csx  Q2_2006
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csx Q2_2006 Document Transcript

  • 1. Second Quarter 2006 Earnings Presentation 1 1 Forward Looking Disclosure This presentation 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,” 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.csx.com. 2 2
  • 2. Executive Summary Michael Ward Chairman, President and Chief Executive Officer 3 3 Second quarter overview . . . Surface Transportation Second Quarter produces record results Earnings Per Share $1.66 Pricing environment remains strong $1.16 $0.96 $0.73 ONE Plan sustains strong momentum Equity actions support Reported Comparable shareholder value focus 2005 2006 Note: Comparable earnings per share excludes Katrina insurance recoveries and income tax benefits in 2006 and debt repurchase expenses and a state income tax benefit in 2005. 4 4
  • 3. Operations Review Tony Ingram Executive Vice President Chief Operating Officer 5 5 Leadership, discipline and execution Safety performance continues to improve Operating momentum Reliable Reliable sustained Performance Performance Service Execution Service Execution Capacity projects on schedule Productivity Discipline Productivity Discipline Safety Leadership Safety Leadership 6 6
  • 4. Safety performance remains strong FRA Personal Injury FRA Train Accident 13 Week 13 Week Average Average 1.37 3.29 2.04 1.92 4.54 4.49 4.18 1.71 1.64 3.82 3.73 1.51 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2006 2006 2005 2005 2005 2006 2006 Rolling 12-month Averages 7 7 On-time performance is improving On-Time Originations On-Time Arrivals 13 Week 13 Week Average Average 77% 60% 52% 65% 46% 40% 40% 57% 39% 51% 50% 50% Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2006 2006 2005 2005 2005 2006 2006 Rolling 12-month Averages 8 8
  • 5. Asset utilization is improving Dwell Time (hours) Cars-On-Line (000) 13 Week 13 Week Average Average 234.2 233.9 25.5 hrs 223K 233.1 29.7 29.7 29.6 230.7 28.9 227.6 27.7 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2006 2006 2005 2005 2005 2006 2006 Rolling 12-month Averages 9 9 Velocity stable through second quarter Consistent plan execution Velocity (mph) 13 Week Average Improved recoverability 19.5 mph 19.8 19.7 19.5 19.4 19.2 Increased asset utilization Improving overall service reliability Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2006 2006 Rolling 12-month Averages 10 10
  • 6. Looking forward . . . Safety momentum will continue Continue to build on Reliable Reliable ONE Plan success Performance Performance Service Execution Service Execution Capacity build stays on schedule Productivity Discipline Productivity Discipline Safety Leadership Safety Leadership 11 11 Sales and Marketing Review Clarence Gooden Executive Vice President Sales and Marketing 12 12
  • 7. Revenues increased 12% Record revenues of $2.4 Second Quarter billion, up $255 million Revenue in Millions Revenue growth across all $2,421 markets $2,166 Overall volumes were flat Yield environment remains strong 2005 2006 13 13 Revenue per unit increased 12% Second Quarter Revenue Per Unit 2006 versus 2005 Surface Transportation 12% Merchandise 16% Coal 7% Intermodal 7% Automotive 6% 14 14
  • 8. Merchandise revenue increased 14% Pricing remains strong Second Quarter 2006 versus 2005 Impact of prior Phosphate plant closures continue 16% 14% Agricultural Products growth strong Outlook favorable (2%) Revenue Volume RPU 15 15 Merchandise volume growth was mixed Second Quarter Volume 2006 versus 2005 Agriculture 10% Emerging Markets 6% Metals 3% Food and Consumer 0% Chemicals (1%) Forest Products (9%) Phosphates & Fertilizers (20%) 16 16
  • 9. Coal revenue increased 10% Utility demand strong Second Quarter 2006 versus 2005 Inventories are at target levels 10% Pricing strength continues 7% Outlook favorable 2% Revenue Volume RPU 17 17 Automotive revenue increased 6% Volume was stable Second Quarter 2006 versus 2005 ‘New Domestics’ continue 6% 6% to gain market share Increasing price and fuel surcharge coverage Outlook unfavorable 0% Revenue Volume RPU 18 18
  • 10. Intermodal revenue increased 8% Volume slightly favorable Second Quarter 2006 versus 2005 — Core business grows — Off-core declines 8% 7% Pricing strength continues Income improvement for nine quarters 1% Outlook favorable Revenue Volume RPU 19 19 Foundation for Intermodal growth in place On-Time performance continues to improve Syracuse Buffalo Boston Detroit Train capacity supports Chicago New York Cleveland growth in key lanes Philadelphia Columbia Baltimore Cincinnati St Louis Evansville Portsmouth Attracting new business Charlotte Nashville Memphis Atlanta Charleston Expect strong second half Savannah volume growth Mobile Jacksonville New Orleans Tampa Trucking capacity Miami expected to remain tight Intermodal Terminals Priority Intermodal Corridors 20 20
  • 11. Looking forward . . . Manufacturing, imports Economic Forecast and exports drive demand 2006-2008 Service improvements will 3.1% 2.8% support growth 2.6% 2.4% 2.3% 2.1% Favorable pricing environment continues We remain focused on 2nd Half 2007 2008 improving profitability 2006 GDP IDP Source: Global Insight 21 21 Financial Results Oscar Munoz Executive Vice President Chief Financial Officer 22 22
  • 12. CSX reports strong second quarter results Second Quarter Results Dollars in millions, except EPS 2006 2005 Variance Surface Transportation Operating Income $ 645 $ 422 $ 223 Other Operating Income 1 9 (8) Consolidated Operating Income $ 646 $ 431 $ 215 Other Income (net) 11 30 (19) Debt repurchase Expense - (192) 192 Interest Expense (98) (110) 12 Income Taxes (169) 6 (175) Net Earnings $ 390 $ 165 $ 225 Earnings Per Share $ 1.66 $ 0.73 $ 0.93 23 23 Comparable EPS increased 21% Second Quarter Results Dollars in millions, except EPS 2006 2005 Variance Surface Transportation Operating Income $ 645 $ 422 $ 223 Less Gain on Insurance Recoveries (126) - (126) Comparable Operating Income $ 519 $ 422 $ 97 Earnings Per Share $ 1.66 $ 0.73 $ 0.93 Less Gain on Insurance Recoveries (0.33) - (0.33) Plus Debt Repurchase Expense - 0.54 (0.54) Less Income Tax Benefit (0.17) (0.31) 0.14 Comparable Earnings Per Share $ 1.16 $ 0.96 $ 0.20 24 24
  • 13. Surface Transportation increased 23% Second Quarter Results Dollars in millions 2006 2005 Variance Revenue $ 2,421 $ 2,166 12% Expenses Labor and Fringe 715 706 (1%) Materials, Supplies and Other 468 441 (6%) Depreciation 216 203 (6%) Fuel 288 176 (64%) Building and Equipment Rent 132 137 4% Inland Transportation 62 62 0% Conrail Rents, Fees and Services 21 19 (11%) Operating Expenses 1,902 1,744 (9%) Operating Income $ 519 $ 422 23% Operating Ratio 78.6% 80.5% 1.9 pts Note: 2006 results exclude Katrina-related gain on insurance recoveries 25 25 Labor and fringe increased 1% Primarily driven by wage Second Quarter and benefit inflation Dollars in Millions Includes almost 800 new T&E employees $9 $715 Partially offset by lower $706 incentive compensation and productivity 2005 Variance 2006 26 26
  • 14. MS&O increased 6% Increase primarily driven Second Quarter by inflation Dollars in Millions Cycling a prior year $27 $468 supplier credit $441 Productivity gains from improved operations partially offset increase: — Increased locomotive utilization — Reduced train accidents and related costs 2005 Variance 2006 27 27 Fuel increased 64% Primarily driven by higher Second Quarter fuel prices Dollars in Millions Impact of lower hedge position was $44 million $288 $112 Slightly higher volume- $176 related costs offset by focus on fuel economy 2005 Variance 2006 28 28
  • 15. Fuel hedges continue to decline Hedge Benefit Dollars in Millions $77 $63 $58 $51 $35 $19 $1* Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 * Estimates based on $75 per barrel WTI 29 29 Rents declined 4% Asset utilization continues Second Quarter to improve Dollars in Millions Lower equipment costs are driven by: $5 $137 — Improved cycle time $132 — Fewer cars-on-line 2005 Variance 2006 30 30
  • 16. All other expenses increased 5% Second Quarter Dollars in Millions $299 $15 $284 $21 $19 $62 $62 $216 $203 2005 Variance 2006 Depreciation Inland Transportation Conrail Fees 31 31 Looking forward . . . Record first half operating income included: — $126 million gain on insurance recoveries — $54 million fuel hedge benefit — $25 million favorable impact of mild winter On track to deliver $300+ million Free Cash Flow with $1.4 billion in capital spending Momentum will continue; poised for growth 32 32
  • 17. Equity actions reflect strong fundamentals Stock splits two for one — Record date and effective date in August Dividend increases 54% to $0.10 per share — Effective with the September distribution Share repurchase program of $500 million — Targeting a 12-month completion timeline 33 33 Concluding Remarks Michael Ward Chairman, President and Chief Executive Officer 34 34
  • 18. Looking forward . . . Momentum on core strategies continues Revenue Operational Performance Impact Discipline Culture Team delivering consistent, strong results Foundation in place for the long-term Transportation environment remains strong 35 35 Second Quarter 2006 Earnings Presentation 36 36