2016 Fourth Quarter Earnings Conference Call. January 25, PDF

Please download to get full document.

View again

of 38
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Information Report
Category:

Finance

Published:

Views: 5 | Pages: 38

Extension: PDF | Download: 0

Share
Related documents
Description
2016 Fourth Quarter Earnings Conference Call January 25, Forward-Looking Statements Certain statements in this presentation are forward-looking statements within the meaning of the safe harbor provision
Transcript
2016 Fourth Quarter Earnings Conference Call January 25, Forward-Looking Statements 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 like believe, expect, anticipate, estimate, plan, consider, project, and similar references to the future. Forward-looking statements are made as of the date they were first issued and reflect the good-faith evaluation of Norfolk Southern Corporation s (NYSE: NSC) ( Norfolk Southern or the Company ) management of information currently available. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company s control. These and other important factors, including those discussed under Risk Factors in the Company s Form 10-K for the year ended December 31, 2015, as well as the Company s other public filings with the SEC, may cause our actual results, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, the occurrence of certain events or otherwise, unless otherwise required by applicable securities law. 2 2016 Financial Highlights Fourth Quarter and Full Year January 25, 2017 James A. Squires Chairman, President, and Chief Executive Officer 3 Fourth Quarter and Full Year 2016 Results Railway Operating Ratio % Basis Point and % Improvement vs. 2015* Earnings per share $/share and % Improvement vs. 2015* Fourth Quarter % $ 1.42 $ % Full Year % $ 5.62 $ % NS Strategic Plan delivered strong results and record 2016 OR * 2015 Fourth Quarter included restructuring costs of $49M, which increased the railway operating ratio by 200 basis points and lowered EPS by $0.10. * 2015 Full Year included restructuring costs of $93M, which increased the railway operating ratio by 90 basis points and lowered EPS by $0.19. * Please see non-gaap reconciliation posted on our website. 4 2016 Improvements in: Service, Asset Utilization and Employee Productivity Composite Service Metric Efficiency Initiatives Line and Yard rationalizations 72% 80% Organizational restructurings Proactive capital discipline Asset Utilization Rationalize locomotives Improve freight car efficiency Increase utilization of lines, yards and terminals Employee and Carload Reductions Average Employees -7% Carloads -3% NS achieves balance between service and efficiency 5 Fourth Quarter 2016 Marketing Overview January 25, 2017 Alan H. Shaw Executive Vice President and Chief Marketing Officer 6 Railway Operating Revenue Fourth Quarter 2016 vs Revenue Volume RPU RPU Less Fuel (1) $2.5 Billion 1,839,900 units $1,354 $1,316 down (1%) up 2% down (3%) down (3%) Revenue Change in $ (1,2) Revenue $ (2) & Y-o-Y Percent Change $2,518 ($26) ($25) ($15) ($12) $50 $2,490 Coal $403 (7%) Intermodal $583 +4% Merchandise $1,504 (1%) 4Q 2015 TCS ex. Fuel Coal ex. Fuel Merch ex. Fuel Fuel 1. Please see reconciliation to GAAP posted on our website. 2. In millions. IM ex.tcs ex. Fuel 4Q 2016 Year-over-year volume increased in fourth quarter with strong Intermodal growth 7 Merchandise Market Fourth Quarter 2016 vs Growth in metals and agriculture markets offset declines in energy and auto Units (000 s) & Y-o-Y Percent Change Revenue $1,504 Million (1%) Volume 604,800 (3%) RPU $2,486 1% Less Fuel 67.7 Revenue $1,499 Million (1) (1%) RPU $2,478 (1) 2% MetCon Ag Chem Auto Paper 4% 1% (11%) (4%) (6%) 1. Please see reconciliation to GAAP posted on our website. 8 Intermodal Market Fourth Quarter 2016 vs Strong domestic and international performance with improved service Revenue $583 Million 4% Volume 996,000 7% RPU $585 (3%) Less Fuel Revenue $525 Million (1) 5% RPU $527 (1) (2%) Units (000 s) & Y-o-Y Percent Change Excluding Triple Crown Revenue $568 Million (1)) 10% Volume 981,000 10% RPU $579 (1) flat Less Fuel Revenue $513 Million (1) 11% RPU $522 (1) 1% 15.0 Domestic (ex. TCS International TCS) 10% (62%) 8% 1. Please see reconciliation to GAAP posted on our website. 9 Coal Market Fourth Quarter 2016 vs Encouraged by improved demand for export coal Units (000 s) & Y-o-Y Percent Change Revenue $403 Million (7%) Volume 239,100 (4%) RPU $1,689 (3%) Less Fuel Revenue $396 Million (1) (6%) RPU $1,660 (1) (2%) Utility Export Domestic Met/ Industrial (10%) 40% (8%) 1. Please see reconciliation to GAAP posted on our website. 10 Full Year Performance Revenue Volume RPU RPU Less Fuel (1) $9.9 Billion 7,259,700 units $1,362 $1,330 down (6%) down (3%) down (3%) down (1%) Revenue Change in $ (1,2) $10,511 ($294) Coal, fuel surcharge, and Triple Crown restructuring account for the decline: ($241) ($194) ($16) $122 $9,888 (17%) decline in Coal revenue excluding fuel surcharge (51%) decline in fuel surcharge revenue (77%) decline in Triple Crown revenue excluding fuel surcharge, as a result of the restructuring in 4Q Coal ex. Fuel Fuel TCS ex. Fuel Merch ex. Fuel 1. Please see reconciliation to GAAP posted on our website. 2. In millions. IM ex.tcs ex. Fuel 2016 Challenging economic conditions and restructuring of TCS impacted 2016 results 11 2017: Return to Growth Volume Improved economic conditions Intermodal volume gains Strong service product Tightening capacity in the trucking market Coal growth with market normalization Normal weather conditions and higher natural gas prices Improved export pricing and demand Merchandise flat overall Continued challenges in energy markets Automotive plant downtime Improving construction activity Focus on Pricing Pricing Solid pricing to continue Domestic truck rate increases projected as capacity tightens Leveraging value of service product Long-term view of markets and pricing Volume and Resource Alignment Adapt and evolve through changing market conditions and volume expectations Solid pricing and strong Intermodal volumes position NS for growth in 2016 Operations Overview January 25, 2017 Michael J. Wheeler Executive Vice President and Chief Operating Officer 13 2016 Summary First Year on Record with Service Composite above 80% and Operating Ratio below 70%. Record Operating Ratio Record Fuel Efficiency Record Train Length Best Locomotive Productivity in Last Decade Best Train Accident Rate Since Conrail Consolidation 14 Injury Ratios Per 200,000 employee hours worked Reportable Injury Ratio 1.5 Serious Injury Ratio Train Accident Rate* Best Train Accident Rate Since Conrail Consolidation 0 15 * FRA FY 2016 Service Metrics Velocity Remains Near Record Levels 90% Service Composite ( ) Better 80% 70% 60% 50% Improved 3% 26 Train Speed ( ) Better Q15 Improved 1% 4Q16 27 Terminal Dwell 26 ( ) Better Worse 1% 21 90% Service Composite ( ) Better 80% Train Speed ( ) Better Terminal Dwell ( ) Better 70% % 50% Improved 11% Improved 9% Improved 7% 16 Productivity Savings Year-over-Year Comparisons 4Q16 Carloads 2% 2016 (3%) Crew Starts Recrews Total OT ($) (5%) 4% (21%) (5%) (28%) (38%) Train Length 2.3% 2.2% GTM/T&E Emp 9% 6% T&E Headcount (9%) (9%) Significantly Improved Employee Productivity 17 Fourth Quarter 2016 Financial Overview January 25, 2017 Marta R. Stewart Executive Vice President Finance and Chief Financial Officer 18 Operating Results Fourth Quarter 2016 vs ($ millions) Sustained cost control resulted in an operating ratio of 69.4% * $ % Railway operating revenues $ 2,490 $ 2,518 $ (28) (1%) Railway operating expenses $ 1,729 $ 1,876 $ 147 8% Income from railway operations $ 761 $ 642 $ % Railway operating ratio (%) % (Unfavorable) Favorable * Fourth Quarter 2015 included restructuring costs of $49 million, which increased the railway operating ratio by 200 basis points. 19 Railway Operating Expenses Fourth Quarter 2016 vs ($ millions) Four consecutive quarters with operating expense reductions $1,876 $41 Decrease of $147 / 8% $40 $38 $28 $ -- $0 $1, Purchased Compensation Svcs & Rents & Benefits Materials & Other Depreciation Fuel Purchased Services and Rents Fourth Quarter 2016 vs ($ millions) Net decrease of $41 / 9% Reduced Triple Crown operations - $21 $440 Lower transportation and engineering related expenses - $12 $399 Decreased equipment rents - $ Compensation and Benefits Fourth Quarter 2016 vs ($ millions) Net decrease of $40 / 6% Reduced employee counts and overtime - $42 $702 Prior year labor agreement lump sum payment - $13 Lower pension expense - $10 $662 Higher bonus accruals - $21 Wage inflation - $16 Higher health and welfare rates - $12 29,988 28,077 27,928 27,817 27, Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Average Rail Employees 22 Materials and Other Fourth Quarter 2016 vs ($ millions) Net decrease of $38 / 15% Lower locomotive and engineering material usage - $16 $253 $215 Lower travel costs - $ Fuel Fourth Quarter 2016 vs ($ millions) Improvement in fuel efficiency helps offset higher fuel prices 6% lower consumption $194 $194 8% higher price per gallon $1.71 per $1.49 gallon * per gallon * $1.60 per gallon * * Reflects locomotive fuel only 24 Income Taxes Fourth Quarter 2016 vs ($ millions) Effective tax rate for the quarter of 35.1% $225 $163 Eff. Rate 31.1% Eff. Rate 35.1% Net Income and Diluted Earnings per Share Fourth Quarter 2016 vs ($ millions except per share) Net income up 15% and earnings per share up 18% Net Income Diluted Earnings per Share $416 $1.42 $361 $ * * 2016 * Fourth Quarter 2015 included restructuring costs of $49 million, which reduced net income by $31 million and earnings per share by $ Full Year Highlights 2016 ($ millions except per share) Record operating ratio of 68.9%, $250 million of productivity savings Railway operating revenues $9,888 6% Railway operating expenses $6,814 11% Income from railway operations $3,074 7% Net income $1,668 7% Diluted earnings per share $ % 2015 included restructuring costs of $93 million, which reduced net income by $58 million, EPS by $0.19, and increased the operating ratio by 90 basis points. 27 Cash Flows 2016 vs ($ millions) Free cash flow of $1.1 billion and $1.5 billion returned to shareholders Cash from operating activities $ 3,034 $ 2,908 Capital expenditures $ (1,887) $ (2,385) Free cash flow (1) $ 1,147 $ 523 Returns to shareholders: Dividends $ (695) $ (713) Share repurchases $ (803) $ (1,075) 1. Please see reconciliation to GAAP posted on our website. 28 2017 Capital Improvement Budget ($ millions) Total Spending = $1.9 billion $240 $50 $290 $110 $930 Roadway Infrastructure Facilities & Terminals Locomotives Freight Cars Technology & Other $170 $80 PTC 29 Norfolk Southern Strategic Plan Update January 25, 2017 James A. Squires Chairman, President, and Chief Executive Officer 30 Driving Increased Shareholder Value Key Focus Areas Optimize revenue both pricing and volume Key Financial Targets 2016 Actual 2020 Target Disciplined pricing increases above rail inflation Improve productivity to deliver efficient and superior service Operating Ratio 70 Operating Ratio 65 Increase asset utilization Double-digit compound annual EPS growth Focus capital investment to support long-term value creation CapEx ~19% of revenue CapEx ~17% of revenue Reward shareholders with significant return of capital Dividend payout target of ~33% over the longer term and continuation of dividend growth and significant share repurchases 31 Revenue per Unit and Volume Outlook % Compound Annual Growth Rate (CAGR) 2020 vs RPU CAGR 2020 vs ~2.5% Increased pricing initiatives drive RPU in excess of CPI Revenue Per Unit (RPU) Expectations (%) 3 2 ~ Volume CAGR 2020 vs ~2.5% Volumes have generally tracked GDP on a historic basis 1 0 NS Target CPI Volume Expectations (%) 3 2 ~ NS Target GDP NS is well positioned to leverage the value of our service product 32 GDP and CPI per IHS Volume Growth Details Outlook Merchandise Expected CAGR: ~ 2% Growth in line with market trends Generally tracking GDP growth Improved commodities, with some pipeline-related headwinds in crude oil and natural gas liquids Intermodal Expected CAGR: ~ 4% Strong service product supports highway conversions and drives organic growth Tightening truck capacity International growth above GDP Coal Expected CAGR: ~ 1% Volumes increase in 2017 as inventories normalize Modest annual decreases from 2017 levels thereafter Assumes normalized weather conditions, and increasing natural gas prices based on forward curve 33 Resource Flexibility T&E Workforce Proactively aligning resources with demand Minimum employee levels at core locations Ongoing hiring model enhancements Locomotives Continuing to invest in the reliability of our fleet New locomotives: 50 in 2016 and 50 in 2017 Significant acceleration of DC to AC rebuilds Maintain road locomotive surge fleet 34 Ongoing Productivity Initiatives Continuing locomotive fleet rationalization Particularly leveraging AC units within the fleet Rationalizing freight car fleet More homogeneous and flexible fleet composition Enhancing technology to optimize distribution of empties to customers Ongoing line rationalization focus Reducing costs on lower density branch lines Improving fuel efficiency Utilizing technology Improving locomotive productivity 35 Path to Productivity Continues $650 million in productivity savings annually by 2020 $250 million realized in 2016 plus $100 million targeted for 2017 Relentless focus on expense management Achievement of goal through adaptivity regardless of market conditions 36 Norfolk Southern s Strategic Plan Excellent service plan is core to strategy Revenue plan drives profitable growth Cost reduction plan leverages improving cost structure Committed to delivering shareholder value 37 38 Thank You
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks