Norfolk Southern Corporation · NYSE:NSC
Norfolk Southern — 2016 BB&T Annual Transportation Services Conference
26 slides from Norfolk Southern's conference presentation, Feb 10, 2016
Slide 1: 2016 BB&T Annual Transportation Services Conference
1 2016 BB&T Annual Transportation Services Conference February 10, 2016 Marta R. Stewart Executive Vice President Finance and Chief Financial Officer
Slide 2: Forward-Looking Statements
Forward-Looking Statements 2 Certain statements in this presentation are forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995, as amended. In some cases, forward-looking statements may be identified by the use of words lik
Slide 3: Business Update agenda
Business Update 2015 Overview 2016 Outlook Strategic Plan to Reduce Costs and Accelerate Growth Capital Allocation Priorities 3
Slide 4: 2015 Financial Results
Revenue $10,511 (10)% Operating Expense $7,627 5% Income From Operations $2,884 (19)% Operating Ratio 72.6 (5)% Adjusted Operating Ratio1 71.7 (4)% 2015 Financial Results % 2015 vs. 2014 ($ in millions, except operating ratio) Reduced fuel and coal revenues impacted results. 4 (Unfavorable) Favorabl
Slide 5: Net Income and Diluted Earnings per Share
Net Income and Diluted Earnings per Share 2015 vs. 2014 ($ millions except per share) 5 Diluted Earnings per Share Change vs. Prior Period: (20%) Net Income Change vs. Prior Period: (22%) Decline of $444 million or $1.29 per share $6.39 $5.10 2014 2015 $2,000 $1,556 2014 2015 2015 results included e
Slide 6: Full Year Revenue Performance
Full Year Revenue Performance 6 Fuel Surcharge and Coal Reductions Account for the Decline (64%) decline in fuel surcharge revenue (18%) decline in coal revenue excluding fuel surcharge Revenue Change in $ Millions (1) 1Please see reconciliation to GAAP posted on our website. $11,624 $10,511 ($8
Slide 7: Fuel Surcharge Revenue Decline
7 $295 $358 $368 $308 $163 $119 $113 $82 $0 $50 $100 $150 $200 $250 $300 $350 $400 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Revenue ($M) $1,329 $477 Decline will moderate in 2016. Fuel Surcharge Revenue Decline
Slide 8: Net Fuel Price Impact 2015 vs. 2014
Net Fuel Price Impact 2015 vs. 2014 8 $0.5 $1.5 $2.5 15-Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb* NS D ie s e l P P G NS Price Per Gallon ($ in millions) Q1 Q2 Q3 Q4 2015 Change in fuel surcharge revenue $ (132) $ (239) $ (255) $ (226) $ (852) Change in fuel price-related expense 161
Slide 9: Railway Operating Expenses 2015 vs. 2014
Railway Operating Expenses 2015 vs. 2014 ($ millions) Net decrease of $422/ 5% $8,049 $640 $103 $65 $36 $14 $7,627 Fuel Purchased Svcs & Rents Comp and Benefits Depreciation 2014 Materials & Other 2015 9
Slide 10: Actions Taken Have Established Foundation for Success
Actions Taken Have Established Foundation for Success Restructurings Support Lower Cost Structure Triple Crown subsidiary Roanoke office closure and G&A reductions Restored service to near all-time best levels Reduced capital spending by over $100 million in 2015 Completed Delaware & Hud
Slide 11: Restored Train Speed Provides Strong Foundation
Better( ) 16 18 20 22 24 26 0 1 /0 5 /1 4 0 3 /0 5 /1 4 0 5 /0 5 /1 4 0 7 /0 5 /1 4 0 9 /0 5 /1 4 1 1 /0 5 /1 4 0 1 /0 5 /1 5 0 3 /0 5 /1 5 0 5 /0 5 /1 5 0 7 /0 5 /1 5 0 9 /0 5 /1 5 1 1 /0 5 /1 5 0 1 /0 5 /1 6 Restored Train Speed Provides Strong Foundation. Train Speed 2014 – 1st QTR-to-Date 2016 (
Slide 12: Terminal Dwell Has Improved
Better( ) 15 20 25 30 35 0 1 /0 4 /1 4 0 3 /0 4 /1 4 0 5 /0 4 /1 4 0 7 /0 4 /1 4 0 9 /0 4 /1 4 1 1 /0 4 /1 4 0 1 /0 4 /1 5 0 3 /0 4 /1 5 0 5 /0 4 /1 5 0 7 /0 4 /1 5 0 9 /0 4 /1 5 1 1 /0 4 /1 5 0 1 /0 4 /1 6 Dwell has also improved. Terminal Dwell 2014 – 1st QTR-to-Date 2016 (Hours) 12
Slide 13: Resources: Crews and Locomotives
13 Resources Crews and Locomotives Agreement Headcount Reductions in 4th Quarter – T&E: -440 – Non T&E: -175 Additional 1st Quarter Reductions / Furloughs – T&E: -600 – Non T&E: -350 Operations Manpower 300 Locomotives Removed From Service DC to AC Rebuild program, significantly more cost ef
Slide 14: Current Railway Volume
Current Railway Volume First Quarter through Week 5 (February 6, 2016) 14 Total Units (000’s) Change in Units 1QTD 2016 vs. 2015 (6%)
Slide 15: 2016: Building on a Strong Foundation
2016: Building on a Strong Foundation 15 Volume Pricing Continue to diversify franchise, mitigating risk from commodity price volatility − Low commodity prices will continue to hinder crude oil, frac sand, steel, and utility and export coal volumes − Coal volumes will decline Consumer-driven gro
Slide 16: Norfolk Southern's Strategic Plan
Norfolk Southern’s Strategic Plan 16 Revenue Plan − Optimized pricing − Contribution growth from service-sensitive markets − Conservative pricing and volume forecasts Cost Reduction Plan − Commitment to drive operating ratio below 65 by 2020 − Specific initiatives underway to achieve more than $
Slide 17: Volume and Pricing Guidance
Volume and Pricing Guidance 17 1Excluding restructured Triple Crown (TCS). RPU growth from 2015 – 2020 of ~2.5%, around 0.5% above projected CPI − Decline in fuel surcharge headwinds, recent price initiatives and reduced negative mix drive RPU increases in excess of CPI Volume growth from 2015 –
Slide 18: Volume Growth Details
Volume Growth Details 18 2010 – 2015 Performance 2015 – 2020 Outlook Coal Merchandise Intermodal (7.1%) CAGR Volume impacted by earlier MATS impact, with all retiring plants cleared by 2016 Steep drop in natural gas price since 2014 Expected CAGR: ~(1%) Coal volume declines in 2016 giving
Slide 19: Key Market Indicators - Five Year Coal Outlook
Key Market Indicators - 5yr CAGR Five Year Coal Outlook Planned NGCC Capacity 2016-2020 Source: EIA, SNL Financial NS Midwest Market NS Southeast Market (1.5%) (1.0%) (0.5%) 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% NS Volume Outlook Henry Hub EIA Electric Demand Source: SNL Financial 19
Slide 20: Cumulative Coal Retirement Losses
Cumulative Coal Retirement Losses Announced Coal Retirements through 2020 Tons in millions Source: Doyle Trading Consultants • Plants representing more than 60m tons of 2015 burn will be retired by 2020 • Independent market forecasts predict Utility coal demand will stabilize around 700m tons throug
Slide 21: Overview of Expense Reduction and Cost Control Initiatives
Overview of Expense Reduction and Cost Control Initiatives 21 Focus on strong service levels and driving substantial operating ratio improvements Clear path to achieve an operating ratio below 65 by 2020 is with focus on: − Managing headcount − Increasing locomotive productivity − Improving fuel
Slide 22: Path to Achieve Operating Ratio Below 65
Path to Achieve Operating Ratio Below 65 22 Compensation & Benefits ~65% Materials ~12% Fuel ~12% Purchased Services & Rents ~11% Cost Reduction and Expense Control Detail Annual Savings by 2020: $650MM Compensation & Benefits – ~$420MM Overtime reductions with improving service levels Build on
Slide 23: Path to Achieve Operating Ratio Below 65 (cont'd)
Path to Achieve Operating Ratio Below 65 (cont’d) 23 Cost Reduction and Expense Control Detail Annual Savings by 2020: $650MM Materials – ~$80MM Increased efficiencies to allow reduced fleet size Continued rationalization of yard and local locomotive fleet New locomotives to replace older, hig
Slide 24: Driving Increasing Shareholder Value
Driving Increasing Shareholder Value 24 Increase asset utilization Optimize revenue – both pricing and volume Double-digit compound annual EPS growth Improve productivity to deliver efficient and superior service Reward shareholders with significant return of capital Operating Ratio < 70 Focus capit
Slide 25: Important Additional Information and Where to Find It
Important Additional Information and Where to Find It Norfolk Southern Corporation (the “Company”), its directors and certain of its executive officers and employees may be deemed to be participants in the solicitation of proxies from stockholders in connection with the Company’s 2016 Annual Meeting
Slide 26: Thank You
Thank You 26
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