csx  3Q 08
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csx  3Q 08 csx 3Q 08 Document Transcript

  • Third Quarter 2008 Earnings Conference Call 1 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: www.investors.csx.com. 2 2
  • Executive Summary Michael Ward Chairman, President and Chief Executive Officer Third quarter overview . . . Delivered record revenues, Third Quarter EPS from operating income and EPS Continuing Operations 40% Revenues grow 18% on $0.94 Increase diverse business portfolio $0.67 Performance in safety and service remains strong Operating margin improves 250 bps to record levels 2007 2008 4 4
  • Operations Review Tony Ingram Executive Vice President Chief Operating Officer Leadership, discipline and execution Strong improvement in safety performance continues Productivity initiatives are Performance delivering results Excellence Service Execution Service Execution Network is stable and service improvement will resume Productivity Discipline Productivity Discipline Safety Leadership Safety Leadership 6 6 View slide
  • Network responded well following storm impacts BNI, UNP, KCS Area Impacted Train operations on New Reroutes Orleans line restored Chicago Interchange reroutes with western roads were effective Indianapolis St Louis Midwest operations back to Louisville normal following flooding Memphis Birmingham NSC Haulage Service is stable and is Rights expected to improve Area Impacted New Orleans 7 7 Helping lead one of the Nation’s safest industries FRA Personal Injury Rate FRA Train Accident Rate 4.49 1.97 1.56 3.27 3.06 1.27 2.75 1.12 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2005 Q3 2006 Q3 2007 Q3 2008 8 8 View slide
  • Network efficiency remains resilient Terminal Dwell (hours) Train Velocity (mph) 21.4 28.4 20.1 19.8 19.7 25.0 24.1 22.7 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2005 Q3 2006 Q3 2007 Q3 2008 9 9 On-time performance continues to be stable On-time Originations On-time Arrivals 76% 83% 77% 77% 67% 63% 51% 43% Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2005 Q3 2006 Q3 2007 Q3 2008 10 10
  • Operations wrap-up . . . Building on strong safety foundation — Driving continuous improvement Focused on delivering greater productivity gains — Contributing to further margin expansion Network operations and service levels are stable — Continuing positive service momentum 11 11 Sales and Marketing Review Clarence Gooden Executive Vice President Sales and Marketing
  • Revenues increase 18% to nearly $3 billion Record quarterly revenues Third Quarter Revenue in Millions Yield management continues to offset softer volumes $460 $2,961 Consistent service producing strong revenue growth $2,501 Secular strength drives over six years of revenue growth 2007 Growth 2008 13 13 Revenue growth is strong across most markets Third Quarter Year-Over-Year Revenue Growth 36% Agricultural Products 31% Coal 19% Metals 18% Intermodal 16% Phosphates & Fertilizers Chemicals 13% Emerging Markets 9% Forest Products 8% Food & Consumer 6% Automotive (2%) 14 14
  • Price and fuel cost recovery drive RPU growth Year-Over-Year Change 21.2% 18.3% 14.4% 10.5% 8.1% 8.0% 6.9% 7.1% 6.8% 6.7% 6.5% 6.5% 6.4% 6.2% Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Price Increase on 'Same Store Sales' Total Revenue per Unit Note: ‘Same Store Sales’ price increases exclude impacts from fuel and mix 15 15 Merchandise revenue increases 16% Higher yields continue to Third Quarter offset softer volumes Year-Over-Year Change Housing-related markets RPU 20% remain challenged Volume (3%) Revenue 16% Strongest growth in Agriculture and Metals 2007 Change 2008 RPU $ 1,861 $ 370 $ 2,231 Chemicals revenue growth overcomes storm impact Volume 676 (23) 653 (thousands) Revenue $ 1,258 $ 199 $ 1,457 (millions) 16 16
  • Coal revenue increases 31% Strength in the export Third Quarter market continues Year-Over-Year Change Utility inventories remain RPU 30% below prior year levels Volume 1% Revenue 31% Pricing environment remains favorable going forward 2007 Change 2008 RPU $ 1,396 $ 420 $ 1,816 Volume 465 3 468 (thousands) Revenue $ 649 $ 201 $ 850 (millions) 17 17 Automotive revenue declines 2% Manufacturers decreasing Third Quarter production to match demand Year-Over-Year Change Higher yields reflect stronger RPU 27% pricing and fuel recovery Volume (23%) Revenue (2%) 2007 Change 2008 RPU $ 1,941 $ 527 $ 2,468 Volume 102 (23) 79 (thousands) Revenue $ 198 ($ 3) $ 195 (millions) 18 18
  • Intermodal revenue increases 18% Intermodal revenues increase Third Quarter to record levels Year-Over-Year Change Fuel recovery and favorable RPU 18% mix drives yield growth Volume 0% Revenue 18% Domestic strength overcomes International weakness 2007 Change 2008 RPU $ 636 $ 114 $ 750 Focus on bottom line results continues to drive success Volume 530 2 532 (thousands) Revenue $ 337 $ 62 $ 399 (millions) 19 19 Fourth quarter revenue outlook is positive Fourth Quarter Outlook Agricultural Products Percent of Revenue Chemicals 69% Coal, Coke & Iron Ore Favorable Emerging Markets Food & Consumer Metals Intermodal Neutral Forest Products 24% 7% Phosphate & Fertilizer Favorable Neutral Unfavorable Automotive Unfavorable 20 20
  • Sales and Marketing wrap-up . . . Housing and automotive markets remain challenged Broader economy also expected to slow near-term Diverse portfolio remains resilient in slower economy Expect price to more than offset volume weakness 21 21 Financial Results Oscar Munoz Executive Vice President Chief Financial Officer
  • Double-digit growth in operating income and EPS Third Quarter Results Dollars in millions, except EPS 2008 2007 Variance Revenue $ 2,961 $ 2,501 $ 460 Expense 2,228 1,943 (285) Operating Income $ 733 $ 558 $ 175 Other Income (net) 8 14 (6) Interest Expense (131) (102) (29) Income Taxes (228) (173) (55) Earnings from Continuing Operations $ 382 $ 297 $ 85 Fully Diluted Shares in Millions 408.5 445.5 37.0 EPS from Continuing Operations $ 0.94 $ 0.67 $ 0.27 23 23 Core earning power improves $180 million Operating Income in Millions $180 $733 $558 ($44) $39 Q3 2007 Storm Fuel Lag Earnings Q3 2008 Impacts Impact Momentum 24 24
  • Operating ratio improves 250 bps Performance drives operating Comparable ratio to third quarter record Operating Ratio Price/productivity continue to 83.2% drive margin expansion 80.2% 77.7% 75.2% Margin expansion totals 800 bps since 2005 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Note: Comparable results exclude gains from insurance recoveries 25 25 Expenses up 15% overall; up 7% excluding fuel Third Quarter Operating Expenses and Year-Over-Year Percentage Change Labor and Fringe $ 754 1% Material, Supplies, and Other 21% 568 Fuel 54% 508 Equipment Rent (7%) 106 Depreciation 3% 227 Inland Transportation 8% 65 Total Expenses $ 2,228 15% 26 26
  • Fuel expense increases 54% Gallons Per Thousand Third Quarter Gross Ton Miles Fuel Analysis in Millions 1.24 1.23 1.20 2007 Fuel Expense $ 330 1.16 Increase in Fuel Price 173 Change in Volume and Mix (1) Fuel Efficiency (8) Non-locomotive Fuel (net) 14 Subtotal 178 2008 Fuel Expense $ 508 Q3 2005 Q3 2006 Q3 2007 Q3 2008 27 27 Labor and Fringe expense increases 1% Employee Headcount Third Quarter Labor Analysis in Millions 34,728 34,213 2007 Labor Expense $ 748 33,991 33,405 Wage and Benefit Inflation 22 Labor Productivity and Other (16) Subtotal 6 2008 Labor Expense $ 754 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Note: Headcount reflects the company’s transportation businesses only 28 28
  • MS&O expense increases 21% MS&O Expense Third Quarter Dollars in Millions MS&O Analysis in Millions $568 $471 2007 MS&O Expense $ 471 Storm Impact 30 Proxy-related Costs 16 Cost of Risk 11 Inflation and Other 40 Subtotal 97 2008 MS&O Expense $ 568 Q3 2007 Q3 2008 29 29 Rent expense decreases 7% Payable Days Per Load Third Quarter Rents Analysis in Millions Total Carloads Excluding Multi-levels 17.8 2007 Rent Expense $ 114 16.015.7 15.5 15.4 14.3 13.9 13.0 Volume (11) Net Leases and Other (5) Equipment Utilization 8 Subtotal (8) 2008 Rent Expense $ 106 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Note: Reflects equipment utilization in the carload network on freight cars where CSX incurs rent 30 30
  • Other expenses increase 4% Higher capital base increases Other Expenses Depreciation expense Dollars in Millions Depreciation Inland Transportation Transcontinental volumes $227 $220 drive Inland Transportation $65 $60 Q3 2007 Q3 2008 31 31 Total share repurchases approaching $4 billion Shares repurchased total Cumulative Shares nearly 90 million since 2006 Repurchased in Millions $3,926 Repurchased $836 million of stock in the third quarter $836 $2,639 Board Authority of $2.0 billion remains on existing program $3,090 $465 2006 2007 Q3 2008 32 32
  • Strong liquidity; minimal debt maturity through 2010 Only about $400 million of Debt Maturities in Millions debt matures through 2010 — $18 million through year-end — $301 million in 2009 — $93 million in 2010 $301 Cash balance remains stable Free Cash Flow generation $93 expected to remain strong $18 Remainder 2009 2010 of 2008 Note: Debt maturities during the remainder of 2008 include debt maturing from October 16th through year-end 33 33 Financial targets for full-year 2008 . . . Targeting EPS at low end of the $3.65 – $3.75 range Guidance driven by: — Sustained price momentum — Moderating fuel costs — Continued productivity gains — Diverse portfolio of business Free Cash Flow of approximately $1 billion — Capital spending at $1.75 billion 34 34
  • Concluding Remarks Michael Ward Chairman, President and Chief Executive Officer Relentless pursuit of excellence . . . 36 36
  • Third Quarter 2008 Earnings Conference Call 37 37