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