csx corporation presentation - 2012 baird conference · csx peers s&p operating income earnings...
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Forward-Looking StatementsForward-Looking Statements
This information and other statements by the company may contain forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings,revenues, margins, volumes, rates, cost-savings, expenses, taxes, liquidity, capital expenditures, dividends, sharerepurchases or other financial items, statements of management’s plans, strategies and objectives for futureoperations, and management’s expectations as to future performance and operations and the time by which objectiveswill be achieved, statements concerning proposed new services, and statements regarding future economic, industry ormarket conditions or performance. Forward-looking statements are typically identified by words or phrases such as“will,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate,” “preliminary” and similar expressions. Forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update orrevise any forward-looking statement. If the company updates any forward-looking statement, no inference should bedrawn that the company will make additional updates with respect to that statement or any other forward-lookingstatements.
Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results coulddiffer materially from that anticipated by any forward-looking statements. Factors that may cause actual results to differmaterially from those contemplated by any forward-looking statements include, among others; (i) the company’ssuccess in implementing its financial and operational initiatives; (ii) changes in domestic or international economic,political or business conditions, including those affecting the transportation industry (such as the impact of industrycompetition, conditions, performance and consolidation); (iii) legislative or regulatory changes; (iv) the inherentbusiness risks associated with safety and security; (v) the outcome of claims and litigation involving or affecting thecompany; (vi) natural events such as severe weather conditions or pandemic health crises; and (vii) the inherentuncertainty associated with projecting economic and business conditions.
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 andthe company’s website at www.csx.com.
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Leading transportation company in North AmericaLeading transportation company in North America
Top-tier performance sustained since 2003— Earnings growth, margin expansion, distributions to investors and stock returns
Economic environment in the U.S. has moderated— CSX has proven it can deliver superior results, even in challenging environments
CSX has strong foundation to support long-term growth— Network access and service levels leverage market opportunities
Macro-trends favor CSX and the railroad industry— Domestic and global growth drive longer-term potential
33
Delivered sustained superior financial performanceDelivered sustained superior financial performance
$861
$3,418
2003 2011
Operating Income
44
11%
29%
2003 2011
Operating Margin
$0.26
$1.67
2003 2011
Earnings Per ShareOperating Income(Millions)
Operating Margin Earnings Per Share
19% CAGR
Note: See GAAP Reconciliation for 2003 in Appendix
1,774 bps since 2003 26% CAGR
3
Performance is top-tier among peers and S&P 500Performance is top-tier among peers and S&P 500
19%
11%
9%
CSX Peers S&P
Operating Income
55
1,774
662
303
CSX Peers S&P
Operating Margin
26%
14%
3%
CSX Peers S&P
Earnings Per ShareOperating Income2003 – 2011 CAGR
Margin Expansion2003 – 2011 BPS
Earnings Per Share2003 – 2011 CAGR
Top 19% among S&P 500
Note: See GAAP Reconciliation for 2003 in Appendix
Top 8% among S&P 500 Top 8% among S&P 500
66
$4.8 $5.1
$10.6
$9.1
1996-2000 2001-2005 2006-2011
Cash DeploymentDollars in Billions
Dividends & Buybacks Capital Investment
Performance supports strong cash deployment Performance supports strong cash deployment
$6.2 $5.6
$19.7
CSX has pursued a balancedapproach since 2005 . . .
. . . and recent actions underscore its focus
CashDeployment
CapitalInvestment
$2.25 billioninvestment
targetedfor 2012
Dividends
Increased17% insecondquarter
ShareBuybacks
Completing$2 billion
program byyear-end
4
Framework for capital deployment through 2015Framework for capital deployment through 2015
77
CapitalInvestment
Investment is the first priority of balanced approach
Historical average investment has been 16% of revenue
Trend reflects increasing investment in recent years
Core capital investment to average 16-17% of revenue
PTC investment is an overlay and expect to total $1.7 billion
Dividends are the second priority of balanced approach
Quarterly dividend increased ten times since 2005
Dividends to be 30% – 35% of TTM earnings per share
Dividend increased 17% during the second quarter
Expected increases to be announced annually in May
Buybacks are the third priority of balanced approach
CSX has repurchased $7.7 billion since 2005
Current $2 billion program to be completed by end of 2012
Buybacks funded primarily through free cash flow
New program expected to beannounced upon completion
Capital Investment Dividends Buybacks
88
CSX’s network provides competitive advantageCSX’s network provides competitive advantage
New Orleans
Charleston
Memphis
Florida
PiedmontAtlanticGulf Coast
Midwest
St Louis
Chicago
New York
Boston
Norfolk
Jacksonville
Miami
Northeast CSX serves over two thirds of U.S. population
Significant majority of U.S. consumption in the east
Connects all mega-regions in the eastern U.S.
Network positioned to compete for new businesses
Superior market reach into Northeast and Florida
Savannah
Wilmington
Tampa
Mobile
Baltimore
Philadelphia
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99
CSX’s business base diverse across many marketsCSX’s business base diverse across many markets
2012 Year-to-Date Volume5.4 million Units
Automotive7%
Metals4%
Chemicals7%
Export Coal7%
Intermodal38%
Agriculture 6%
Phosphates 5%
Food & Consumer 2%
Forest 4%
Emerging Markets6%
Note: Volume data is through week 43, ending October 26, 2012
Domestic Coal14%
1010
. . . and ports with consumption markets
St Louis
New York
Boston
Norfolk
Jacksonville
MiamiTampa
Mobile
Baltimore
Wilmington
Philadelphia
New Orleans
Charleston
SavannahPiedmontAtlantic
Midwest
Network positioned for long-term profitable growthNetwork positioned for long-term profitable growth
New Orleans
Charleston
Memphis
St Louis
ChicagoNew York
Boston
Norfolk
Jacksonville
MiamiTampa
Mobile
Baltimore
Wilmington
Philadelphia
Network connects naturalresources to ports . .
Savannah
Chicago
Phosphates Coal Grain Ports
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2.0%
1.3%
2.0%1.6%
Q1 '12 Q2 '12 Q3 '12 Q4 '12
Gross Domestic Product
4.4% 4.8%
3.3%2.6%
Q1 '12 Q2 '12 Q3 '12 Q4 '12
Industrial Production Index
Economic environment has moderated from first halfEconomic environment has moderated from first half
1111
Source: Global Insight and ISM
2007 2008 2009 2010 2011 201230
40
50
60
70
ISM ManufacturingPurchasing Managers Index
30
40
50
60
70
ISM ManufacturingCustomer Inventories Index
2007 2008 2009 2010 2011 2012
Actual Forecast
Actual Forecast
Volume growth has been moderating across sectorsVolume growth has been moderating across sectors
14%9% 8%
(2%)
0%
(23%)
40%
8% 9%
(5%) (5%)
(31%)
20%
8%5%
(4%) (5%)
(26%)
(6%)
5%1%
(1%) (0%)
(24%)
ExportCoal
Intermodal IndustrialSector
AgriculturalSector
ConstructionSector
DomesticCoal
Average Weekly Year-over-year Change in VolumeFirst Quarter Second Quarter Third Quarter Fourth Quarter
1212
Note: Fourth Quarter volumes are through week 43, ending October 26, 2012
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6-month MAQuarterly 12-month MA 6-month MAQuarterly 12-month MA
Strong service foundation for inflation-plus pricingStrong service foundation for inflation-plus pricing
79%75%
82%
89%
Q4 2009 Q4 2010 Q4 2011 Q4 2012
On-time Originations
79%
70%72%
82%
Q4 2009 Q4 2010 Q4 2011 Q4 2012
On-time Arrivals
1313
Note: Fourth Quarter 2012 performance is based on data through week 43, ending October 26, 2012
Service and operating efficiency drive productivityService and operating efficiency drive productivity
$142
$264
$151
$79
$180+
2008 2009 2010 2011 2012F
Productivity Savingsin Millions
Productivity savings on track to exceed $180 million
— High service levels improvingasset utilization
— Reduced overtime across all operating departments
— Fuel efficiency increasing
Continuing to adjust resources to match volume
— In excess of 500 T&E employeeson furlough or retention boards
— More than 300 locomotives currently in storage
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Long-term trends in the U.S. are favorable for CSXLong-term trends in the U.S. are favorable for CSX
Source: USDOT FHWA Freight Analysis Framework
CSX Territory
Eastern U.S. highway congestionfavors rail transportation long-term Freight demand projected to
grow significantly by 2040
Highways already congested, especially in the eastern U.S.
Recession amplified funding challenges for highways
Solving trucking challenges through rail partnerships
1616
Intermodal growth opportunity is substantialIntermodal growth opportunity is substantial
3.3
2.2
9.3
Domestic International Opportunity
Freight volume for lengthsof haul over 550 miles
Sources: Global Insight’s Transearch data, company reports, TTX, PIERS/JOC, TranSystems 2011
24 29
33 37
41 45
2009 2011 2013 2015 2017 2019
International OpportunityU.S. Container TEU’s in Millions
Domestic Eastern OpportunityTotal Market: 15 Million Units
9
1717
Rail demand also benefits from global trendsRail demand also benefits from global trends
6.6
7.0
7.4
7.8
2005 2010 2015 2020
$46
$63
$84
$112
2005 2010 2015 2020
$2.6
$4.2
$5.7
$7.9
2005 2010 2015 2020
Source: UN, Department of Economic and Social Affairs, Population Division (2011), IMF, World Economic Outlook Database, April 2012, Global Insight, U.S. Economic Outlook, August 2012
Global Populationin Billions
Global GDPin Trillions
U.S. Import/Exportin Trillions
European Union
2010 2020
1818
Global GDP growth is led by developing nationsGlobal GDP growth is led by developing nations
Note: GDP expressed in trillions. Source: International Monetary Fund, World Economic Outlook Database, April 2012
United States
2010 2020
Brazil
China
2010 2020
2010 2020
India
2010 2020
Russia
2010 2020
Japan
2010 2020
$15
$22
$16$22
$2$4
$6
$17
$4
$10
$7$4
$4$1
10
1919
Change in China coal demand creates opportunityChange in China coal demand creates opportunity
(69)(46)
(25)(2) (5)
104
147
208
254
2004 2005 2006 2007 2008 2009 2010 2011 2012F
China Coal TradeMetric Tons in Millions
Sources: Energy Information Administration, Doyle Trading Consultants, & China Coal Resource
Net Exports Net Imports
China has transitioned from being a net exporter of coal to a significant net coal importer
2020
Seaborne demand for U.S. coal is increasingSeaborne demand for U.S. coal is increasing
0
10
20
30
40
50
60
Europe S. America Asia All Other
Total U.S. Seaborne Coal ExportsNet Tons in Millions
‘03 ‘11 ‘03 ‘11 ‘03 ‘11 ‘03 ‘11
Source: Energy Information Administration
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Wrap-up . . .Wrap-up . . .
Remain on-track for earnings growth in 2012— Reflects eighth year of improvement over last nine years
Economic environment in the U.S. has moderated— Company will stay focused on pricing, productivity, resource alignment
CSX has strong foundation to support long-term growth— Network access and service levels leverage market opportunities
Continue to target a 65% operating ratio by 2015— Although the path forward is now more challenging
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2222
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AppendixAppendix
2323
2424
GAAP Reconciliation DisclosureGAAP Reconciliation Disclosure
CSX reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However,management believes that certain non-GAAP financial measures used to manage the company’s business that fallwithin the meaning of Regulation G (Disclosure of Non-GAAP Financial Measures) by the SEC may provide users ofthe financial information with additional meaningful comparisons to prior reported results.
In press releases and presentation slides for stock analysts, CSX has provided financial information adjusted for certainitems, which are non-GAAP financial measures. The company’s management evaluates its business and makes certainoperating decisions (e.g., budgeting, forecasting, employee compensation, asset management and resource allocation)using these adjusted numbers.
Likewise, this information facilitates comparisons to financial results that are directly associated with ongoing businessoperations as well as provides comparable historical information. Lastly, earnings forecasts prepared by stock analystsand other third parties generally exclude the effects of items that are difficult to predict or measure in advance and arenot directly related to CSX’s ongoing operations. A reconciliation between GAAP and the non-GAAP measure isprovided. These non-GAAP measures should not be considered a substitute for GAAP measures.
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GAAP ReconciliationGAAP Reconciliation
Full Year 2003 ResultsDollars in millions 2003
Operating Income
Casualty Reserve Adjustments
Legal Settlements
Restructuring Charge
$ 499
232
108
22
Comparable Operating Income $ 861
Operating Ratio
Casualty Reserve Adjustments
Legal Settlements
Restructuring Charge
93.4%
(3.1%
(1.4%
(0.3%
)
)
)
Comparable Operating Ratio 88.6%
EPS from Continuing Operations
Casualty Reserve Adjustments
Legal Settlements
Restructuring Charge
$ 0.09
0.11
0.05
0.01
Comparable EPS from Continuing Operations $ 0.26
Note: Results have been adjusted for the retrospective change in accounting policy for rail grinding and stock split
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