q1 2012 master presentation - final · revenue increases 6% 7 revenue $2,966m volume 1,602k rpu...
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Forward-Looking StatementsForward-Looking Statements
This information and other statements by the company may contain forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings,revenues, margins, volumes, rates, cost-savings, expenses, taxes, liquidity, capital expenditures, dividends, sharerepurchases or other financial items, statements of management’s plans, strategies and objectives for futureoperations, and management’s expectations as to future performance and operations and the time by which objectiveswill be achieved, statements concerning proposed new services, and statements regarding future economic, industry ormarket conditions or performance. Forward-looking statements are typically identified by words or phrases such as“will,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate,” “preliminary” and similar expressions. Forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update orrevise any forward-looking statement. If the company updates any forward-looking statement, no inference should bedrawn that the company will make additional updates with respect to that statement or any other forward-lookingstatements.
Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results coulddiffer materially from that anticipated by any forward-looking statements. Factors that may cause actual results to differmaterially from those contemplated by any forward-looking statements include, among others; (i) the company’ssuccess in implementing its financial and operational initiatives; (ii) changes in domestic or international economic,political or business conditions, including those affecting the transportation industry (such as the impact of industrycompetition, conditions, performance and consolidation); (iii) legislative or regulatory changes; (iv) the inherentbusiness risks associated with safety and security; (v) the outcome of claims and litigation involving or affecting thecompany; (vi) natural events such as severe weather conditions or pandemic health crises; and (vii) the inherentuncertainty associated with projecting economic and business conditions.
Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified in the company’s SEC reports, accessible on the SEC’s website at www.sec.gov andthe company’s website at www.csx.com.
Executive SummaryExecutive Summary
Michael Ward
Chairman, President and
Chief Executive Officer
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First quarter performance . . . First quarter performance . . .
Revenue growth
— Record first quarter revenue despite utility coal weakness
Operational excellence
— Safety, service and productivity drive excellent results
Financial performance
— Operating income increases 11% to first quarter record $856 million
— Operating ratio improves 140 bps to first quarter record 71.1%
$0.35
$0.43
Q1 2011 Q1 2012
Earnings Per Share
Volume 1,602 Revenue $2,966M Operating Income $856M Operating Ratio 71.1% EPS $0.43
23%Increase
Sales and Marketing ReviewSales and Marketing Review
Clarence Gooden
Executive Vice President
Sales and Marketing
Overall outlook for second quarter is favorableOverall outlook for second quarter is favorable
Outlook Markets Drivers
Favorable
58% of volume
Intermodal
Automotive
Metals
Forest Products
Phosphate & Fertilizer
Truck conversions and new customer gains
Growth in automobile production
Steel for auto, oil and gas industries
Consumer packaging demand
Increased application on high acreage
Neutral
32% of volume
Chemicals
Emerging Markets
Agricultural Products
Food & Consumer
Export & Ind. Coal
Steady industrial growth and frac sand opportunities
Construction activity continues to recover
Stable animal production supports grain shipments
Capture further truckload conversions
Thermal exports offsetting met coal declines
Unfavorable
10% of volume Utility Coal Low natural gas prices driving low coal demand
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Revenue increases 6%Revenue increases 6%
77777777777777777777
RPU $1,851Volume 1,602KRevenue $2,966M
Q1 2011 Volume Rate/Mix Fuel Price Q1 2012
Revenue in Millions
$2,810$26
$64
$66 $2,966
Coal revenue decreases 5%Coal revenue decreases 5%
Utility
Export
Industrial
CoalSectors
10%
(14%)
(5%)
RPU
Volume
Revenue
First QuarterYear-Over-Year Change
55%55%33%33%
12%
First Quarter Volume (tons)
RPU $2,514Volume 331KRevenue $832M
First Quarter
— Lower demand and low natural gas prices impact utility volume
— Industrial gains driven by increased steel production
— Thermal coal demand drives increased export volume
Ongoing Drivers
— Good start in export coal supports expectation for flat volume in 2012
— Industrial coal shipments to remain strong on strength of steel demand
— Challenges in domestic shipments expected to continue
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Intermodal revenue increases 19%Intermodal revenue increases 19%
IntermodalSectors
Domestic
International
51%51%49%49%
10%
9%
19%
RPU
Volume
Revenue
First QuarterYear-Over-Year Change
First Quarter Volume
RPU $648Volume 600KRevenue $389M
First Quarter
— Record domestic volume on continued truck conversions
— Strong international growth driven by onboarding new Maersk traffic
— RPU higher on positive mix, improved pricing and fuel recovery
Ongoing Drivers
— Strategic investments enhance growth and network operations
— Growth driven by truck conversions and expanded service offerings
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Merchandise revenue increases 10%Merchandise revenue increases 10%
MerchandiseSectors
Agriculture
Construction
Industrial
32%32%
24%24%44%
7%
3%
10%
RPU
Volume
Revenue
First QuarterYear-Over-Year Change
First Quarter Volume
RPU $2,496Volume 671KRevenue $1,675M
First Quarter
— Industrial growth led by Automotive and Metals markets
— Construction flat as building products strength offset aggregate weakness
— Agricultural sector declines primarily driven by phosphates
Ongoing Drivers
— Agriculture sector stable with growth expected in Phosphate shipments
— Industrial strength led by Automotive and Metals markets
— Construction growth led by strength in multi-family housing
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Sales and Marketing wrap-up . . .Sales and Marketing wrap-up . . .
Economic backdrop favorable for 2012 — Most major economic indicators signal continued growth
Second quarter volume and revenue outlook favorable — Volume outlook stable to favorable for 90% of the traffic base
Utility coal weakness expected to continue— Headwinds are expected to moderate throughout 2012
CSX standing out as compelling value for customers— Providing a high level of service and offering environmentally friendly solutions
Operations ReviewOperations Review
Oscar Munoz
Executive Vice President
Chief Operating Officer
Delivering performance excellenceDelivering performance excellence
Safety— Performance measures remain
strong, with improving trend
Service— Key service measures are at
or near record levels
Productivity— Cost controls and productivity
savings drive margin expansion
Strategy— Adapting to changing conditions
and building for the future
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Strategy
Productivity
Service
Safety
People
1.31
0.82 0.79 0.78
Q1 2009 Q1 2010 Q1 2011 Q1 2012
FRA Personal Injury Rate
CSX is a leader in one of nation’s safest industriesCSX is a leader in one of nation’s safest industries
3.66
3.32
2.64
2.01
Q1 2009 Q1 2010 Q1 2011 Q1 2012
FRA Train Accident Rate
1414
6-month MAQuarterly 12-month MA 6-month MAQuarterly 12-month MA
First quarter on-time performance is at high levelsFirst quarter on-time performance is at high levels
83%
69%66%
89%
Q1 2009 Q1 2010 Q1 2011 Q1 2012
On-time Originations
79%
67%
59%
77%
Q1 2009 Q1 2010 Q1 2011 Q1 2012
On-time Arrivals
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6-month MAQuarterly 12-month MA
System performance showing strong improvement System performance showing strong improvement
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24.1
25.826.6
24.0
Q1 2009 Q1 2010 Q1 2011 Q1 2012
Terminal Dwell (hours)
21.6
20.920.5
22.3
Q1 2009 Q1 2010 Q1 2011 Q1 2012
Velocity (mph)
Service at high levels across all three networksService at high levels across all three networks
17171717
Coal
Average train length increases to 106 cars
Fluidity delivers 12.5 million tons of export
16.4 16.4 16.6
18.4
Q12009
Q12010
Q12011
Q12012
Velocity (mph)
Intermodal
Expedited availability improves to 98%
Exceeding customer service commitments
30.9
29.8
28.3
30.1
Q12009
Q12010
Q12011
Q12012
Velocity (mph)
Merchandise
Terminal dwell improves 10% to 24.0 hours
On-time arrival to the customer improves
21.820.7
19.721.0
Q12009
Q12010
Q12011
Q12012
Velocity (mph)
6-month MAQuarterly 12-month MA
Cost control and productivity help expand marginCost control and productivity help expand margin
76.9%
74.6%
72.5%
71.1%
Q1 2009 Q1 2010 Q1 2011 Q1 2012
Operating Ratio Adjusting resources for coal demand and peak service
— Over 280 T&E employees on furlough and retention boards
— Locomotives being stored after smooth start to peak season
Productivity contributes to first quarter gains
— Increased crew efficiencies and reduced engineering overtime
— High service levels improve car cycle times and reduce car rents
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Operational strategy positions company long-termOperational strategy positions company long-term
Ensuring safety as first priority— CSX continues to be a leader in one of the nation’s safest industries
Emphasizing service excellence across network — Maintaining high levels of reliability and customer service
Deploying asset utilization to drive productivity— Expect to exceed $130 million of productivity savings in 2012
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Delivering performance excellence
Financial ReviewFinancial Review
Fredrik Eliasson
Executive Vice President
Chief Financial Officer
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First quarter earnings summary . . .First quarter earnings summary . . .
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First Quarter Results
Dollars in millions, except EPS 2012 2011 Variance
Revenue
Expense
$ 2,966
2,110
$ 2,810
2,037
6%
(4%)
Operating Income $ 856 $ 773 11%
Interest Expense
Other Income (net)
Income Taxes
(144
4
(267
)
)
(140
5
(243
)
)
Net Earnings $ 449 $ 395 14%
Fully Diluted Shares in Millions
Earnings Per Share
1,049
$ 0.43
1,115
$ 0.35 23%
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4%
0%
6%
10%
2%
1%
Total Expenses
Equipment Rent
Depreciation
Fuel
Material, Supplies, and Other
Labor and Fringe
First Quarter 2012 Operating Expensesand Year-Over-Year Percentage Change
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Expenses up 4% overall and 2% excluding fuelExpenses up 4% overall and 2% excluding fuel
$ 770
97
542
444
257
$ 2,110
Labor and Fringe expense increases 1%Labor and Fringe expense increases 1%
31,175 29,310 30,444
32,393
Q1 2009 Q1 2010 Q1 2011 Q1 2012
Employee Headcount
2323
First QuarterLabor Analysis in Millions
2011 Labor Expense $ 765
Hiring and Training
Volume and Other
Inflation
Incentive Compensation
(12
(9
(8
24
)
)
)
Subtotal (5)
2012 Labor Expense $ 770
Variance
2323
MS&O expense increases 2% MS&O expense increases 2%
$538 $519
$530 $542
Q1 2009 Q1 2010 Q1 2011 Q1 2012
MS&O ExpenseDollars in Millions
Variance
First QuarterMS&O Analysis in Millions
2011 MS&O Expense $ 530
Inflation
SunRail Gain
Volume Related
Other
(14
19
(12
(5
)
)
)
Subtotal (12)
2012 MS&O Expense $ 542
24242424
2525
Fuel expense increases 10%Fuel expense increases 10%
$1.39
$2.11
$2.86 $3.15
Q1 2009 Q1 2010 Q1 2011 Q1 2012
Locomotive Fuel PriceDollars per Gallon
Variance
First QuarterFuel Analysis in Millions
2011 Fuel Expense $ 402
Price
Efficiency
Volume
Non-locomotive fuel
(37
(4
(2
1
)
)
)
Subtotal (42)
2012 Fuel Expense $ 444
Still expect strong incremental margins for 2012Still expect strong incremental margins for 2012
50%
31%
53%
2010 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
Incremental Operating Margins
2626
Pressured by greater coal headwinds
Cycling second half 2011 resource investments and utility coal
headwinds moderate
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Earnings growth supports balanced cash deploymentEarnings growth supports balanced cash deployment
CapitalInvestment
Capital investment plan remains $2.25 billion for 2012
Total PTC investment increasing $500 million to $1.7 billion
Core investment in infrastructure, rolling stock and strategiccapital remains the same at 16% – 17% of revenue
Dividends
Payout target is between 30% – 35% of TTM earnings
TTM earnings through the first quarter was $1.75 per share
Board to review potential dividend increase in May
ShareRepurchase
Repurchased $300 million of CSX shares during the first quarter
Cumulative share repurchases of $7.5 billion since 2006
Remain on track to complete current program by year-end 2012
Note: 2012 capital investment plan excludes investment related to public-private reimbursable projects, but includes PTC
Improving credit profile supports balanced approachImproving credit profile supports balanced approach
25%
31%32%
34%
2009 2010 2011 2012LTM
3.0X
2.6X2.5X 2.5X
2009 2010 2011 2012LTM
2828
Funds from Operations-to-Debt Debt-to-EBITDA
Note: Calculations of FFO-to-Debt and Debt-to-EBITDA are based on S&P’s and Moody’s methodologies respectively
Financial wrap-up . . .Financial wrap-up . . .
Delivered record results despite utility coal headwind— Strong growth in Merchandise and Intermodal offset utility coal weakness
— Strong safety, service, productivity and cost performance help drive results
Still expecting full-year record financial performance— Offsetting volume losses in utility coal with cost management and productivity
— Volume gains in Merchandise and Intermodal expected to remain strong
— Pricing above moderating inflation levels
On-track to produce 65% operating ratio by 2015— Path towards target more challenging, but goal remains in sight
— Improving earnings and credit profile support balanced cash deployment
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Concluding RemarksConcluding Remarks
Michael Ward
Chairman, President and
Chief Executive Officer
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Relentless pursuit of excellence . . .Relentless pursuit of excellence . . .
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