csx 4Q 07
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Transcript of csx 4Q 07
11
Fourth Quarter 2007Earnings Conference Call
Fourth Quarter 2007Earnings Conference Call
2222
Proxy Statement DisclosureProxy Statement Disclosure
IMPORTANT INFORMATION
CSX Corporation plans to file with the SEC and furnish to its shareholders a Proxy Statement in connection with its 2008 Annual Meeting, and advises its security holders to read the Proxy Statement relating to the 2008 Annual Meeting when it becomes available, because it will contain important information. Security holders may obtain a free copy of the Proxy Statement and other documents (when available) that CSX files with the SEC at the SEC’s website at www.sec.gov. The Proxy Statement and these other documents may also be obtained for free from CSX by directing a request to CSX Corporation, Attn: Investor Relations, David Baggs, 500 Water Street C110, Jacksonville, FL 32202.
CERTAIN INFORMATION CONCERNING PARTICIPANTS
CSX, its directors and named executive officers may be deemed to be participants in the solicitation of CSX’s security holders in connection with its 2008 Annual Meeting. Security holders may obtain information regarding the names, affiliations and interests of such individuals in CSX’s Annual Report on Form 10-K for the year ended December 29, 2006 and its proxy statement dated March 30, 2007, each of which is on file with the SEC. To the extent holdings of CSX securities have changed since the amounts printed in the proxy statement, dated March 30, 2007, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 or Form 5 filed with the SEC.
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Forward-Looking DisclosureForward-Looking Disclosure
This presentation 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.csx.com.
Executive SummaryExecutive Summary
Michael WardChairman, President andChief Executive Officer
55
Fourth quarter overview . . .Fourth quarter overview . . .
$0.75
$0.57
$0.86 $0.85
Reported Comparable
2006 2007
Strong earnings growth, despite fuel headwind
Safety and service at all-time best levels and improving
Revenues increase on strong service levels
Operating ratio improves on continued price/productivity
Note: Comparable EPS exclude gains on insurance recoveries and Conrail property, and income tax benefits
Fourth QuarterEarnings Per Share
66
Full year highlights . . .Full year highlights . . .
Strong double-digit growth drives record results
Surface Transportation:
— Revenues exceed $10 billion for first time ever
— Record operating income of over $2.2 billion
— Operating ratio below 78% for first time in a decade
EPS from Continuing Operations
2006 2007
Note: Comparable EPS exclude gains on insurance recoveries and Conrail property, and income tax benefits
Operating Income in Millions
$2,126$1,958
$2,251 $2,224
Reported Comparable
$2.82$2.22
$2.74 $2.70
Reported Comparable
22%Increase
14%Increase
Operations ReviewOperations Review
Tony IngramExecutive Vice PresidentChief Operating Officer
88
Leadership, discipline and executionLeadership, discipline and execution
Safety results at historical best and improving
Productivity gains driving the operating ratio lower
Network performance and service at all-time highs
SafetySafety
ProductivityProductivity
ServiceService
LeadershipLeadership
DisciplineDiscipline
ExecutionExecution
PerformanceExcellence
99
Helping lead one of the nation’s safest industriesHelping lead one of the nation’s safest industries
Rolling 12-Month Averages
FRA Personal Injury
1.461.42
1.311.24 1.21
Q42006
Q12007
Q22007
Q32007
Q42007
FRA Train Accidents
3.543.34
3.11 3.012.83
Q42006
Q12007
Q22007
Q32007
Q42007
13 WeekAverage
1.26
13 WeekAverage
2.85
1010
On-time performance at all-time highsOn-time performance at all-time highs
Rolling 12-Month Averages
On-Time Originations
76% 76%77%
78%79%
Q42006
Q12007
Q22007
Q32007
Q42007
On-Time Arrivals
63% 63%66%
69% 70%
Q42006
Q12007
Q22007
Q32007
Q42007
13 WeekAverage
81%
13 WeekAverage
73%
1111
Network efficiency provides strong service productNetwork efficiency provides strong service product
Rolling 12-Month Averages
Velocity (mph)
19.9 19.9 20.120.4
20.8
Q42006
Q12007
Q22007
Q32007
Q42007
13 WeekAverage21.2 mph
Dwell Time (hours)
25.124.7
24.323.7
23.2
Q42006
Q12007
Q22007
Q32007
Q42007
13 WeekAverage22.2 hrs
1212
Customer satisfaction levels remain at high levelsCustomer satisfaction levels remain at high levels
100
109 111
118
Q4 2004 Q4 2005 Q4 2006 Q4 2007
Best results since inception of third-party survey
Correlates to internal operating measure gains
Strong service supports pricing initiatives
Customer SatisfactionIndexed: 2004 = 100
1313
Operations wrap-up . . .Operations wrap-up . . .
Taking safety performance to the next level
Service reliability delivering value for customers
Driving productivity to lower the operating ratio
Sales and Marketing ReviewSales and Marketing Review
Clarence GoodenExecutive Vice PresidentSales and Marketing
1515151515151515
Revenues increased 8% to nearly $2.6 billionRevenues increased 8% to nearly $2.6 billion
Fourth QuarterRevenue in Millions
$2,396
$2,577$181
2006 Growth 2007
Record quarterly Surface Transportation revenues
Improved service enabling revenue growth
Yield management continues to offset softer volumes
Uninterrupted revenue growth for nearly 6 years
1616161616161616
Price continues to drive RPU growthPrice continues to drive RPU growth
Year-Over-Year Change
6.7%6.5%6.5%7.1%6.6%6.7%6.8%6.2%6.3%
11.0% 11.7% 12.6% 11.8%
8.4% 8.1%6.9%
8.0%
10.5%
Q42005
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Price Increase on 'Same Store Sales' Total Revenue per Unit
Note: ‘Same Store Sales’ price increases exclude impacts from fuel and mix
1717171717171717
Merchandise revenue increases 7%Merchandise revenue increases 7%
Fourth Quarter2007 versus 2006
7%
(4%)
11%
Revenue
Volume
RPU
Yield management continues to offset softer volumes
Continued softness in housing/auto related markets
Strength in agriculture, phosphates, and chemicals
2006 Change 2007
RPU $ 1,736 $ 195 $ 1,931
Volume(thousands)
675 (25) 650
Revenue(millions)
$ 1,172 $ 83 $ 1,255
1818181818181818
Coal revenue increases 13%Coal revenue increases 13%
Fourth Quarter2007 versus 2006
13%
14%
(0%)
Revenue
Volume
RPU
Export strength offsets decline in utility market
Tons shipped up nearly 1% on flat carload volume
Overall pricing environment remains favorable
2006 Change 2007
RPU $ 1,282 $ 174 $ 1,456
Volume(thousands)
471 (2) 469
Revenue(millions)
$ 604 $ 79 $ 683
1919191919191919
Automotive revenue increases over 2%Automotive revenue increases over 2%
Fourth Quarter2007 versus 2006
2%
(3%)
5%
Revenue
Volume
RPU
Softer economy and tight credit impacting auto sales
Big-3 production decline drove CSX volumes
2006 Change 2007
RPU $ 1,875 $ 97 $ 1,972
Volume(thousands)
112 (3) 109
Revenue(millions)
$ 210 $ 5 $ 215
202020202020
Intermodal revenue is flat on lower volumesIntermodal revenue is flat on lower volumes
Fourth Quarter2007 versus 2006
0%
(3%)
4%
Revenue
Volume
RPU
Revenue was flat as yields and mix offset volume losses
International down on slowing imports/customer losses
Domestic traffic improved on new services/new terminal
2006 Change 2007
RPU $ 649 $ 23 $ 672
Volume(thousands)
552 (19) 533
Revenue(millions)
$ 358 $ 0 $ 358
2121
Intermodal reports record fourth quarter profitIntermodal reports record fourth quarter profit
Intermodal Operating Income in Millions
$68
$77$9
2006 Growth 2007
Bottom line focus drove record fourth quarter results
Cost control driven by greater efficiency and productivity
Operating ratio improved 2.5 points to 78.5%
222222222222
First quarter revenue outlook is positiveFirst quarter revenue outlook is positive
Favorable Neutral Unfavorable
Agricultural Products
Chemicals
Coal, Coke & Iron Ore
Metals
Phosphate & Fertilizer
Automotive
Emerging Markets
Intermodal
Food & Consumer
Forest Products
Financial ResultsFinancial Results
Oscar MunozExecutive Vice PresidentChief Financial Officer
2424
Strong fourth quarter results . . .Strong fourth quarter results . . .
$ 0.11$ 0.75$ 0.86Earnings Per Share
$ 18$ 347$ 365Net Income
))
10214
(16(82
5076299
123
60976
115205
Consolidated Operating IncomeOther Income (net)Interest ExpenseIncome Taxes
)104
(2505
2609
-Surface Transportation Operating IncomeOther Operating Income
)$ 181
(77$ 2,396
1,891$ 2,577
1,968RevenueExpense
Variance20062007Dollars in Millions, Except EPSFourth Quarter Results
2525
Comparable operating income increases 26%Comparable operating income increases 26%
$ 123$ 478$ 601Comparable Operating Income
$ 10419)
$ 505(27)
$ 609 (8
Surface Transportation Operating IncomeLess Gain on Insurance Recoveries
$ 0.28$ 0.57$ 0.85Comparable Earnings Per Share
$ 0.110.030.060.08
)))
$ 0.75(0.04(0.06(0.08
)$ 0.86(0.01
--
Earnings Per ShareLess Gain on Insurance RecoveriesLess Gain on Conrail Property After-taxLess Income Tax Benefits
Variance20062007Dollars in Millions, Except EPSFourth Quarter Results
2626
Key fourth quarter operating income drivers . . .Key fourth quarter operating income drivers . . .
Comparable Surface TransporationOperating Income in Millions
$601
$478
$67$56
Q4 2006 Net ReserveAdjustments
Earnings Momentum
Q4 2007
Improving safety performance lowers reserve requirements
Revenue strength and cost control overcome impact of fuel headwind
Note: Exclude gains from insurance recoveries in 2006 and 2007
2727
Expenses up 3% overall; down 2% excluding fuelExpenses up 3% overall; down 2% excluding fuel
Fourth Quarter Operating ExpensesYear-Over-Year Change
3%
2%
(9%)
32%
(6%)
1%
Inland Transportation
Depreciation
Equipment Rent
Fuel
Materials, Supplies, and Other
Labor and Fringe
Note: Results exclude gains from insurance recoveries
2828
Fuel price more than offsets efficiency and volumeFuel price more than offsets efficiency and volume
Gallons Per GTM
1.32
1.291.28
1.23
Q4 2004 Q4 2005 Q4 2006 Q4 2007
$ 3572007 Fuel Expense
))
104(9(9
Increase in PriceChange in Volume/MixFuel Efficiency
$ 2712006 Fuel Expense
Fourth QuarterFuel Analysis in Millions
2929
Labor and Fringe increased 1%Labor and Fringe increased 1%
Employee Headcount
33,591
34,153
34,668
33,469
Q4 2004 Q4 2005 Q4 2006 Q4 2007
Fourth QuarterLabor and Fringe in Millions
2006 Labor and Fringe $ 753Year-over-year change 6
2007 Labor and Fringe $ 759
Wage and benefit inflation totaled $22 million
Rightsizing resources drove 3% lower headcount
Note: Headcount reflects the company’s Surface Transportation businesses
3030
MS&O declines on lower personal injuriesMS&O declines on lower personal injuries
Fourth QuarterMS&O in Millions
2006 MS&O $ 496Year-over-year change (29)
2007 MS&O $ 467
Sustained improvements in safety lower net reserves
Partially offset by inflation and derailment costs
FRA Personal Injury
2.32
1.79
1.46
1.21
2004 2005 2006 2007
48%Improvement
3131
Rents decline on volume and productivityRents decline on volume and productivity
Payable Days Per Load
15.1 15.0
13.7
13.0
Q4 2004 Q4 2005 Q4 2006 Q4 2007
$ 1102007 Rent Expense
))
3(10
(4
InflationVolume/Mix/OtherEquipment Utilization
$ 1212006 Rent Expense
Fourth QuarterRents Analysis in Millions
Note: Reflects equipment utilization in the carload network on freight cars where CSX incurs rent
3232
Other expenses increase 2%Other expenses increase 2%
Fourth QuarterExpense in Millions
$216 $220
$61 $63
Q4 2006 Q4 2007
Depreciation Inland Transportation
Higher capital base increased depreciation expense
Partially offset by lower rates from asset life studies
Increased trucking expenses driving inland transportation
3333
Price and productivity driving operating ratio lowerPrice and productivity driving operating ratio lower
Surface Transportation Comparable Operating Ratio
85.6%
81.3%80.1%
76.7%
Q4 2004 Q4 2005 Q4 2006 Q4 2007
Note: Exclude gains from insurance recoveries in 2006 and 2007
3434
Full-year results reflect strong double-digit growthFull-year results reflect strong double-digit growth
Comparable Operating Income in Millions
$1,064
$1,549
$1,958
$2,224
2004 2005 2006 2007
Comparable EPS From Continuing Operations
$1.00
$1.70
$2.22
$2.70
2004 2005 2006 2007
14%Increase
22%Increase
Note: Exclude management restructuring, gains on insurance recoveries and Conrail property, and income tax benefits
3535
Full-year Free Cash Flow . . .Full-year Free Cash Flow . . .
Generated $145 million in 2007
— Consistent with $100+ million target outlined at September Investor Conference
Stronger earnings and cash flows supported:
— Locomotive capital investment
— Pension contribution
— Dividend increases
3636
Cash flows and capital structure support buyback Cash flows and capital structure support buyback
Cumulative Shares RepurchasedDollars in Millions
$565$2,074
$1,192
$644$465
2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007
Note: Approximately $2.1 billion of the $2.6 billion has been repurchased under the current $3.0 billion program
$2,639
3737
Double-digit growth targeted off record 2007 baseDouble-digit growth targeted off record 2007 base
$800M – $1B in 2010
Free Cash Flow Before Dividends
Mid-low 70’s by 2010
Operating Ratio
15% – 17%CAGR
Earnings Per Share
10% – 12%CAGR
Operating Income
2008 – 2010Guidance
Concluding RemarksConcluding Remarks
Michael WardChairman, President andChief Executive Officer
3939
Looking forward . . .Looking forward . . .
Delivering superior long-term value for shareholders
Leveraging the growing secular strength of the industry
Driving greater cost efficiency through productivity
Capitalizing on growth potential with key investments
Building on momentum to produce record 2008 results
Relentless Pursuit of Excellence
4040
Fourth Quarter 2007Earnings Conference Call
Fourth Quarter 2007Earnings Conference Call