csx 4Q 07

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csx 4Q 07

  1. 1. Fourth Quarter 2007 Earnings Conference Call 1 1 Proxy Statement Disclosure IMPORTANT INFORMATION CSX Corporation plans to file with the SEC and furnish to its shareholders a Proxy Statement in connection with its 2008 Annual Meeting, and advises its security holders to read the Proxy Statement relating to the 2008 Annual Meeting when it becomes available, because it will contain important information. Security holders may obtain a free copy of the Proxy Statement and other documents (when available) that CSX files with the SEC at the SEC’s website at www.sec.gov. The Proxy Statement and these other documents may also be obtained for free from CSX by directing a request to CSX Corporation, Attn: Investor Relations, David Baggs, 500 Water Street C110, Jacksonville, FL 32202. CERTAIN INFORMATION CONCERNING PARTICIPANTS CSX, its directors and named executive officers may be deemed to be participants in the solicitation of CSX’s security holders in connection with its 2008 Annual Meeting. Security holders may obtain information regarding the names, affiliations and interests of such individuals in CSX’s Annual Report on Form 10-K for the year ended December 29, 2006 and its proxy statement dated March 30, 2007, each of which is on file with the SEC. To the extent holdings of CSX securities have changed since the amounts printed in the proxy statement, dated March 30, 2007, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 or Form 5 filed with the SEC. 2 2
  2. 2. 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,” “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.csx.com. 3 3 Executive Summary Michael Ward Chairman, President and Chief Executive Officer
  3. 3. Fourth quarter overview . . . Strong earnings growth, Fourth Quarter despite fuel headwind Earnings Per Share Safety and service at all-time $0.86 $0.85 $0.75 best levels and improving $0.57 Revenues increase on strong service levels Operating ratio improves on continued price/productivity Reported Comparable 2006 2007 Note: Comparable EPS exclude gains on insurance recoveries and Conrail property, and income tax benefits 5 5 Full year highlights . . . Operating Income in Millions Strong double-digit growth drives record results $2,251 $2,224 $2,126 $1,958 14% Surface Transportation: Increase — Revenues exceed $10 Reported Comparable billion for first time ever EPS from Continuing Operations — Record operating income $2.82 $2.74 $2.70 of over $2.2 billion $2.22 22% — Operating ratio below 78% Increase for first time in a decade Reported Comparable 2006 2007 Note: Comparable EPS exclude gains on insurance recoveries and Conrail property, and income tax benefits 6 6
  4. 4. Operations Review Tony Ingram Executive Vice President Chief Operating Officer Leadership, discipline and execution Safety results at historical best and improving Productivity gains driving the Performance operating ratio lower Excellence Service Execution Service Execution Network performance and service at all-time highs Productivity Discipline Productivity Discipline Safety Leadership Safety Leadership 8 8
  5. 5. Helping lead one of the nation’s safest industries FRA Personal Injury FRA Train Accidents 13 Week 13 Week Average Average 1.26 2.85 1.46 1.42 3.54 3.34 1.31 3.11 3.01 1.24 1.21 2.83 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 2006 2007 2007 2007 2007 2006 2007 2007 2007 2007 Rolling 12-Month Averages 9 9 On-time performance at all-time highs On-Time Originations On-Time Arrivals 13 Week 13 Week Average Average 81% 73% 70% 79% 69% 78% 66% 77% 76% 76% 63% 63% Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 2006 2007 2007 2007 2007 2006 2007 2007 2007 2007 Rolling 12-Month Averages 10 10
  6. 6. Network efficiency provides strong service product Dwell Time (hours) Velocity (mph) 13 Week 13 Week Average Average 22.2 hrs 21.2 mph 25.1 20.8 24.7 20.4 24.3 20.1 23.7 19.9 19.9 23.2 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 2006 2007 2007 2007 2007 2006 2007 2007 2007 2007 Rolling 12-Month Averages 11 11 Customer satisfaction levels remain at high levels Customer Satisfaction Best results since inception of Indexed: 2004 = 100 third-party survey 118 Correlates to internal 111 operating measure gains 109 100 Strong service supports pricing initiatives Q4 2004 Q4 2005 Q4 2006 Q4 2007 12 12
  7. 7. Operations wrap-up . . . Taking safety performance to the next level Service reliability delivering value for customers Driving productivity to lower the operating ratio 13 13 Sales and Marketing Review Clarence Gooden Executive Vice President Sales and Marketing
  8. 8. Revenues increased 8% to nearly $2.6 billion Record quarterly Surface Fourth Quarter Transportation revenues Revenue in Millions $2,577 $181 Improved service enabling revenue growth $2,396 Yield management continues to offset softer volumes Uninterrupted revenue growth for nearly 6 years 2006 Growth 2007 15 15 Price continues to drive RPU growth Year-Over-Year Change 12.6% 11.8% 11.7% 11.0% 10.5% 8.4% 8.1% 8.0% 6.9% 7.1% 6.8% 6.7% 6.7% 6.6% 6.5% 6.5% 6.3% 6.2% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2005 2006 2006 2006 2006 2007 2007 2007 2007 Price Increase on 'Same Store Sales' Total Revenue per Unit Note: ‘Same Store Sales’ price increases exclude impacts from fuel and mix 16 16
  9. 9. Merchandise revenue increases 7% Fourth Quarter Yield management continues 2007 versus 2006 to offset softer volumes Continued softness in RPU 11% housing/auto related markets Volume (4%) Revenue 7% Strength in agriculture, phosphates, and chemicals 2006 Change 2007 RPU $ 1,736 $ 195 $ 1,931 Volume 675 (25) 650 (thousands) Revenue $ 1,172 $ 83 $ 1,255 (millions) 17 17 Coal revenue increases 13% Fourth Quarter Export strength offsets 2007 versus 2006 decline in utility market Tons shipped up nearly 1% RPU 14% on flat carload volume Volume (0%) Revenue 13% Overall pricing environment remains favorable 2006 Change 2007 RPU $ 1,282 $ 174 $ 1,456 Volume 471 (2) 469 (thousands) Revenue $ 604 $ 79 $ 683 (millions) 18 18
  10. 10. Automotive revenue increases over 2% Fourth Quarter Softer economy and tight 2007 versus 2006 credit impacting auto sales Big-3 production decline RPU 5% drove CSX volumes Volume (3%) Revenue 2% 2006 Change 2007 RPU $ 1,875 $ 97 $ 1,972 Volume 112 (3) 109 (thousands) Revenue $ 210 $5 $ 215 (millions) 19 19 Intermodal revenue is flat on lower volumes Fourth Quarter Revenue was flat as yields 2007 versus 2006 and mix offset volume losses International down on slowing RPU 4% imports/customer losses Volume (3%) Revenue 0% Domestic traffic improved on new services/new terminal 2006 Change 2007 RPU $ 649 $ 23 $ 672 Volume 552 (19) 533 (thousands) Revenue $ 358 $0 $ 358 (millions) 20 20
  11. 11. Intermodal reports record fourth quarter profit Bottom line focus drove Intermodal Operating record fourth quarter results Income in Millions $9 $77 Cost control driven by greater efficiency and productivity $68 Operating ratio improved 2.5 points to 78.5% 2006 Growth 2007 21 21 First quarter revenue outlook is positive Favorable Neutral Unfavorable Agricultural Products Automotive Food & Consumer Emerging Markets Forest Products Chemicals Intermodal Coal, Coke & Iron Ore Metals Phosphate & Fertilizer 22 22
  12. 12. Financial Results Oscar Munoz Executive Vice President Chief Financial Officer Strong fourth quarter results . . . Fourth Quarter Results Dollars in Millions, Except EPS 2007 2006 Variance Revenue $ 2,577 $ 2,396 $ 181 Expense 1,968 1,891 (77) Surface Transportation Operating Income 609 505 104 Other Operating Income - 2 (2) Consolidated Operating Income 609 507 102 Other Income (net) 76 62 14 Interest Expense 115 99 (16) Income Taxes 205 123 (82) Net Income $ 365 $ 347 $ 18 Earnings Per Share $ 0.86 $ 0.75 $ 0.11 24 24
  13. 13. Comparable operating income increases 26% Fourth Quarter Results Dollars in Millions, Except EPS 2007 2006 Variance Earnings Per Share $ 0.86 $ 0.75 $ 0.11 Less Gain on Insurance Recoveries (0.01) (0.04) 0.03 Less Gain on Conrail Property After-tax - (0.06) 0.06 Less Income Tax Benefits - (0.08) 0.08 Comparable Earnings Per Share $ 0.85 $ 0.57 $ 0.28 Surface Transportation Operating Income $ 609 $ 505 $ 104 (27) Less Gain on Insurance Recoveries (8) 19 Comparable Operating Income $ 601 $ 478 $ 123 25 25 Key fourth quarter operating income drivers . . . Comparable Surface Transporation Operating Income in Millions $601 $67 $56 $478 Q4 2006 Net Reserve Earnings Q4 2007 Adjustments Momentum Improving safety performance lowers reserve requirements Revenue strength and cost control overcome impact of fuel headwind Note: Exclude gains from insurance recoveries in 2006 and 2007 26 26
  14. 14. Expenses up 3% overall; down 2% excluding fuel Fourth Quarter Operating Expenses Year-Over-Year Change Labor and Fringe 1% Materials, Supplies, and Other (6%) Fuel 32% Equipment Rent (9%) Depreciation 2% Inland Transportation 3% Note: Results exclude gains from insurance recoveries 27 27 Fuel price more than offsets efficiency and volume Gallons Per GTM Fourth Quarter Fuel Analysis in Millions 1.32 1.29 1.28 2006 Fuel Expense $ 271 Increase in Price 104 1.23 Change in Volume/Mix (9) Fuel Efficiency (9) 2007 Fuel Expense $ 357 Q4 2004 Q4 2005 Q4 2006 Q4 2007 28 28
  15. 15. Labor and Fringe increased 1% Employee Headcount Fourth Quarter Labor and Fringe in Millions 34,668 34,153 2006 Labor and Fringe $ 753 33,591 33,469 Year-over-year change 6 2007 Labor and Fringe $ 759 Wage and benefit inflation totaled $22 million Rightsizing resources drove 3% lower headcount Q4 2004 Q4 2005 Q4 2006 Q4 2007 Note: Headcount reflects the company’s Surface Transportation businesses 29 29 MS&O declines on lower personal injuries FRA Personal Injury Fourth Quarter MS&O in Millions 48% 2.32 Improvement 2006 MS&O $ 496 1.79 Year-over-year change (29) 1.46 2007 MS&O $ 467 1.21 Sustained improvements in safety lower net reserves Partially offset by inflation and derailment costs 2004 2005 2006 2007 30 30
  16. 16. Rents decline on volume and productivity Payable Days Per Load Fourth Quarter Rents Analysis in Millions 15.1 15.0 13.7 2006 Rent Expense $ 121 13.0 Inflation 3 Volume/Mix/Other (10) Equipment Utilization (4) 2007 Rent Expense $ 110 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Note: Reflects equipment utilization in the carload network on freight cars where CSX incurs rent 31 31 Other expenses increase 2% Higher capital base increased Fourth Quarter depreciation expense Expense in Millions Partially offset by lower rates $220 $216 from asset life studies Increased trucking expenses driving inland transportation $63 $61 Q4 2006 Q4 2007 Depreciation Inland Transportation 32 32
  17. 17. Price and productivity driving operating ratio lower Surface Transportation Comparable Operating Ratio 85.6% 81.3% 80.1% 76.7% Q4 2004 Q4 2005 Q4 2006 Q4 2007 Note: Exclude gains from insurance recoveries in 2006 and 2007 33 33 Full-year results reflect strong double-digit growth Comparable Operating Comparable EPS From Income in Millions Continuing Operations $2.70 $2,224 $1,958 $2.22 14% 22% $1,549 Increase Increase $1.70 $1,064 $1.00 2004 2005 2006 2007 2004 2005 2006 2007 Note: Exclude management restructuring, gains on insurance recoveries and Conrail property, and income tax benefits 34 34
  18. 18. Full-year Free Cash Flow . . . Generated $145 million in 2007 — Consistent with $100+ million target outlined at September Investor Conference Stronger earnings and cash flows supported: — Locomotive capital investment — Pension contribution — Dividend increases 35 35 Cash flows and capital structure support buyback Cumulative Shares Repurchased Dollars in Millions $2,639 $565 $2,074 $1,192 $644 $465 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Note: Approximately $2.1 billion of the $2.6 billion has been repurchased under the current $3.0 billion program 36 36
  19. 19. Double-digit growth targeted off record 2007 base 2008 – 2010 Guidance Operating Income 10% – 12% CAGR Earnings Per Share 15% – 17% CAGR Operating Ratio Mid-low 70’s by 2010 Free Cash Flow $800M – $1B Before Dividends in 2010 37 37 Concluding Remarks Michael Ward Chairman, President and Chief Executive Officer
  20. 20. Looking forward . . . Delivering superior long-term value for shareholders Leveraging the growing secular strength of the industry Driving greater cost efficiency through productivity Capitalizing on growth potential with key investments Building on momentum to produce record 2008 results Relentless Pursuit of Excellence 39 39 Fourth Quarter 2007 Earnings Conference Call 40 40

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