Fourth Quarter 2014 Results Donald W. Seale Executive Vice President and Chief Marketing Officer
1
Railway Operating Revenue Fourth Quarter 2014 vs. 2013 Components of Revenue Change $ in Millions $2,881
Revenue
($69) ($45)
$2,870
$103
$2.9 Billion, flat
RPU $1,489, down (4%)
4Q 2013 Mix/Price
2
Volume
4Q 2014
4Q 2014 Revenue $ in Millions & y-o-y Percent Change Coal $543 (15%)
Volume 1,928,200 units, up 4%
Fuel
Intermodal $649 +5%
Merchandise $1,678 +3%
Railway Volume Fourth Quarter 2014 vs. 2013 4Q 2014 Volume (000’s) & y-o-y Percent Change
Total volume up 4% Coal down (6%) Weak shipments across most markets, with (6%) decline in Utility volume and (25%) decline in Export volume Intermodal up 6% Gains in Domestic and International markets Merchandise up 5% Gains in Metals & Construction and Chemicals offsetting losses in Agriculture and Paper & Forest Products
2,000 Coal
(6%)
Intermodal
+6%
Merchandise
+5%
1,500
1,000
500
0 4Q 2013
3
1,928.2
1,862.0
4Q 2014
Coal Market Fourth Quarter 2014 vs. 2013 Percent of Total 4Q 2014 Volume
Revenue: $543 Million, down (15%) RPU: $1,799, down (10%)
Dom Ind Met 7% Export 15% 14% Utility 64%
Drivers Utility Lower natural gas prices and reduced coal plant burn Export Weakened demand in a well-supplied global marketplace, with continued weak seaborne coal prices and a weaker Australian dollar
Units (000’s) 250 200
193.5
Weak shipments in utility and export markets
150 100
Domestic Met Customer-specific gains in coke volumes Industrial New business opportunities offset by declines of anthracite and petcoke
4
43.3
50
46.0 19.3
0 Utility (6%)
Export (25%)
Dom Met 13%
Ind 0%
Intermodal Market Fourth Quarter 2014 vs. 2013 Percent of Total 4Q 2014 Volume
Revenue: $649 Million, up 5% RPU: $662, down (1%)
Drivers
International 33%
Domestic 67%
Units (000’s)
Domestic Gains due to highway conversions, strategic corridor projects, and growth in key accounts International Gains due to customer awards and new services
700
654.5
600 500 400
324.8
300 200 100 0 Domestic 4%
5
Overall volume gain of 6%
International 10%
Merchandise Market Fourth Quarter 2014 vs. 2013 Percent of Total 4Q 2014 Volume
Revenue: $1.7 Billion, up 3% RPU: $2,594, down (1%)
Auto 16%
Drivers
MetCon Increased volumes of frac sand, iron and steel, and aggregates Agriculture Soybean volumes constrained by network velocity, partially offset by increased corn shipments Chemicals Growth in crude by rail and NGLs Automotive Downtime and model changeover at key NS-served plants Paper Gains of wood products offset by declines in graphic paper and municipal solid waste
6
Units (000’s) 200
Paper 12%
Chem 20%
180.0 155.0
150
MetCon 28% Ag 24%
Strength in Metals & Construction and 132.7 Chemicals 103.7
100
75.4
50 0 MetCon
Ag
12%
(3%)
Chem 14%
Auto
Paper
0%
(2%)
Fuel Surcharge Monthly WTI Price for FSC (2 month lag) $120
$100
$80
Fuel Surcharge Programs 85%+ of revenue contains fuel surcharges
$60
• •
$40
7
2/3 WTI based / Dominant trigger price $64 bbl. 1/3 OH Diesel based
Business Outlook
COAL • Utility coal demand weakened by lower natural gas prices as well as MATS implementation • Continued strong competition in the global metallurgical and thermal markets – strong US dollar • Weaker domestic met volumes related to customer sourcing shifts • Industrial coal volumes impacted by natural gas conversions
8
INTERMODAL • Focus on opportunities for highway conversions • Continued growth with strategic corridor projects • Growth from International customer awards and new service lanes • Increased consumer spending
MERCHANDISE • Strength in crude oil shipments to East Coast refiners offset by negative impact of low oil prices • Growth of NGLs along with drilling inputs such as frac sand • Strength in automotive sector benefiting vehicles and steel • Improved construction activity driving growth in aggregates, asphalt, lumber and steel • Strong corn and soybean crops
Thank You
9
Fourth Quarter 2014 Results Mark Manion Executive Vice President and Chief Operating Officer
Safety Performance 2009 – 2014*
2.4
2.4 1.8
1.20
2.6
2.3
2.1
1.0
3.0
0.83
0.75
0.89
1.10
1.5
2.9
(Per Million Train Miles) 1.21
Train Incidents
(Per 200,000 Employee-Hours) 1.18
Reportable Personal Injuries
2.0 0.5 1.0 0.0 2009
2010
2011
2012
2013
12 Mos 4th Qtr 2014 2014
Crossing Accidents
4
3.7
3.6
3.8
4.2
3.5
3.2
6
3.9
(Per Million Train Miles)
2
0.0 2009
2010
2
2010
2011
2012
2013
2012
2013
12 Mos 4th Qtr 2014 2014
Injury rate down over the course of the year, but slightly up in 2014 overall. Train Incident rates increased. Grade Crossing Accident rate is up slightly for the year with a modest improvement in fourth quarter.
0 2009
2011
12 Mos 4th Qtr 2014 2014
* Based on preliminary data
Composite Service Performance 2009 - 2014 2012 90% 83.1% 85%
83.3%
81.0% 76.7%
80%
75.9%
75%
69.9% 67.3%
70% 62.8%
65%
61.6% 59.3%
60% 55% 50% 2009
3
2010
2011
2012
2013
12 Mos 4th Qtr 2014 2014
Oct 2014
Nov 2014
Dec 2014
Train Speed
Better
2009 - 2014 28
26
Miles per Hour
23.9
24
23.9
23.1 21.5
22
21.2
21.2
20.6 19.7
20
19.3
19.3
18
16
2009
4
2010
2011
2012
2013
12 Mos 4th Qtr 2014 2014
Oct 2014
Nov 2014
Dec 2014
Terminal Dwell
Better
2009 - 2014 30.9
32 29.7
Average Hours
28
26.0
26 24
29.2
29.1
30
24.4
24.5
22.4 21.6
21.6
22 20 18 16 2009
5
2010
2011
2012
2013
12 Mos 4th Qtr 2014 2014
Oct 2014
Nov 2014
Dec 2014
Operating Efficiencies 4th Quarter and Full Year 2014 vs. 2013
4th Quarter
2014
+4%
+5%
0%
-1%
+ 34 %
+ 23 %
Carloads/Units per Locomotive
-4%
0%
Diesel Gallons/KGTM
-3%
-2%
Volume Crew Starts T & E Service Overtime Hours
6
Thank You
7
2014 Financial Results 2015 Capital Plan Marta R. Stewart Executive Vice President Finance and Chief Financial Officer
1
Operating Results Fourth Quarter 2014 vs. 2013 ($ millions)
Record fourth-quarter Income from Railway Operations.
2014 Railway operating revenues
$
Railway operating expenses Income from railway operations Railway operating ratio
2
$
2013
Favorable (Unfavorable) $ %
2,870 $
2,881 $
(11)
-%
1,979
2,000
21
1%
891 $
881 $
10
1%
69.0
69.4
0.4
1%
Railway Operating Expenses Fourth Quarter 2014 vs. 2013 ($ millions)
Net decrease of $21 / 1%. $7 $56
$29 $47
$46
$2,000
2013
3
$1,979
Fuel
Compensation & Benefits
Purchased Svcs & Rents
Materials & Other
Depreciation
2014
Fuel Fourth Quarter 2014 vs. 2013 ($ millions)
Net decrease of $56 / 14%.
$63
$12 $5
$403 $347
2013
Price* 17%
*% reflects locomotive fuel only 4
Consumption* +3%
Other Fuel
2014
Compensation and Benefits Fourth Quarter 2014 vs. 2013 ($ millions)
Net decrease of $47 / 6%.
• Lower post-retirement, pension and health and welfare costs • Lower incentive compensation • Increased pay rates
$761
$714
• Increased overtime • Temporary transfer program costs
2013
5
2014
Purchased Services and Rents Fourth Quarter 2014 vs. 2013 ($ millions)
Net increase of $46 / 11%.
• Higher volume-related costs: – Intermodal operations – Equipment rents – Joint facilities • Slower network velocity
$406
2013
6
$452
2014
Materials and Other Fourth Quarter 2014 vs. 2013 ($ millions)
Net increase of $29 / 15%.
• Less favorable personal injury adjustment • Higher materials expenses • Higher T&E travel and temporary housing costs
$197
2013
7
$226
2014
Depreciation Fourth Quarter 2014 vs. 2013 ($ millions)
Increase of $7 / 3%.
• Increased capital base
Properties Balance
$233 $37,032
$240
$38,508
Dec DecDec 2013 Dec 2014 2013
8
2014
2013
2014
Income Taxes Fourth Quarter 2014 vs. 2013 ($ millions)
Effective tax rate for the quarter was 35.3%.
$270 Eff. Rate
Eff. Rate
34.5%
35.3%
2013 9
$279
2014
Net Income and Diluted Earnings per Share Fourth Quarter 2014 vs. 2013 ($ millions except per share)
Earnings per Share ties 4th quarter record. Diluted Earnings per Share
Net Income Change vs. Prior Period:
$513
2013
10
$511
2014
-%
Change vs. Prior Period:
$1.64
2013
$1.64
2014
-%
Operating Results Year ($ millions)
Record operating results.
2014 Railway operating revenues
$
Railway operating expenses Income from railway operations Railway operating ratio
11
$
11,624 $
2013 11,245 $
Favorable (Unfavorable) $ % 379
3%
8,049
7,988
(61)
(1%)
3,575 $
3,257 $
318
10%
1.8
3%
69.2
71.0
Net Income and Diluted Earnings per Share Year ($ millions except per share)
Record Net Income and Earnings per Share. Net Income Change vs. Prior Period:
Diluted Earnings per Share + 8% *
Change vs. Prior Period:
$ 1,910
$1,850 *
2013
$ 6.04
$2,000
2014
$5.85 *
2013
$6.39
2014
*Excluding Michigan land sale gain - please see reconciliation to GAAP posted on our web site. 12
+ 9% *
Cash Flows and Balances Year End ($ millions)
Cash from operating activities
2014
2013
$ 2,852
$ 3,078
Capital expenditures *Free cash flow
(2,118) $
734
(1,971) $ 1,107
Returns to shareholders:
Dividends
$
(687) $
(637)
Share repurchases
$
(318) $
(627)
*Please see reconciliation to GAAP posted on our web site. 13
2015 Capital Expenditures ($ millions)
Projected spending - $2.4 billion.
$2,160
$2,395
$2,241 $1,971
2011
14
2012
2013
$2,118
2014
2015B
2015 Capital Improvement Budget Core vs. Growth vs. PTC
Maintain the network, improve service, invest for growth.
Core/Replacement Investments Rail, Tie, Ballast programs 9%
Freight car replacements
20%
Locomotive rebuild program
Growth/Productivity Investments Intermodal terminals and equipment 71%
Used locomotives Infrastructure improvements
Positive Train Control 15
2015 Capital Improvement Budget ($ millions) $199
Total Spending = $2.4 Billion
$220 Roadway $65
$927
Infrastructure Facilities & Terminals Locomotives Freight Cars
$404
Technology PTC Other Projects $104
$238 $238 16
Thank You
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