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csx  2Q 08
 

csx 2Q 08

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    csx  2Q 08 csx 2Q 08 Document Transcript

    • Second Quarter 2008 Earnings Conference Call 1 Forward-Looking Disclosure This information and other statements by the company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and objectives for future operation, and management’s expectations as to future performance and operations and the time by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “project,” “estimate” and similar expressions. Forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update or revise any forward-looking statement. If the company does update any forward-looking statement, no inference should be drawn that the company will make additional updates with respect to that statement or any other forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others: (i) the company’s success in implementing its financial and operational initiatives; (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; (iv) the inherent business risks associated with safety and security; and (v) the outcome of claims and litigation involving or affecting the company. 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 and the company’s website at: http://investors.csx.com/ 2
    • Executive Summary Michael Ward Chairman, President and Chief Executive Officer Second quarter overview . . . Delivered record revenues, Second Quarter operating income and EPS Earnings Per Share $0.93 $0.89 Safety and service levels remain strong $0.71 $0.71 25% Increase Revenue growth strong on diverse portfolio of business Operating ratio improves, overcoming fuel headwind Reported Comparable 2007 2008 Note: Comparable results exclude income tax benefits 4
    • Operations Review Tony Ingram Executive Vice President Chief Operating Officer Leadership, discipline and execution Safety performance remains near record levels Service near historical best Performance despite challenging conditions Excellence Service Execution Service Execution Productivity gains helping to offset the cost of inflation Productivity Discipline Productivity Discipline Safety Leadership Safety Leadership 6
    • Helping lead one of the nation’s safest industries FRA Personal Injury FRA Train Accidents 13 Week 13 Week Average Average 1.25 2.36 1.32 3.14 1.25 3.06 1.22 1.22 2.86 1.16 2.80 2.73 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 2007 2007 2007 2008 2008 2007 2007 2007 2008 2008 Rolling 12-Month Averages 7 Network efficiency resilient in the second quarter Dwell Time (hours) Velocity (mph) 13 Week 13 Week Average Average 23.3 hrs 20.0 mph 24.3 20.9 20.9 20.8 23.7 20.4 23.2 20.1 22.8 22.7 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 2007 2007 2007 2008 2008 2007 2007 2007 2008 2008 Rolling 12-Month Averages 8
    • On-time performance declines On-Time Originations On-Time Arrivals 13 Week 13 Week Average Average 75% 65% 72% 81% 71% 70% 79% 79% 69% 78% 66% 77% Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 2007 2007 2007 2008 2008 2007 2007 2007 2008 2008 Rolling 12-Month Averages 9 Customer satisfaction scores remain strong CSX’s overall rating remains Customer Satisfaction near historical high Overall Score Satisfaction continues to lead the peer group average Rails have significantly closed the gap with trucks 7.1 6.9 6.4 6.3 Q2 2005 Q2 2006 Q2 2007 Q2 2008 CSX Truck Other Railroads Note: Results based on an independent third-party study of CSX customers 10
    • On track to deliver targeted productivity gains 2008-2010 Continued focus on service and efficiency through design Productivity Plan Fuel Efficiency Network Process improvement teams 30% 40% driving long-term savings Total Service Integration takes service to next level Car & Terminal Locomotive 15% 15% Targeting over $400 million of productivity benefits through 2010 11 Operations wrap-up . . . Focused on regaining momentum Striving for industry leadership in safety and service Customer satisfaction continues to lead peers Productivity initiatives delivering value 12
    • Sales and Marketing Review Clarence Gooden Executive Vice President Sales and Marketing Revenues increased 15% to $2.9 billion Record quarterly revenues Second Quarter Revenue in Millions Yield management continues to offset softer volumes $377 $2,907 Consistent service driving $2,530 strong revenue growth Secular strength reflected in six years of revenue growth 2007 Growth 2008 14
    • Revenue growth is strong across most markets Second Quarter Year-Over-Year Revenue Growth Coal 29% Agricultural Products 29% Phosphates & Fertilizers 23% Metals 15% Chemicals 15% Intermodal 12% Emerging Markets 4% Revenues impacted by Food & Consumer 2% the continued softness in the housing and automotive Forest Products (1%) sectors of the economy Automotive (8%) 15 Price and fuel cost recovery drive RPU growth Year-Over-Year Change 18.3% 14.4% 10.5% 8.1% 8.0% 6.9% 7.1% 6.8% 6.7% 6.5% 6.5% 6.4% Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Price Increase on 'Same Store Sales' Total Revenue per Unit Note: ‘Same Store Sales’ price increases exclude impacts from fuel and mix 16
    • Merchandise revenue increases 13% Second Quarter Yield management continues 2008 versus 2007 to offset softer volumes Continued weakness in RPU 17% housing related markets Volume (4%) Revenue 13% Strength in agriculture, chemicals, metals & fertilizer 2007 Change 2008 RPU $ 1,804 $ 314 $ 2,118 Volume 703 (27) 676 (thousands) Revenue $ 1,268 $ 164 $ 1,432 (millions) 17 Coal revenue increases 29% Second Quarter Export strength offsets 2008 versus 2007 decline in utility market Overall pricing environment RPU 26% remains favorable Volume 2% Revenue 29% Utility inventories are now below prior year levels 2007 Change 2008 RPU $ 1,369 $ 358 $ 1,727 Volume 466 11 477 (thousands) Revenue $ 638 $ 186 $ 824 (millions) 18
    • Automotive revenue declines 8% Second Quarter Softer economy and tight 2008 versus 2007 credit impacting auto sales Fuel prices causing switch RPU 19% from SUV’s to compacts Volume (23%) Revenue (8%) Higher yields reflect stronger pricing and fuel recovery 2007 Change 2008 RPU $ 1,874 $ 354 $ 2,228 Volume 119 (27) 92 (thousands) Revenue $ 223 ($ 18) $ 205 (millions) 19 Intermodal revenue increases 12% Second Quarter Record quarterly revenue 2008 versus 2007 RPU higher on fuel recovery and favorable traffic mix RPU 14% Volume (2%) Domestic strength partially Revenue 12% offsets international softness 2007 Change 2008 RPU $ 636 $ 90 $ 726 Volume 539 (9) 530 (thousands) Revenue $ 343 $ 42 $ 385 (millions) 20
    • Intermodal reports record second quarter profit Intermodal Operating Bottom line focus continues to drive improving results Income in Millions $76 Revenue growth overcomes $71 softer volume environment $63 Productivity partially offsets $55 rising fuel costs Q2 2005 Q2 2006 Q2 2007 Q2 2008 21 Third quarter revenue outlook is positive Third Quarter Outlook Agricultural Products Percent of Revenue Chemicals 10% Coal, Coke & Iron Ore Favorable 15% Intermodal Metals Phosphate & Fertilizer Emerging Markets Neutral Food & Consumer 75% Automotive Unfavorable Favorable Neutral Unfavorable Forest Products 22
    • Financial Results Oscar Munoz Executive Vice President Chief Financial Officer Double-digit growth in operating income and EPS Second Quarter Results Dollars in millions, except EPS 2008 2007 Variance Revenue $ 2,907 $ 2,530 $ 377 Expense 2,190 1,918 (272) Operating Income $ 717 $ 612 $ 105 Other Income (net) 6 3 3 Interest Expense (133) (101) (32) Income Taxes (205) (190) (15) Net Income $ 385 $ 324 $ 61 Fully Diluted Shares in Millions 415.1 458.9 43.8 Earnings Per Share $ 0.93 $ 0.71 $ 0.22 24
    • Core earning power improves 20% Operating Income in Millions $124 $717 $612 ($19) Q2 2007 YOY Reserve Earnings Q2 2008 Adjustments Momentum 25 Core operating ratio improves 320 basis points Operating Ratio Drivers (3.2%) 2.0% 0.7% 75.8% 75.3% Q2 2007 YOY Reserve Fuel Core Q2 2008 Adjustments Headwind Improvement Note: Fuel headwind reflects the revenue and expense impact from a $222 million year-over-year increase in fuel prices 26
    • Expenses up 14% overall; up 3% excluding fuel Second Quarter Operating Expenses Year-Over-Year Change Labor and Fringe ($ 10) (1%) Material, Supplies, and Other 9% 43 Fuel 70% 221 Equipment Rent 5% 5 Depreciation 2% 5 Inland Transportation 13% 8 Total Expenses 14% $ 272 27 Fuel price more than offsets efficiency and volume Gallons Per Thousand Second Quarter Gross Ton Miles Fuel Analysis in Millions 1.26 1.24 1.22 2007 Fuel Expense $ 316 1.18 Increase in Price 222 Change in Volume/Mix (4) Fuel Efficiency (9) Net Non-locomotive Fuel 12 2008 Fuel Expense $ 537 Q2 2005 Q2 2006 Q2 2007 Q2 2008 28
    • Labor and Fringe decrease 1% Employee Headcount Second Quarter Labor Analysis in Millions 34,718 34,419 33,630 33,159 2007 Labor Expense $ 743 Wage & Benefit Inflation 22 Labor Productivity, Other (32) 2008 Labor Expense $ 733 Q2 2005 Q2 2006 Q2 2007 Q2 2008 Note: Headcount reflects the company’s transportation businesses only 29 MS&O increase 9% Cycling the impact of casualty MS&O Expense reserve adjustments Dollars in Millions Proxy and related litigation $43 $513 costs, as well as inflation are also key drivers $470 Q2 2007 Variance Q2 2008 30
    • Rent expenses increase 5% Payable Days Per Load Second Quarter Rents Analysis in Millions Total Carloads Excluding Multilevels 18.7 15.6 2007 Rent Expense $ 107 15.3 14.8 14.8 14.2 12.8 Inflation 1 12.4 Volume/Other (3) Equipment Utilization 7 2008 Rent Expense $ 112 Q2 2005 Q2 2006 Q2 2007 Q2 2008 Note: Reflects equipment utilization in the carload network on freight cars where CSX incurs rent 31 Other expenses increase 5% Higher capital base increased Second Quarter depreciation expense Expense in Millions $227 $222 Partially offset by lower rates from prior year life studies Inland Transportation driven by transcontinental volumes $68 and inflation $60 Q2 2007 Q2 2008 Depreciation Inland Transportation 32
    • Dividend and share repurchase update . . . Quarterly Dividend Cumulative Share Repurchase in Billions $3.1 $0.22 $2.9 $2.6 $0.18 $0.15 $2.1 $0.12 $0.10 $1.2 $0.07 $0.6 Q4 Q3 Q1 Q3 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 2005 2006 2007 2007 2008 2008 2007 2007 2007 2007 2008 2008 33 Financial targets for full-year 2008 . . . Earnings per share at higher end of $3.40 – $3.60 range Guidance driven by: — Price increases of 6%+ — Continued productivity gains — Diverse portfolio of business Note: Price increases of 6%+ are stated on a same store sales basis 34
    • Concluding Remarks Michael Ward Chairman, President and Chief Executive Officer Relentless pursuit of excellence . . .
    • Second Quarter 2008 Earnings Conference Call 37