Slide 1: Second Quarter 2009 Earnings Conference Call
Second Quarter 2009 Earnings Conference Call 11
Slide 2: Forward-Looking Disclosure
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
Slide 3: Executive Summary
Executive Summary Michael Ward Chairman, President and Chief Executive Officer
Slide 4: Second quarter performance
Second quarter performance . . . Second Quarter EPS from Revenue declines 25% Continuing Operations — Significant declines in both volume and fuel recovery — Core pricing momentum intact $0.95 $0.71 $0.72 Operating strength intact — Rightsizing resources to the current volume environment — Safet
Slide 5: Sales and Marketing Review
Sales and Marketing Review Clarence Gooden Executive Vice President Sales and Marketing
Slide 6: Revenue declines 25% to $2.2 billion
Revenue declines 25% to $2.2 billion Revenue $2,185M Volume 1,411K RPU $1,549 Revenue in Millions $97 ($223) $2,907 ($596) $2,185 Q2 2008 Rate/Mix Fuel Price Volume Q2 2009 Note: See Fuel Surcharge Reconciliation 66
Slide 7: Economic environment drives 21% volume decline
Economic environment drives 21% volume decline Revenue $2,185M Volume 1,411K RPU $1,549 Year-Over-Year Volume Change First Quarter Second Quarter (7%) (13%) (14%) (21%) (23%) (22%) (41%) (53%) % of 27% 37% 32% 4% Total Coal Merchandise Intermodal Automotive 77
Slide 8: Core pricing stable; RPU lower on fuel surcharge
Core pricing stable; RPU lower on fuel surcharge Revenue $2,185M Volume 1,411K RPU $1,549 Year-Over-Year Change Same Store Sales Price Increase Total Revenue per Unit 21.2% 18.3% 14.5% 14.0% 10.5% 6.9% 8.0% 6.5% 6.5% 6.7% 6.8% 6.4% 6.2% 6.5% 6.5% 6.6% 0.2% (5.4%) Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2007 2007
Slide 9: Coal revenue declines 20%
Coal revenue declines 20% Revenue $662M Volume 375K RPU $1,765 Second Quarter Second quarter summary Year-Over-Year Change — Export declines on lower global demand RPU 2% — Utility down on low demand, high Volume (21%) inventories and low gas prices Revenue (20%) Ongoing drivers — Domestic and g
Slide 10: Merchandise revenue declines 26%
Merchandise revenue declines 26% Revenue $1,061M Volume 525K RPU $2,021 Second Quarter Second quarter summary Year-Over-Year Change — Steel production cut by half — Housing starts and overall RPU (5%) construction remain weak Volume (22%) — Phosphates decline significantly Revenue (26%) Ongoing
Slide 11: Automotive revenue declines 45%
Automotive revenue declines 45% Revenue $113M Volume 54K RPU $2,093 Second Quarter Second quarter summary Year-Over-Year Change — Consumer demand and inventory correction drives volume RPU (6%) — Bankruptcy filings and plant Volume (41%) shutdowns also impact business Revenue (45%) Ongoing drive
Slide 12: Intermodal revenue declines 24%
Intermodal revenue declines 24% Revenue $291M Volume 457K RPU $637 Second Quarter Second quarter summary Year-Over-Year Change — International volume down on lower imports and exports RPU (12%) — Domestic volume growth on Volume (14%) truckload conversion Revenue (24%) — RPU lower due to fuel reco
Slide 13: Sales and Marketing wrap-up
Sales and Marketing wrap-up . . . Markets appear to have stabilized at current levels — Year-over-year decline in non-coal markets moderated slightly in the quarter Double-digit volume declines expected for third quarter — Linehaul revenue for eight of ten markets expected to be unfavorable Ma
Slide 14: Operations Review
Operations Review Tony Ingram Executive Vice President Chief Operating Officer
Slide 15: Responding to challenging business conditions
Responding to challenging business conditions Leadership Safety performance remains strong Performance Discipline Excellence Service Service Execution Execution Rightsizing producing savings and helping offset impact of lower volume Productivity Productivity Discipline Discipline Safety Safety L
Slide 16: Helping lead one of the Nation's safest industries
Helping lead one of the Nation’s safest industries FRA Personal Injury Rate FRA Train Accident Rate 1.45 3.53 1.30 1.22 2.73 2.63 1.04 2.22 Q2 2006 Q2 2007 Q2 2008 Q2 2009 Q2 2006 Q2 2007 Q2 2008 Q2 2009 16 16
Slide 17: Train network continues to track lower volume
Train network continues to track lower volume . . . Year-Over-Year Change in Volume and Crew Starts Q1 2009 Q2 2009 10% (0%) (10%) (20%) (30%) (40%) Volume Volume down down 17% 17% Volume Volume down down 21% 21% (50%) Crew Crew starts down 15% starts down 15% Crew Crew starts down 20% starts down 2
Slide 18: Key resources being rightsized accordingly
. . . with key resources being rightsized accordingly Active T&E Employees Active Locomotives Q1 2009 Q2 2009 Q1 2009 Q2 2009 13,500 4,100 12,800 3,900 12,100 3,700 11,400 3,500 10,700 3,300 10,000 Down Down 10% 10% YOY YOY Down Down 17% 17% YOY YOY 3,100 Down Down 9% 9% YOY YOY Down Down 17% 17% YO
Slide 19: Broader rightsizing efforts are gaining traction
Broader rightsizing efforts are gaining traction Year-Over-Year Change in Volume and Resources (21%) Volume (20%) Road Crew Starts (17%) Active Locomotives (17%) Active T&E Employees (16%) Local Crew Starts (12%) Yard Crew Starts (9%) Active Mechanical Employees 19 19
Slide 20: Service levels strong on stable network operations
Service levels strong on stable network operations Service Reliability Network Performance On-time Originations Train Velocity (mph) 83% 21.7 80% 77% 75% 20.4 19.6 20.0 Q2 2006 Q2 2007 Q2 2008 Q2 2009 Q2 2006 Q2 2007 Q2 2008 Q2 2009 On-time Arrivals Terminal Dwell (hours) 81% 25.1 69% 24.1 65% 60% 2
Slide 21: Operations wrap-up
Operations wrap-up . . . Maintaining strong focus on safety performance — Helping lead one of America’s safest industries Rightsizing resources and driving productivity — Working aggressively to help stabilize the operating ratio Providing reliable customer service — Network operations remain
Slide 22: Financial Review
Financial Review Oscar Munoz Executive Vice President Chief Financial Officer
Slide 23: Second quarter earnings summary
Second quarter earnings summary . . . Second Quarter Results Dollars in millions, except EPS 2009 2008 Variance Revenue $ 2,185 $ 2,907 $ (722) Expense 1,603 2,190 587 Operating Income $ 582 $ 717 $ (135) Interest Expense (139) (133) (6) Other Income (net) 10 17 (7) Income Taxes (168) (209) 41 Earni
Slide 24: Fuel surcharge lag impacts quarter by $33 million
Fuel surcharge lag impacts quarter by $33 million Fuel Surcharge Lag Impact Positive Impact Negative Impact $39 $150 Million Million $38 ($33) Million Million Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Weekly Highway Diesel Fuel Monthly Highway Diesel Fuel (two-month lag) 24 24
Slide 25: Strong cost focus drives expenses down 27%
Strong cost focus drives expenses down 27% Second Quarter Operating Expenses in Millions $2,190 $21 ($219) ($70) ($319) Net Net Deflation Deflation of of $198 $198 million million $1,603 2008 Non-fuel Fuel Price Net Casualty Productivity, 2009 Inflation Reserve Rightsizing Adjustment and Other 25 25
Slide 26: Fuel expense declines 66%
Fuel expense declines 66% Gallons Per Thousand Second Quarter Gross Ton Miles Fuel Analysis in Millions 1.24 1.22 2008 Fuel Expense $ 537 1.18 Price (219) 1.13 Volume (91) Efficiency (22) Non-Locomotive (20) Subtotal (352) 2009 Fuel Expense $ 185 Q2 2006 Q2 2007 Q2 2008 Q2 2009 26 26
Slide 27: MS&O expense declines 28%
MS&O expense declines 28% MS&O Expense Second Quarter Dollars in Millions MS&O Analysis in Millions $513 $461 $470 2008 MS&O Expense $ 513 $368 Net Reserve Adjustment (70) Volume-related Savings (41) Proxy-related Costs (18) Other (16) Subtotal (145) 2009 MS&O Expense $ 368 Q2 2006 Q2 2007 Q2 2008 Q
Slide 28: Labor and Fringe expense declines 11%
Labor and Fringe expense declines 11% Employee Headcount Second Quarter Labor Analysis in Millions 34,451 34,166 33,082 2008 Labor Expense $ 733 29,878 Labor Productivity (70) Incentive Compensation (16) Inflation 16 Other (9) Subtotal (79) 2009 Labor Expense $ 654 Q2 2006 Q2 2007 Q2 2008 Q2 2009 28
Slide 29: Other expenses collectively decrease 3%
Other expenses collectively decrease 3% Other Costs in Millions Higher capital base increases depreciation expense Depreciation Rents Inland Transportation $409 $389 $407 $396 Rent expense declines on $62 $60 $68 $69 lower volume $131 $112 $107 $98 Inland Transportation costs increase due to i
Slide 30: Productivity and rightsizing driving costs lower
Productivity and rightsizing driving costs lower Second Quarter Cost Structure in Millions % 2009 2008 Variance Fuel Short-term Car Hire $ 415 $ 784 47% Variable Costs Unit Train Crews Third Party Services Terminal Operations Long-term Scheduled Network Crews 452 546 17% Variable Costs
Slide 31: Financial wrap-up
Financial wrap-up . . . Fuel environment will continue to act as a headwind — Cycling significant lag benefits in second half of 2008 Driving cost structure to lower business levels — Rightsizing and productivity efforts produce across-the-board results Balance sheet remains healthy — Strong l
Slide 32: Concluding Remarks
Concluding Remarks Michael Ward Chairman, President and Chief Executive Officer
Slide 33: Relentless pursuit of excellence
Relentless pursuit of excellence . . . 33 33
Slide 34: Appendix
Appendix
Slide 35: Fuel Surcharge Reconciliation
Fuel Surcharge Reconciliation Second Quarter Dollars in millions 2009 2008 Variance Total Rail and Intermodal Fuel Surcharge Recovery $ 67 $ 365 $ (298) Portion of year-over-year variance that is volume-related $ (75) Portion of year-over-year variance that is fuel price-related $ (223) Since total
Slide 36: Second Quarter 2009 Earnings Conference Call
Second Quarter 2009 Earnings Conference Call 36 36