Stifel 2017 Annual Transportation & Logistics Conference - - PowerPoint PPT Presentation

stifel 2017 annual transportation amp logistics conference
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Stifel 2017 Annual Transportation & Logistics Conference - - PowerPoint PPT Presentation

Stifel 2017 Annual Transportation & Logistics Conference February 14, 2017 Marta R. Stewart Executive Vice President Finance and Chief Financial Officer 1 Forward-Looking Statements Certain statements in this presentation are


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Stifel 2017 Annual Transportation & Logistics Conference

February 14, 2017 Marta R. Stewart Executive Vice President Finance and Chief Financial Officer

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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, 2016, 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.

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2015 2016

GTM / T&E Employee

(Millions)

31.3 33.1

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  • Consolidated from 11 divisions to 10
  • Consolidated from 3 regions to 2
  • Idled Knoxville hump yard & terminal
  • Idled Ashtabula coal dock
  • Restructured coal subsidiary
  • Rationalized over 1,000 line miles,

including short lining, concentrating flows, and speed reductions

2015 2016

Composite Service Metric

72% 80%

2016 Efficiency Initiatives

NS achieves balance between service and efficiency

2016 Improvements in Service and Efficiency

+ 6%

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Operational efficiencies produced solid financial results

2016 Financial Highlights

2016 vs. 2015 ($ millions except per share)

$2,884 $3,074

2015 2016

Income from Operations

+ 7% $5.10 $5.62

2015 2016

Earnings Per Share

+ 10% 72.6 68.9

2015 2016

Operating Ratio %

Record $523 $1,147

2015 2016

Free Cash Flow (1)

1. Please see reconciliation to GAAP posted on our website.

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2017: Return to Growth

Volume Pricing

 Improved economic conditions  Intermodal volume gains

Strong service product

Tightening capacity in the trucking market

 Coal growth with market normalization

Normal weather conditions and higher natural gas prices

Export improving but volatile

 Merchandise flat overall

Continued challenges in energy markets

Automotive plant downtime

Improving construction activity

Solid pricing and strong Intermodal volumes position NS for growth in 2017

 Focus on pricing

Solid pricing to continue

Domestic truck rate increases projected as capacity tightens

Leveraging value of service product

 Long-term view of markets and pricing

Volume and Resource Alignment

 Adapt and evolve through changing market

conditions and volume expectations

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Planning for Growth

  • People
  • Equipment
  • Targeted capital investment

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People

  • New crew planning model
  • Minimum T&E employee levels at core locations on main routes
  • Guaranteed extraboards for all engineers and conductor pools
  • Predictable workforce scheduling

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Equipment

  • Locomotive Acquisition and Rebuilds
  • New locomotives
  • Acceleration of DC-to-AC rebuilds
  • Maintain surge fleet
  • Streamlined Freight Car Fleet
  • New technology to optimize distribution of empties
  • More homogeneous fleet
  • More flexible car types

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2017 Infrastructure Upgrades

Des Moines Kansas City Dallas Shreveport New Orleans Mobile Birmingham Memphis Atlanta Jacksonville Charleston Savannah Charlotte Knoxville Norfolk Columbus Cincinnati

  • St. Louis

Chicago Detroit Cleveland Pittsburgh Northern NJ Philadelphia Baltimore Louisville Buffalo Mechanicville Ayer Crossovers and Signaling Crossovers and Sidings Connection Track Siding Extension

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Toledo

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2017 Intermodal Terminal Expansions

Des Moines Kansas City Dallas Shreveport New Orleans Mobile Birmingham Memphis Atlanta Charleston Savannah Charlotte Knoxville Norfolk Cincinnati

  • St. Louis

Chicago Detroit Cleveland Pittsburgh Philadelphia Baltimore Louisville Buffalo Mechanicville Ayer Columbus Croxton Jacksonville

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Improving the Customer Experience

  • Improved customer portal
  • Maintain service levels and consistency
  • Shared KPIs

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Focus on Efficiency

  • Current headcount will absorb modest volume increase
  • Locomotive fleet remains steady, handles additional volume, and

maintains surge fleet

  • Continue to improve fuel efficiency
  • Leveraging locomotive productivity
  • Increased use of distributed power
  • Utilizing technology (LEADER and Trip Optimizer)

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100,000 105,000 110,000 115,000 120,000 125,000 130,000 135,000 140,000 145,000 150,000 155,000 160,000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Week Weekly Volume

2015 2016 2017

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2017 Weekly Volume

Strong comparisons versus weak January 2016

Q1 Q2 Q3 Q4

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Current Railway Volume

First quarter AAR carloads through week 6 (ended February 11, 2017)

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Total units (000’s) 4.7% increase in units AAR 1QTD 2017 vs. 2016

23,257; 24% 12,313; 3% 6,535; 10% (367); (1%) (891); (2%) (1,478); (4%) (1,739); (3%) Agriculture Automotive Paper Chemicals Coal Intermodal MetCon 805.8 843.4 2016 2017

Coal volume greatly improved year-over-year

+4.7%

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Coal Drivers

Source: EIA; Platts; SNL; NYMEX; EVA

$40 $60 $80 $100 $120 $140 $160 $180 $200 $220 $240 $260 $280 $300

1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017*

Export Prices

Queensland Coking Coal API 2

* API 2 for 1Q 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

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$0 $1 $2 $3 $4 $5 $6 $7

Dollars per MMBtu

Natural Gas Prices - Henry Hub

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Current Railway Volume

First quarter AAR carloads through week 6 (ended February 11, 2017)

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Total units (000’s) 4.7% increase in units AAR 1QTD 2017 vs. 2016

23,257; 24% 12,313; 3% 6,535; 10% (367); (1%) (891); (2%) (1,478); (4%) (1,739); (3%) Agriculture Automotive Paper Chemicals Coal Intermodal MetCon 805.8 843.4 2016 2017

Strength in Intermodal and Metals markets

+4.7%

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Net Fuel Impact

2016 vs. 2015

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  • 29%
  • 19%
  • 10%

2% 21%

  • 40%
  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 40%

1Q16 2Q16 3Q16 4Q16 Jan 17 ($ in millions) Q1 Q2 Q3 Q4 2016 Decrease in fuel surcharge revenue $ (114) $ (69) $ (46) $ (12) $ (241) Decrease in fuel expense (115) (81) (40)

  • (236)

Net change in operating income $ 1 $ 12 $ (6) $ (12) $ (5)

Percentage change in OHD

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Service Metrics – 1QTD (through 02/10)

23.6 22.9

Speed (mph)

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78.6 78.3

Composite

  • Continued service focus
  • Maintain train speeds
  • Handle 5% higher volume

2016 2017

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2017 Expense Outlook

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Outlook Compensation and benefits: Headcount

Flat as lower non-train and engine (T&E) levels offset increased T&E base

Efficiencies

Leverage from top line growth, and overtime reductions

Wage and H&W rates

5% combined wage and health and welfare inflation rates

Depreciation

Increases with larger capital base, ~ 3.5%

Materials

Aligned with 2H16 normalized quarterly run rate

Other

Inflation and volume-related increases, partly offset by productivity Balancing resources to support volume growth while building on efficiencies

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Continued Progress on Strategic Plan

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Increase asset utilization Optimize revenue – both pricing and volume

Double-digit compound annual EPS growth

Improve productivity to deliver efficient and superior service Reward shareholders with significant return of capital

Operating Ratio < 70

Focus capital investment to support long-term value creation

CapEx ~19% of revenue

Key Focus Areas Key Financial Targets

Operating Ratio < 65 Dividend payout target of ~33% over the longer term and continuation of dividend growth and significant share repurchases CapEx ~17% of revenue

2016 Actual 2020 Target

Disciplined pricing increases above rail inflation

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Dividends Share Repurchases

Delivering Value to Shareholders

2006 through 2016

$10.3 Billion $6.1 Billion

13% CAGR in Dividends per share 160.3M shares

  • avg. ~ $64.34 per share

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Thank You

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