Goldman Sachs Global Industrials Conference November 2009€¦ · Goldman Sachs Global Industrials...
Transcript of Goldman Sachs Global Industrials Conference November 2009€¦ · Goldman Sachs Global Industrials...
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Goldman SachsGlobal Industrials Conference
November 2009
Goldman SachsGlobal Industrials Conference
November 2009
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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,” “preliminary” 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.
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Current CSX environment . . .Current CSX environment . . .
Worst economic recession in past half century abating— Volumes continue to moderate going into the back half of the fourth quarter
Company emerging from recession stronger— Earning power and margins have been resilient in current environment
Value of rail transportation supports long-term pricing— Expect core price increases above rail inflation for 2010 and beyond
Industry fundamentals are strong long-term— Growing population, congested highways, environmentalism favors railroads
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Economic environment continues to moderateEconomic environment continues to moderate
Year-Over-Year Volume Change
(53%)
(23%)
(13%)(7%)
(41%)
(22%)(14%)
(21%)(28%)
(17%)(10%)
(18%)(12%) (16%)
(1%)
(23%)
Automotive Merchandise Intermodal Coal
First Quarter Second Quarter Third Quarter Fourth Quarter-to-Date
Percent of Total Volume
3%Q1
5%Q4
36%Q1
35%Q4
31%Q1
35%Q4
30%Q1
25%Q4
Note: Fourth quarter year-over-year change in volume reflects data through week 43
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Utility stock piles likely remain high well into 2010Utility stock piles likely remain high well into 2010
Eastern Power SectorTons in Millions
30
40
50
60
70
80
90
100
Coal Consumption Coal Inventory Typical Inventory LevelSource: Coal consumption and inventory numbers from PIRA Energy Group
67 daysof inventory
67 days67 daysof inventoryof inventory
76 daysof inventory
76 days76 daysof inventoryof inventory
2001 2002 2003 2004 2005 2006 2007 2008 2009
62 daysof inventory
62 days62 daysof inventoryof inventory
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Core earning power resilient during recessionCore earning power resilient during recession
Comparable Operating Margin and Volume
20.8%22.0%
24.2%25.3%
5,548 5,355 5,2244,295
2006 2007 2008 2009
Comparable Operating Income and Volume
$1,494 $1,636
$2,076$1,702
5,548 5,355 5,2244,295
2006 2007 2008 2009
Op. Income (millions) Volume (000) Operating Margin Volume (000)
Note: See GAAP Reconciliation
Results Through First Three Quarters
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2009 Quarterly Cost StructureYear-Over-Year Variance
(26%)
(35%)(30%)
(17%)
(27%)(24%)
First Quarter Second Quarter Third Quarter
2009 Quarterly Cost StructureYear-Over-Year Variance
(11%)(17%) (16%)
(6%)
(14%) (16%)
(8%)
(16%) (16%)
First Quarter Second Quarter Third Quarter
Sustained cost focus yields sequential improvementSustained cost focus yields sequential improvement
Adjusted Variable Costs Fixed Costs Adjusted Total CostsVolume
Note: Adjusted variable and total costs have been normalized for fuel prices; lighter shaded bars reflect unadjusted costs
8888
Core pricing has remained firm in this environmentCore pricing has remained firm in this environment
Note: “Same Store Sales” price increases exclude impacts from fuel surcharge and mix
Year-Over-Year Change
6.5% 6.7% 6.8% 6.4% 6.2% 6.5% 6.5% 6.6% 6.3%
8.0%10.5%
14.5%18.3%
21.2%
14.0%
0.2%
(8.7%)(5.4%)
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Same Store Sales Price Increase Total Revenue per Unit
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EvolvingMarketplace
EvolvingEvolvingMarketplaceMarketplace
PricingOpportunity
PricingPricingOpportunityOpportunity
StrongServiceStrongStrongServiceService +
Strong service and market environment driving priceStrong service and market environment driving price
“Same Store Sales”Price Increase
76%79% 79%
82%
2006 2007 2008 2009
On-TimeOriginations
6.6% 6.7% 6.5% 6.5%
2006 2007 2008 2009
Highway congestion increasing
Supply chains are expanding
Rail service improving
Focus on “green” intensifying
Extreme regulatory change unlikely
Rail IndustryAdvantages
YTD
1010
Pre-deregulation, rail pricingkept pace with inflation
During the first 23 years after the passageDuring the first 23 years after the passageof the Staggers Act, rail pricing declined by 50%of the Staggers Act, rail pricing declined by 50%
Inflation-Adjusted PricingIndexed: 1981 = $100
$100
$51
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Inflation-plus price increases expected long-termInflation-plus price increases expected long-term
Source: Association of American Railroads
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Inflation-plus pricing supports other key industriesInflation-plus pricing supports other key industries
Compound Annual Rate IncreasesBetween 1990 and 2008
1.2%
2.3%
4.8%
7.5%
Rail Electricity Grain Chemical
Source: UBS Investment Research
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Long-term fundamentals drive Rail RenaissanceLong-term fundamentals drive Rail Renaissance
Over time, more people . . .
Over time, Over time, more people . . .more people . . .
. . . will consumemore things . . .
. . . will consume. . . will consumemore things . . .more things . . .
. . . and those things need to be moved
. . . and those things . . . and those things need to be movedneed to be moved
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311
326
342
2005 2010 2015 2020
U.S. Populationin Millions
$3.1 $3.2
$3.6
$4.2
2005 2010 2015 2020
U.S. Consumptionof Goods in Trillions
4.9
5.4
6.0
6.6
2005 2010 2015 2020
U.S. TransportationDemand in Trillion Ton-miles
Sources: Global Insight and American Association of State Highway and Transportation Officials
13131313
Competitive advantages driving market share shiftCompetitive advantages driving market share shift
Surface Transportation Tonnage Market Share
Sources: Transearch and USDOT FHWA Freight Analysis Framework
Barge 8%Rail 15%
Truck 77%
Rail Industry Advantages
Highway congestion increasing
Supply chains are expanding
Rail service is improving
Focus on “green” intensifying
Extreme regulatory change unlikely
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CSX’s network leverages long-term fundamentalsCSX’s network leverages long-term fundamentals
Serves all major markets in the eastern United States— Markets account for over 65% of
population and 75% of consumption
Links all major industry and natural resource centers— Strong presence in coal, aggregates,
phosphates support key industries
Provides international access through all major ports— Directly serves Atlantic and Gulf
ports; access to Pacific with alliances
Florida
Midwest
Gulf Coast
PiedmontAtlantic
Northeast
Mega-regionsServed by CSX
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Strengthening position for long-term value creationStrengthening position for long-term value creation
CSX emerging from recession as a stronger company— Earning power and margins have been resilient in current environment
Pricing the value of rail transportation is long-term focus— Expect core price increases above rail inflation for 2010 and beyond
Rail renaissance fundamentals remain intact long-term— Organic growth at attractive rates supports shareholder value creation
Relentless pursuit of excellenceRelentless pursuit of excellence
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Goldman SachsGlobal Industrials Conference
November 2009
Goldman SachsGlobal Industrials Conference
November 2009
AppendixAppendix
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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 fall within the meaning of Regulation G (Disclosure of Non-GAAP Financial Measures) by the SEC may provide users of the 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 certain items, which are non-GAAP financial measures. The company’s management evaluates its business and makes certain operating 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 business operations as well as provides comparable historical information. Lastly, earnings forecasts prepared by stock analysts and other third parties generally exclude the effects of items that are difficult to predict or measure in advance and are not directly related to CSX’s ongoing operations. A reconciliation between GAAP and the non-GAAP measure is provided. These non-GAAP measures should not be considered a substitute for GAAP measures.
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GAAP ReconciliationGAAP Reconciliation
Results Through First Three Quarters
Dollars in millions 2006 2007 2008 2009
Operating IncomeGain on Insurance Recoveries
$ 1,635(141)
$ 1,655(19)
$ 2,076-
$ 1,702-
Comparable Operating Income $ 1,494 $ 1,636 $ 2,076 $ 1,702
Operating MarginGain on Insurance Recoveries
22.8%(2.0%)
22.2%(0.2%)
24.2%-
25.3%-
Comparable Operating Margin 20.8% 22.0% 24.2% 25.3%
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Goldman SachsGlobal Industrials Conference
November 2009
Goldman SachsGlobal Industrials Conference
November 2009