansion Handling after expansion – Southeast to UP
Chattanooga
Bellevue
Handling & Dwell Locations:
32
Roanoke Hump Closure
Roanoke
Atlanta
Norfolk
Charleston
Philadelphia Columbus
33
Norfolk Southern Update
System Overview
Technology / Productivity
First Quarter Results
Second Quarter Update
Business Outlook
Capital Structure
34
35
Revenue
$2.7 Billion, down (2%)
RPU
$1,535, down (5%)
Volume
1,783,600 units, up 3%
1Q 2012 Mix/Price Fuel Volume 1Q 2013
$2,789 $2,738
($85) ($51) $85
1Q 2013 Revenue $ in Millions & y-o-y Percent Change
Components of Revenue Change $ in Millions
Railway Operating Revenue First Quarter 2013 vs. 2012
Merchandise
$1,530
+2%
Coal
$635
(17%)
Intermodal
$573
+9%
1Q 2013 Volume (000’s)
& y-o-y Percent Change
36
0
500
1,000
1,500
2,000
1Q 2012 1Q 2013
Coal
Merchandise
Intermodal
(0.5%)
+9%
(4%)
1,730.8 1,783.6
Coal down (4%)
(9%) decline in Utility
21% rise in Export
(14%) decline in Domestic Met
Intermodal up 9%
7% gain in Domestic and 13%
increase in International
Merchandise down (0.5%)
Decline in MetCon and
Agriculture more than offset
strength in Chemicals and
Automotive
Total volume up 3%
Railway Volume First Quarter 2013 vs. 2012
37
207.6
77.2
41.8
16.6
0
50
100
150
200
250
Utility Export Dom Met Ind
Drivers
Coal Market First Quarter 2013 vs. 2012
Weak demand results
in overall volume
decline of (4%)
Revenue: $635 Million, down (17%)
RPU: $1,850, down (13%)
Utility 61%
Export 22%
Dom Met 12%
Ind 5%
Percent of Total 1Q 2013 Volume
Units
(000’s)
(9%) 21% (14%) (10%)
Utility
Overall weak demand, Utility South down
(16%) and a (3%) decline in Utility North Export
Increases in thermal coal and improving
metallurgical volumes through Baltimore
and Lamberts Point Domestic Met
Impact of RG Steel comp and weaker
steel production Industrial
General market declines and use of
higher efficiency equipment
38
570.2
286.2
0
100
200
300
400
500
600
Domestic International
Intermodal Market First Quarter 2013 vs. 2012
7% 13%
Revenue: $573 Million, up 9%
RPU: $669, down (0.3%)
Drivers
Strong growth in Domestic
and International leads to
9% overall volume gain
Domestic
67%
Int’l
33%
Units
(000’s)
Domestic
Opening of new Crescent
Corridor lanes and continued
highway conversions
International
Organic growth across existing
accounts
Percent of Total 1Q 2013 Volume
154.8 147.9
106.0 98.7
76.6
0
50
100
150
200
MetCon Ag Chem Auto Paper
39
Drivers MetCon
Weaker steel volumes due to RG Steel comp
and decline in domestic raw steel production Agriculture
Decline in corn volumes to processors and
impact of ethanol plant closures Chemicals
Growth in crude by rail business
Automotive
New business from existing customers Paper
Rebound in housing related commodities,
offset weaker volumes of graphic paper
Merchandise Market First Quarter 2013 vs. 2012
(6%) (3%) 10% 2% --
Revenue: $1.5 Billion, up 2%
RPU: $2,619, up 3%
Strong gains in
Chemicals
Units
(000’s)
MetCon
27%
Ag
25% Chem
18%
Auto
17%
Paper
13%
Percent of Total 1Q 2013 Volume
Operating Results First Quarter ($ Millions)
(Unfavorable)
2013 2012 $ %
Railway operating revenues $ 2,738 $ 2,789 $ (51) (2%)
Railway operating expenses 2,047 2,044 (3) --
Income from railway operations $ 691 $ 745 $ (54) (7%)
Railway operating ratio 74.8 73.3 (1.5) (2%)
40
$2,044
$16
$3 $2
$12
$6
$2,047
2013
Railway Operating Expenses First Quarter ($ Millions)
Fuel Compensation
& Benefits
Depreciation Purchased
Services & Rents
Net Increase $3 / -%
2012 Materials
& Other
41
2012 2013 2013*
$410 $450
$390
*Excluding Michigan land sale gain - please see reconciliation to GAAP posted on our web site.
2012 2013 2013*
$1.23 $1.41
$1.22
Net Income and Diluted Earnings per Share First Quarter ($ Millions except per share)
Net Income
Change vs. Prior Period: + 10%
Diluted Earnings per Share
Change vs. Prior Period: + 15%
- 5% * - 1% *
42
Operating Efficiencies First Quarter 2013 vs. 2012
Crew Starts Improved 5 %
Train & Engine Service Overtime Improved 9 %
Re-Crews Improved 5 %
Equipment Rents (Velocity Driven) Improved 4 %
Carloads/Units per Locomotive Improved 6 %
Gross Ton Miles/Gallon Improved 2 %
43
Norfolk Southern Update
System Overview
Technology / Productivity
First Quarter Results
Second Quarter Update
Business Outlook
Capital Structure
44
836.5 851.4
2012 2013
Units (000)
Current Railway Volume Second Quarter through Week 19 (May 11, 2013)
45
851,400 units, up 2%
12%
12%
5%
0%
(3%)
(4%)
(8%)
Change in Units
2QTD13 vs. 2012
Chemicals
Automotive
Intermodal
Paper
Coal
Agriculture
MetCon
6,724
8,530
6,191 6,859
8,419
1Q '12 2Q '12 3Q '12 4Q '12 1Q '13
Met Thermal
9%
Tons (000)
Export Coal Volumes 1Q 2012 – 1Q 2013
91%
71%
29%
83%
17%
74%
26%
75%
25%
46
Train Speed 1Q10 – 1Q13
19.0
20.0
21.0
22.0
23.0
24.0
25.0
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
47
Better
Terminal Dwell 1Q10 – 1Q13
20.0
21.0
22.0
23.0
24.0
25.0
26.0
27.0
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
48
Better
Composite Service Performance 1Q10 – 1Q13
70%
72%
74%
76%
78%
80%
82%
84%
86%
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13
49
Norfolk Southern Update
System Overview
Technology / Productivity
First Quarter Results
Second Quarter Update
Business Outlook
Capital Structure
50
51
Business Outlook for 2013
• Utility coal impacted by
demand for electricity,
competition from natural
gas and higher stockpiles
• Softer domestic
metallurgical market to
support steel production
• Weak demand in
European market for both
met and steam coal
• Weaker Asian market
Coal
52
Business Outlook for 2013
• Utility coal impacted by
demand for electricity,
competition from natural
gas and higher stockpiles
• Softer domestic
metallurgical market to
support steel production
• Weak demand in
European market for both
met and steam coal
• Weaker Asian market
• Continued opportunities
for highway conversion
• New Intermodal service
lanes ahead as new
corridor terminals open
• Growth with
international shipping
partners
Coal
Intermodal
53
Business Outlook for 2013
• Utility coal impacted by
demand for electricity,
competition from natural
gas and higher stockpiles
• Softer domestic
metallurgical market to
support steel production
• Weak demand in
European market for both
met and steam coal
• Weaker Asian market
• Continued opportunities
for highway conversion
• New Intermodal service
lanes ahead as new
corridor terminals open
• Growth with
international shipping
partners
Coal
Intermodal
Merchandise
• Project growth in crude
oil and increased volume
for shale related liquid
petroleum gases
• Gains in steel, but weaker
aggregate market
• Continued automotive
growth despite tougher
comps
• Reduced U.S. corn and
soybean crop
• Improved housing &
related construction
materials market
Norfolk Southern Update
System Overview
Technology / Productivity
First Quarter Results
Second Quarter Update
Business Outlook
Capital Structure
54
$315
$8,682 $9,445
12/31/12
Common Stock
Debt
Other
$390
$7,364 $6,110
12/31/02
Common Stock
Debt
Other
Capital Structure Change 2002 vs 2012 ($ millions)
55
* See reconciliation of “Other” to GAAP posted on our website, www.nscorp.com.
Weighted Avg Interest Rate & Maturities
2008 – 2012
Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
6.75% 6.69% 6.57%
6.14%
5.51%
Weighted Avg Interest Rate
Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
20.4 19.3 21.9
25.9 23.7
Weighted Avg Maturities (yrs)
56
2008 2009 2010 2011 2012 2013Budget
$1,558 $1,299
$1,470
$2,160 $2,241 $2,008
Capital Expenditures ($ millions)
21
57
2008 2009 2010 2011 2012
$2,715
$1,860
$2,714
$3,227 $3,065
$1,558 $1,299
$1,470
$2,160 $2,241
Cash from Operations Capital Expenditures
Cash From Ops and Capital Expenditures ($ millions)
21
58
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$0.30 $0.36
$0.48
$0.68
$0.96
$1.22
$1.36 $1.40
$1.66
$1.94 $2.00
Annual Dividend Per Share
Compound annual
growth rate of 21% for
2003 through 2013
+15% +20% +33% +42% +41% +27% +11% +3% +19% +3%
59
Balanced Cash Flow Utilization 2006 through 2012
Dividends Share Repurchases Capital Expenditures
$11.2 Billion $10.8 Billion*
$7.5 Billion
$3.3 Billion
* See reconciliation of Total Shareholder Distributions to GAAP posted on our website, www.nscorp.com.
60
Thank You
61