csx 2008_Citigroup Conference

Download csx  2008_Citigroup Conference

Post on 13-Jul-2015

89 views

Category:

Economy & Finance

0 download

Embed Size (px)

TRANSCRIPT

<ul><li><p>111111</p><p>Citi 23rd AnnualTransportation Conference </p><p>November 2008 </p><p>Citi 23rd AnnualTransportation Conference </p><p>November 2008</p></li><li><p>2222</p><p>Forward-Looking DisclosureForward-Looking Disclosure</p><p>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 managements plans, strategies and objectives for future operation, and managements 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.</p><p>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.</p><p>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 companys 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.</p><p>Other important assumptions and factors that could cause actual results to differ materially from those in the forward- looking statements are specified in the companys SEC reports, accessible on the SECs website at www.sec.gov and the companys website at: www.investors.csx.com</p></li><li><p>3333</p><p>Current CSX environment . . .Current CSX environment . . .</p><p> Financial momentum remains strong Momentum has been sustained in declining volume environment</p><p> Economic environment is weakening Housing and auto sectors remain weak, industrial sector softening</p><p> Fundamentals of the Rail Renaissance remain intact Line-of-sight maintained on key drivers</p></li><li><p>4444</p><p>Core focus is driving shareholder value creationCore focus is driving shareholder value creation</p><p>Deliver sustainable revenue growth through focus on same store sales price increases</p><p>Incorporate escalators to offset the cost of inflation during the period of the contract</p><p>Recover the higher cost of diesel fuel through fuel surcharge program</p><p>Price</p><p>Focus on sustainable growth by leveraging our market presence in all eastern markets</p><p>Drive industrial development to locate new shippers on CSXs transportation network </p><p>Leverage rail-truck interfaces to expand market/customer reach beyond traditional rail business</p><p>Growth</p><p>Drive greater cost efficiency through redesigning processes and deploying technology</p><p>Use ONE Plan and Total Service Integration to right-size resources to business levels</p><p>Deliver total savings that offset a significant portion of annual cost of non-fuel inflation</p><p>Productivity</p><p>Operating IncomeOperating IncomeOperating Income EPSEPSEPS Free Cash FlowFree Cash FlowFree Cash Flow ROICROICROIC</p><p>Balanced Deployment of Capital</p><p>Top-Tier TSRTop-Tier TSR</p></li><li><p>5555</p><p>Operating IncomeDollars in BillionsOperating IncomeDollars in Billions</p><p>$1.6</p><p>$2.0$2.2</p><p>$2.7</p><p>2005 2006 2007 LTM</p><p>EarningsPer ShareEarningsPer Share</p><p>Return onInvested Capital</p><p>Return onInvested Capital</p><p>$1.70</p><p>$2.22</p><p>$2.70</p><p>$3.48</p><p>2005 2006 2007 LTM</p><p>7.3%</p><p>8.8% 9.2%</p><p>10.6%</p><p>2005 2006 2007 LTM</p><p>CSXs financial momentum remains strongCSXs financial momentum remains strong</p><p>Note: Operating Income, EPS and ROIC are stated on comparable continuing basis; LTM through third quarter 2008</p></li><li><p>6666</p><p>Economic environment continues to weakenEconomic environment continues to weaken</p><p>Real Gross Domestic Product</p><p>(10.0%)</p><p>(8.0%)</p><p>(6.0%)</p><p>(4.0%)</p><p>(2.0%)</p><p>0.0%</p><p>2.0%</p><p>4.0%</p><p>6.0%</p><p>8.0%</p><p>10.0%</p><p>1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010</p><p>Note: Recessionary periods as defined by Bureau of Economic Analysis</p></li><li><p>7777</p><p>Line-of-sight maintained on key driversLine-of-sight maintained on key drivers</p><p> Volume environment remains soft Diversity of business portfolio moderates economic impact</p><p> Pricing momentum to continue long-term Increases to be broadly similar in 2009 and above inflation longer-term </p><p> Productivity initiatives continue to help offset inflation Results ahead of target in 2008 with strong momentum through 2010 </p></li><li><p>88</p><p>Largest recent cumulative volume decline was 6%Largest recent cumulative volume decline was 6%</p><p>Annual Volume Growth</p><p>(1%)</p><p>(5%)</p><p>1%</p><p>(1%)</p><p>2% 2%</p><p>(0%)</p><p>3%</p><p>0%</p><p>15%</p><p>11%</p><p>(3%)(0%)</p><p>3% 2%</p><p>(1%)</p><p>0%</p><p>(3%) (3%)</p><p>'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08</p><p>Note: 1990-93 data includes Sea-Land volumes and all data is on 52-week comparable basis; 2008 data is through week 46</p><p>Recession Recession</p><p>6%Cumulative</p><p>Decline</p><p>3%Cumulative</p><p>Decline</p><p>6%Cumulative</p><p>Decline</p><p>CurrentEnvironment</p></li><li><p>9999</p><p>Diversity of business moderates economic impactDiversity of business moderates economic impact</p><p>Primary Macro Driver CSX Business Units % of Revenue</p><p>Energy and Agriculture Coal, Agricultural Products, and Phosphates &amp; Fertilizers</p><p>43%</p><p>Housing Starts Forest Products, Emerging Markets, and Food &amp; Consumer</p><p>17%</p><p>Industrial Production Chemicals and Metals 20%</p><p>Personal Consumption Intermodal and Automotive 20%</p><p>Note: Year-to-date data through third quarter 2008</p></li><li><p>10101010</p><p>Energy and agriculture products more stable Energy and agriculture products more stable </p><p> Limited downside for utility demand</p><p> Export coal downside sensitivity exists</p><p> Growth in ethanol continues</p><p> Potential phosphate rebound in spring</p><p>Energyand Food</p><p>43% Coal</p><p>Agriculture</p><p>PhosphatesForestEmerging MktsFood/Consumer</p><p>Chemicals</p><p>Metals</p><p>Intermodal</p><p>Automotive</p><p>2008 Revenue Base</p><p>30%30%</p><p>9%4%4%</p><p>Percent of Revenue</p><p>Note: Reflects year-to-date data through third quarter 2008</p></li><li><p>11111111</p><p>2.071.81</p><p>1.340.93</p><p>0.71</p><p>2005 2006 2007 2008 2009</p><p>Softness in housing-related markets continuesSoftness in housing-related markets continues</p><p> Housing rebound expected after 2009 </p><p> Further decline in forest and paper</p><p> Related consumer products remain soft</p><p> Infrastructure spending potential upside</p><p>Coal</p><p>Agriculture</p><p>PhosphatesForestEmerging MktsFood/Consumer</p><p>Chemicals</p><p>Metals</p><p>Intermodal</p><p>Automotive</p><p>Housing Starts17%</p><p>2008 Revenue Base</p><p>7%6%6%4%</p><p>Percent of Revenue</p><p>Housing Starts in Millions</p><p>Note: Reflects year-to-date data through third quarter 2008; economic data is sourced from Global Insight</p></li><li><p>12121212</p><p>Weaker industrial sector impacts chemicals/metalsWeaker industrial sector impacts chemicals/metals</p><p>Coal</p><p>Agriculture</p><p>PhosphatesForestEmerging MktsFood/Consumer</p><p>Chemicals</p><p>Metals</p><p>Intermodal</p><p>Automotive</p><p>IndustrialProduction</p><p>20%</p><p>2008 Revenue Base</p><p>13%</p><p>7%</p><p>Percent of Revenue</p><p>3.3%2.2% 1.7%</p><p>(0.9%)</p><p>(3.5%)</p><p>2005 2006 2007 2008 2009</p><p> Industrial production weak through 2009</p><p> Global steel demand is declining</p><p> Chemicals demand is also declining</p><p>Industrial Production</p><p>Note: Reflects year-to-date data through third quarter 2008; economic data is sourced from Global Insight</p></li><li><p>13131313</p><p>Lower consumer spending impacts auto/intermodalLower consumer spending impacts auto/intermodal</p><p>Note: Reflects year-to-date data through third quarter 2008; economic data is sourced from Global Insight</p><p>Coal</p><p>Agriculture</p><p>PhosphatesForestEmerging MktsFood/Consumer</p><p>Chemicals</p><p>Metals</p><p>Intermodal</p><p>AutomotivePersonalConsumption</p><p>20%</p><p>2008 Revenue Base</p><p>13%</p><p>7%</p><p>Percent of Revenue</p><p>3.8% 3.9% 3.3%</p><p>(1.5%) (1.3%)</p><p>2005 2006 2007 2008 2009</p><p> Vehicle production continues to decline</p><p> International intermodal remains soft</p><p> Domestic intermodal source of strength</p><p>Personal Consumption</p></li><li><p>14141414</p><p>Line-of-sight maintained on key driversLine-of-sight maintained on key drivers</p><p> Volume environment remains soft Diversity of business portfolio moderates economic impact</p><p> Pricing momentum to continue long-term Increases to be broadly similar in 2009 and above inflation longer-term </p><p> Productivity initiatives continue to help offset inflation Results ahead of target in 2008 with strong momentum through 2010 </p></li><li><p>15151515</p><p>Pricing has remained strong despite lower volumesPricing has remained strong despite lower volumes</p><p>Volume Versus Same Store Sales Pricing</p><p>6.2% 6.8% 6.7% 6.6%7.1% 6.5% 6.5% 6.7% 6.8% 6.4% 6.2%</p><p>(1.0%)0.1% (0.4%)</p><p>(3.9%)(2.3%)</p><p>(4.3%)(2.7%) (2.2%) (2.8%) (2.3%)</p><p>1.8%</p><p>Q12006</p><p>Q22006</p><p>Q32006</p><p>Q42006</p><p>Q12007</p><p>Q22007</p><p>Q32007</p><p>Q42007</p><p>Q12008</p><p>Q22008</p><p>Q32008</p><p>Price Increase on 'Same Store Sales' Change in Volume</p><p>Note: Same Store Sales price increases exclude impacts from fuel and mix; reflects year over year change</p></li><li><p>16161616</p><p>Majority of pricing plan is already in place for 2009Majority of pricing plan is already in place for 2009</p><p>Same Store Sales Price Increase</p><p>5.7%</p><p>6.6% 6.7% 6.5%</p><p>2005 2006 2007 2008 2009</p><p>SignedContractsSigned</p><p>Contracts</p><p>ContractsStill To BeNegotiated</p><p>~ 6.0%</p><p>Note: Annual same store sales price increases reflect the quarterly average for each respective year</p><p>45%</p><p>55%</p></li><li><p>17171717</p><p>Inflation-Adjusted PricingIndexed: 1981 = 100</p><p>100</p><p>4051</p><p>1981 2004 2008</p><p>1717</p><p>Pricing above inflation will continue long-termPricing above inflation will continue long-term</p><p> Rail pricing is still in the early stages of recovery</p><p> Significant contracts are up for renewal annually</p><p> Trucking industry challenges will continue long-term</p><p> Rail reinvestment requiresearning the cost of capital</p><p>Source: Association of American Railroads</p></li><li><p>18181818</p><p>Line-of-sight maintained on key driversLine-of-sight maintained on key drivers</p><p> Volume environment remains soft Diversity of business portfolio moderates economic impact</p><p> Pricing momentum to continue long-term Increases to be broadly similar in 2009 and above inflation longer-term </p><p> Productivity initiatives continue to help offset inflation Results ahead of target in 2008 with strong momentum through 2010 </p></li><li><p>19191919</p><p>Over $400M of productivity targeted through 2010Over $400M of productivity targeted through 2010</p><p>Operations ProductivityDollars in Millions</p><p>$90</p><p>$40</p><p>$153</p><p>2008 2009 2010</p><p>Plans in Place Developing Plans</p><p> Initiatives are exceeding initial targets for 2008</p><p> Plans already in place for 85% of 2009-2010 targets</p><p> Productivity focus is driving greater labor/asset efficiency</p><p>$130 $130</p><p>$413 million</p></li><li><p>20202020</p><p>Productivity driven by accountability across areasProductivity driven by accountability across areas</p><p>Operations Productivity Savings in Millions</p><p>20082008 20092009 20102010 TotalTotal</p><p>Locomotive $ 57 $ 45 $ 37 $ 139</p><p>Car and Terminal 33 23 14 70</p><p>Line of Road and Infrastructure 31 34 23 88</p><p>Train and Engine Employees 25 15 10 50</p><p>Customer Operations 4 3 3 10</p><p>Risk Mitigation and Other 3 11 42 56</p><p>Total SavingsTotal Savings $ 153$ 153 $ 130$ 130 $ 130$ 130 $ 413$ 413</p></li><li><p>21212121</p><p>ONE Plan being updated to drive greater efficiencyONE Plan being updated to drive greater efficiency</p><p> Traffic patterns have shifted since ONE Plan inception</p><p> Volume declines allow for further train consolidation</p><p> Focus remains maximizing service and efficiency Rightsize resources</p><p> Reduce terminal handlings </p><p> Reduce route miles</p><p>TrafficIncrease</p><p>TrafficDecrease</p></li><li><p>2222</p><p>Other productivity initiatives are underwayOther productivity initiatives are underway</p><p> Total Service Integration is improving train utilization</p><p> Broader cost initiatives will drive further margin expansion</p><p> Leverage GPS technology to further improve asset utilization</p><p> Expand use of terminal automation technology </p><p> Enterprise Asset Management takes productivity to next level</p><p>Pipeline ServiceTons Per Train</p><p>8,6388,800</p><p>9,223</p><p>9,584</p><p>2005 2006 2007 2008YTD</p><p>11%Improvement</p></li><li><p>2323</p><p>G&amp;A effort designed to keep 2009 costs flat to 2007G&amp;A effort designed to keep 2009 costs flat to 2007</p><p>Controllable G&amp;A ExpensesDollars in Millions</p><p>$45</p><p>$39</p><p>$39 $45</p><p>2007 Pro Forma Cycle ProxyCosts</p><p>Productivity 2009</p><p>Controllable G&amp;A Inflation Proxy Costs Productivity</p></li><li><p>24242424</p><p>Line-of-sight maintained on key driversLine-of-sight maintained on key drivers</p><p> Volume environment remains soft Diversity of business portfolio moderates economic impact</p><p> Pricing momentum to continue long-term Increases to be broadly similar in 2009 and above inflation longer-term </p><p> Productivity initiatives continue to help offset inflation Results ahead of target in 2008 with strong momentum through 2010 </p><p>Supports strong Free Cash Flow and liquidity</p></li><li><p>25252525</p><p>Free Cash Flow and liquidity will remain strongFree Cash Flow and liquidity will remain strong</p><p>Free Cash Flow Before Dividends in Millions</p><p>$376</p><p>$1,000</p><p>2007 2008F</p><p> Core earnings growth and Free Cash Flow sustainable Supports continued investment </p><p>and competitive dividend yield</p><p> Balance sheet remains strong with significant liquidity Only $400 million of outstanding </p><p>debt matures through 2010</p><p> Drive towards high-60s operating ratio continues Earnings guidance challenged </p><p>by current environment</p><p>Approximately</p></li><li><p>26262626</p><p>Wrap-up . . .Wrap-up . . .</p><p> Financial momentum to continue through the cycle Line-of-sight maintained on volume, pricing and productivity</p><p> Current economic weakness is transitory Past periods sustained for three to five quarters before recovery takes hold</p><p> Plans in place position CSX for strong recovery Stronger service, productivity and investments will drive future growth</p></li><li><p>272727272727</p><p>Citi 23rd Annual Transportation Conference </p><p>November 2008 </p><p>Citi 23rd Annual Transportation Conference </p><p>November 2008</p><p>Slide Number 1Forward-Looking DisclosureCurrent CSX environment . . .Core focus is driving shareholder value creationCSXs financial momentum remains strongEconomic environment continues to weakenLine-of-sight maintained on key driversLargest recent cumulative volume decline was 6%Diversity of business moderates economic impactEnergy and agriculture products more stable Softness in housing-related markets continuesWeaker industrial sector impacts chemicals/metalsLower consumer spending impacts auto/intermodalLine-of-sight maintained on key driversPricing has remained strong despite lower volumesMajority of pricing plan is already in place for 2009Pricing above inflation will continue long-termLine-of-sight maintained on key driversOver $400M of productivity targeted through 2010Productivity driven by accountability across areasONE Plan being updated to drive greater efficiencyOther productivity initiatives are underwayG&amp;A effort designed to keep 2009 costs flat to 2007Line-of-sight maintained on key driversFree Cash Flow and liquidity will remain strongWrap-up . . .Slide Number 27</p></li></ul>