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

Norfolk Southern Update

System Overview

Technology / Productivity

First Quarter Results

Second Quarter Update

Business Outlook

Capital Structure

Norfolk Southern System

NY / NJ Philadelphia

Wilmington Baltimore

Morehead City

Charleston

Savannah

Brunswick

Jacksonville

Norfolk Portsmouth

Mobile

New Orleans Braithwaite

St. Bernard

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

Wheelersburg, OH Coal Terminal

Coal Network

8 Excludes coke, iron ore & outbound Wheelersburg

Illinois Basin

20.4 M Tons 14%

Northern Appalachia 41.1 M Tons

Western 26.3 M Tons

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

Intermodal Corridors

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

Merchandise Network

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

Merchandise Network TBT Facilities

Merchandise Network Automotive Facilities

Atlanta

Charlotte

Chicago

Columbus

Detroit

Savannah

Cincinnati

Harrisburg

Norfolk

New Orleans

Memphis

Dallas

Jacksonville

Charleston

Lexington

Kansas City St Louis

Louisville

Baltimore

Toledo Cleveland

Pittsburgh

Ayer Albany Buffalo

Titusville

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

Shreveport

75-Car Unit Train Receivers

Unit Grain Train Network

75-Car Unit Train Loaders

Merchandise Network Unit Grain Train

Marcellus & Utica Shale Deposits

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

System Overview

Business Outlook

Capital Structure

Improved locomotive utilization

Improved schedule adherence

Increased capacity

Disaster recovery

capability

Improved network Velocity; 2-4

Estimate completion

by end of 2014

UTCS – Movement Planner Unified Train Control System

LEADER

Calculates optimal “Golden Run” for every train start

Locomotive engineer coaching

Significant fuel savings

Estimate completion by end of 2015

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

Bellevue Yard Expansion

Bellevue Yard Expansion Current Handling – Philadelphia Area to UP

Pavonia

Conway

Elkhart

Chicago

Handling & Dwell Locations:

Bellevue Yard Expansion Handling after expansion – Philadelphia Area to UP

Pavonia

Bellevue

Bellevue Yard Expansion Current Handling – Southeast to UP

Chattanooga

Elkhart

Chicago

Bellevue Yard Expansion Handling after expansion – Southeast to UP

Chattanooga

Bellevue

Roanoke Hump Closure

Roanoke

Atlanta

Norfolk

Charleston

Philadelphia Columbus

System Overview

Business Outlook

Capital Structure

Revenue

$2.7 Billion, down (2%)

$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

Intermodal

1Q 2013 Volume (000’s)

& y-o-y Percent Change

1Q 2012 1Q 2013

Merchandise

Intermodal

(0.5%)

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

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

(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

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

Int’l

(000’s)

Domestic

Opening of new Crescent

Corridor lanes and continued

highway conversions

International

Organic growth across existing

accounts

154.8 147.9

106.0 98.7

MetCon Ag Chem Auto Paper

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

(000’s)

MetCon

25% Chem

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%)

$2,044

$2,047

Railway Operating Expenses First Quarter ($ Millions)

Fuel Compensation

& Benefits

Depreciation Purchased

Services & Rents

Net Increase $3 / -%

2012 Materials

& Other

2012 2013 2013*

$410 $450

*Excluding Michigan land sale gain - please see reconciliation to GAAP posted on our web site.

2012 2013 2013*

$1.23 $1.41

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% *

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 %

System Overview

Business Outlook

Capital Structure

836.5 851.4

2012 2013

Units (000)

Current Railway Volume Second Quarter through Week 19 (May 11, 2013)

851,400 units, up 2%

Change in Units

2QTD13 vs. 2012

Chemicals

Automotive

Intermodal

Agriculture

MetCon

6,191 6,859

1Q '12 2Q '12 3Q '12 4Q '12 1Q '13

Met Thermal

Tons (000)

Export Coal Volumes 1Q 2012 – 1Q 2013

Train Speed 1Q10 – 1Q13

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Better

Terminal Dwell 1Q10 – 1Q13

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Better

Composite Service Performance 1Q10 – 1Q13

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

System Overview

Business Outlook

Capital Structure

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

• Softer domestic

• Weak demand in

met and steam coal

• Continued opportunities

for highway conversion

• New Intermodal service

lanes ahead as new

corridor terminals open

• Growth with

international shipping

partners

Intermodal

• Softer domestic

• Weak demand in

met and steam coal

• Continued opportunities

for highway conversion

• New Intermodal service

lanes ahead as new

corridor terminals open

• Growth with

international shipping

partners

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

• Reduced U.S. corn and

soybean crop

• Improved housing &

related construction

materials market

System Overview

Business Outlook

Capital Structure

$8,682 $9,445

12/31/12

Common Stock

$7,364 $6,110

12/31/02

Common Stock

Capital Structure Change 2002 vs 2012 ($ millions)

* 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%

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)

2008 2009 2010 2011 2012 2013Budget

$1,558 $1,299

$1,470

$2,160 $2,241 $2,008

Capital Expenditures ($ millions)

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)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$0.30 $0.36

$1.36 $1.40

$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%

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.

Thank You

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