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Stifel 2017 Annual Transportation & Logistics Conference - - PowerPoint PPT Presentation
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
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.
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
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
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%
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 $7
Dollars per MMBtu
Natural Gas Prices - Henry Hub
Current Railway Volume
First quarter AAR carloads through week 6 (ended February 11, 2017)
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Total units (000’s) 4.7% increase in units AAR 1QTD 2017 vs. 2016
23,257; 24% 12,313; 3% 6,535; 10% (367); (1%) (891); (2%) (1,478); (4%) (1,739); (3%) Agriculture Automotive Paper Chemicals Coal Intermodal MetCon 805.8 843.4 2016 2017
Strength in Intermodal and Metals markets
+4.7%
Net Fuel Impact
2016 vs. 2015
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- 29%
- 19%
- 10%
2% 21%
- 40%
- 30%
- 20%
- 10%
0% 10% 20% 30% 40%
1Q16 2Q16 3Q16 4Q16 Jan 17 ($ 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
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
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
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
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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