1
Baird 2016 Global Industrial Conference November 9, 2016 Marta R. - - PowerPoint PPT Presentation
Baird 2016 Global Industrial Conference November 9, 2016 Marta R. - - PowerPoint PPT Presentation
Baird 2016 Global Industrial Conference November 9, 2016 Marta R. Stewart Executive Vice President Finance and Chief Financial Officer 1 Forward-Looking Statements Certain statements in this presentation are forward-looking statements within
Forward-Looking Statements
Certain statements in this presentation are forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995, as amended. In some cases, forward-looking statements may be identified by the use of words like “believe,” “expect,” “anticipate,” “estimate,” “plan,” “consider,” “project,” and similar references to the future. Forward-looking statements are made as of the date they were first issued and reflect the good-faith evaluation of Norfolk Southern Corporation’s (NYSE: NSC) (“Norfolk Southern” or the “Company”) management of information currently available. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. These and other important factors, including those discussed under “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2015, as well as the Company’s other public filings with the SEC, may cause our actual results, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual
- utcomes and results may differ materially from those expressed in forward-looking statements. We undertake no
- bligation to update or revise forward-looking statements, whether as a result of new information, the occurrence of
certain events or otherwise, unless otherwise required by applicable securities law.
2
Business Update
- 2016 Overview
- 2016 Outlook
- Strategic Plan to Reduce Costs and Accelerate Growth
- Capital Allocation Priorities
3
Financial Results
Nine Months 2016 vs. 2015 ($ millions, except EPS)
4
Strong cost controls resulted in a record 68.7% operating ratio 2016 2015 * $ % Railway operating revenues $ 7,398 $ 7,993 $ (595) (7%) Railway operating expenses $ 5,085 $ 5,751 $ 666 12% Income from railway operations $ 2,313 $ 2,242 $ 71 3% Railway operating ratio (%) 68.7 72.0 3.3 5% Net income $ 1,252 $ 1,195 $ 57 5% Earnings per share $ 4.21 $ 3.90 $ 0.31 8% (Unfavorable) Favorable
* 2015 included restructuring costs of $44 million, which increased the railway operating ratio by 60 basis points.
Railway Operating Revenues
Nine Months 2016 vs. 2015
1. Please see reconciliation to GAAP posted on our website.
Revenue RPU RPU Less Fuel (1) Volume $7.4 Billion $1,365 $1,334 5.4 Million units down (7%) down (3%) flat down (5%) Revenue $ in million & Y-o-Y Percent Change
Merchandise $4,678 (2%) Coal $1,085 (22%) Intermodal $1,635 (11%) $7,993 $7,398 ($269) ($229) ($169) ($1) $73
YTD 2015 Coal ex. Fuel Fuel TCS ex. Fuel Merch ex. Fuel IM ex.TCS
- ex. Fuel
YTD 2016
Revenue Change $ in millions (1) Low commodity prices pressured revenue line
5
Railway Operating Expenses
Nine Months 2016 vs. 2015 ($ millions)
Streamlining operations to strengthen NS and drive productivity
$5,751 $236 $163 $139 $128 $5,085 Depreciation $ ---
Materials & Other Compensation & Benefits 2015 Purchased Svcs & Rents 2016
6
Fuel
3Q15
Consolidation of regional headquarters
3Q15
Acquisition of Delaware & Hudson South line
4Q15
Restructuring of Triple Crown operations
1Q15, 1Q-2Q16
Reductions in capital spending
1Q16
Consolidation of operating divisions and regions
2Q16
Idling of Ashtabula Coal Terminal
2Q16
Idling of Knoxville, TN Yard operations
2Q16
Shortline of West VA Secondary
2Q16
Restructuring Pocahontas Land coal subsidiary
1Q-3Q16
Line rationalizations - concentrating flows & speed reductions
Efficiency Initiatives
7
20 22 24 26 28
Service Metrics – Nine Months
Velocity Remains Near Record Levels
15 17 19 21 23 25
Speed (mph) Dwell (Hours)
Better ( ) Better ( )
8
50% 60% 70% 80% 90%
Composite
Better ( )
2015 2016
- Service Composite
14%
- Train Speed
11%
- Dwell
9%
Source: Wells Fargo; IHS Markit; WardsAuto Forecast; EIA; EVA; Census Bureau; NYMEX
Indicator
Dec 2015
2016 (F) 1Q 2Q 3Q
(Prelim)
4Q (F)
Current
2016 (F)
GDP +2.7% +0.8% +1.4% +2.9% +1.5% +1.5% Housing Starts (millions, annual rate) 1.23 1.15 1.16 1.18 1.15 1.16 N.A. Vehicle Production (millions, units) 18.2 4.5 4.7 4.5 4.5 18.2 Industrial Production +1.0% (1.6%) (1.0%) (0.8%) (0.4%) (1.0%) Real Consumer Spending (annual rate) +3.1% +2.4% +2.7% +2.8% +2.8% +2.7% Henry Hub Nat Gas Price ($/mmBtu) $2.88 $2.00 $2.14 $2.88 $2.83 $2.46 USD Exchange Rate With Major Trading Partners +4.7% +4.3% (0.4%) (1.7%) (2.5%) (0.1%)
Indicator
Dec 2015 Mar 2016 Jun 2016 Sep 2016 Oct 2016 Utility Coal Stockpiles (days, in NS
Territory, data from 1 month prior)
92.9 95.1 104.2 86.8 84.8 Inventories/Sales Ratio (total business,
adjusted, data from 2 months prior)
1.39 1.41 1.40 1.39 1.39
Economic Backdrop
9
120,000 125,000 130,000 135,000 140,000 145,000 150,000 155,000 160,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44
Weekly Volume Week
2015 2016
Q2 Q3 Q4
10
2016 Weekly Volume
Volumes are ~ flat with last year in 4QTD
Q1
Coal Drivers
Source: EIA; Platts; SNL; NYMEX; EVA
$40 $60 $80 $100 $120 $140 $160 $180 $200 $220 1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016*
Export Prices
Queensland Coking Coal API 2
* API 2 for 4Q projected from forward curve
- Utility:
‒ Weather ‒ Natural gas prices ‒ Stockpiles
- Export:
‒ Market prices ‒ Production availability
20 40 60 80 100
Days of Burn
Utility - Total Stockpiles
11
$0 $1 $2 $3 $4 $5 $6 $7
Dollars per MMBtu
Natural Gas Prices - Henry Hub
Merchandise Drivers
Source: EIA; WardsAuto; Federal Reserve
- Industrial production muted
- Crude oil limited by low prices and
narrow WTI/Brent spread
- Automotive tied to North American
vehicle production
$20 $40 $60 $80 $100 $120 $140 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16
Dollars per Barrel
Brent and WTI Oil Prices
Brent WTI
15,801 16,501 17,423 17,955 18,207
2012 2013 2014 2015 2016
North American Vehicle Production
+5.6% +3.1% +1.4% +4.4%
98 100 102 104 106 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16
Industrial Production
(Index 2012 = 100)
Manufacturing
12
Intermodal Drivers
Source: Census Bureau; BEA; Truckstop.com
- Truck competition
- Consumer demand
- Retail inventory levels
1.20 1.25 1.30 1.35 1.40 1.45 1.50 1.55 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16
Inventory/Sales Ratio
Retail Total Business 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016
Consumer Spending
(% Change vs. Preceding Period, Seasonally Adj)
5 10 15 20 25 30 35
Truckstop.com Market Demand Index
2012 2013 2014 2015 2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
13
Current Railway Volume
Fourth Quarter through Week 44 (ended November 5, 2016)
14
Total Units (000’s) 0.2% Increase in Units 4QTD 2016 vs. 2015
12,795; 3% 3,010; 5% 1,676; 3% 589; 1% (2,414); (9%) (6,467); (13%) (7,776); (8%) Paper Chemicals Coal Intermodal MetCon Agriculture Automotive 730.2 731.6 2015 2016
Lapping Triple Crown restructuring and inventory builds
4Q16 Revenue Outlook
Volume Pricing
Fourth quarter year-over-year, flat to
moderate growth expected, despite continued challenges
−
Excess capacity in the trucking market
−
Stockpiles and weather impact coal volumes
−
Crude oil and Automotive declines
−
Stronger intermodal as we clear Triple Crown comparison
−
Metals market laps fourth quarter 2015 declines Fourth quarter volumes stabilize, solid pricing leveraging value of service, mix headwinds continue
Focus on Pricing
−
2016 pricing remains strong
−
Domestic truck rates lower
−
Leveraging value of service product
Long-term view of markets and pricing
Volume and Resource Alignment
Flexibility to adapt to changing market
conditions and volume expectations
15
$163 $119 $113 $82 $49 $50 $67 $0 $50 $100 $150 $200 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Revenue ($M)
Fuel Surcharge Revenue
4Q16 fuel surcharge decline to moderate relative to lower prior year comp
16
4Q16 Expense Outlook
17
3Q16 Actual
- vs. 3Q15
4Q16 Outlook
- vs. 4Q15
Compensation and benefits: Headcount
~ 2,400 ~ 2,200
Wage and H&W rates
$26M ~ $26M
Incentive compensation
$39M ~ $39M
Triple Crown – purchased services
$37M ~ $20M
Fuel
$40M Price and consumption driven
Depreciation
$17M ~ $25M
Materials
$15M ~ $15M Improving efficiencies and reducing costs to drive shareholder value
Strategic Plan Enhancing Shareholder Value
18
NS well positioned to achieve 2016 financial and operational targets
− Operating ratio below 70% − Productivity savings of ~ $250 million − Capital spending of ~ $1.9 billion − On track for $800M in share repurchases
Dedicated team focus on delivering long-term shareholder value
− $650M of annual productivity savings by 2020 − Top line growth − Operating ratio below 65% by 2020 − EPS double digit compound annual growth rate by 2020 − Returning capital to shareholders
Agile NS team reliably delivers shareholder value in the near- and long- term
Thank you
19
NS well positioned to achieve 2016 financial and operational targets
− Operating ratio below 70% − Productivity savings of about $250 million − Capital spending of $1.9 billion − On track for $800M in share repurchases
Dedicated team focus on delivering long-term shareholder value
− $650M of annual productivity savings by 2020 − Top line growth − Operating ratio below 65% by 2020 − EPS double digit compound annual growth rate by 2020 − Returning capital to shareholders
Agile NS team reliably delivers shareholder value in near- and long- term