FLEXIBILITY FOR GROWTH

Transcription

1 FLEXIBILITY FOR GROWTH MIDWEST ASSOCIATION OF RAIL SHIPPERS 2016 SUMMER MEETING Alan H. Shaw Executive Vice President and Chief Marketing Officer

2 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. These statements relate to future events or Norfolk Southern Corporation s (NYSE: NSC) ( Norfolk Southern, NS or the Company ) future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements. 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. The Company has based these forward-looking statements on management s current expectations, assumptions, estimates, beliefs and projections. While the Company believes these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which involve factors or circumstances that are beyond the Company s control. These and other important factors, including those discussed under Risk Factors in the Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (the SEC ) on February 8, 2016, as well as the Company s subsequent filings with the SEC, may cause our actual results, performance or achievements to differ materially from those expressed or implied by these forwardlooking 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.

3 NORFOLK SOUTHERN FOOTPRINT Extensive Network Reach Supports Future Growth Norfolk Southern s network interfaces with: More than 50% of the US population, manufacturing activity, and energy consumption Estimated 50M+ long-haul (1) truck shipments in our service area Note: (1) Over 550 miles ~20,000 Route Miles of Track 22 States Served by Network 40+ Ports 240+ Short Lines

4 TRAFFIC BASE EVOLVING IN LONGER TERM 2006 Volume 2015 Volume 22% 37% 14% 34% 41% 52% Merchandise Intermodal Coal

5 NORFOLK SOUTHERN STRATEGIC PLAN Consistently Deliver Efficient and Superior Service to Build a More Profitable Franchise Promote Growth as Market Leader Optimize Capital Allocation Revising Operating Model Improving Network Performance Addressing Customer Needs Managing Headcount Improving Locomotive Productivity Optimizing Pricing Growing Share in Service-Sensitive Businesses Maximizing Unique Position to Secure Highway to Rail Conversions Prioritizing Capital Investment Rationalizing Non-Core Facilities and Lines Pursuing Tuck-In M&A Opportunities to Enhance Existing Network Increasing Returns on Equity Returning Significant Capital to Shareholders

6 OUR FOCUS Service Growth Customers and Shareholders Return on Assets

7 SPEED DRIVES CUSTOMER SATISFACTION AND EFFICIENCY + Service product of consistency, reliability and availability + Less overtime + Lower fuel costs + Lower asset costs + Lower car-hire costs + Fewer recrews Cost Index New Plan Previous Plan Cost initiatives = lower curve = Lower cost and more profitable railroad Lower cost and more profitable railroad Speed = Productivity Lower Train Speed Faster

8 INVESTMENTS FOCUSED ON SUPERIOR SERVICE $1.1 Billion: Rail, Infrastructure and Facility Improvements Replacement of rail, ties, ballast and bridges Projects to improve service in the Midwest and the Chicago area Intermodal, Automotive, Merchandise and Mechanical Facility improvements $0.5 Billion: Equipment Freight Cars Locomotives

9 ADAPTING TO OUR CHANGING MARKETS Increasing capacity at Bellevue Classification yard Restructuring of Triple Crown operations to focus on core auto parts network Acquisition of Delaware & Hudson South Consolidation of operating divisions and regions Leasing of the West Virginia Secondary line Idling of Ashtabula Coal Pier Idling of Knoxville Classification yard Aligning capital spending to needs and growth opportunities

10 IMPROVED SERVICE PRODUCT 26 Train Speed & Terminal Dwell 36 Better Train Speed (MPH) Better Terminal Dwell (hours) Train Speed Terminal Dwell

11 FIRST QUARTER HIGHLIGHTS Improved service supported record OR % vs. PY Service Improvement Railway operating revenues (6%) 80% 24 Railway operating expenses 13% Railway operating ratio 8% Income from railway operations 19% Composite Performance 75% 70% 65% 60% 55% Train Speed (mph) EPS 29% 50% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 14

12 CURRENT ECONOMIC ENVIRONMENT

13 CHANGING ECONOMIC PROJECTIONS Positive for NS Revenue Negative for NS Revenue Indicator 2016 Projection as of: Dec 2015 Mar 2016 June 2016 GDP (IHS) +2.7% +2.3% +1.9% Housing Starts (millions) N.A. Vehicle Production (millions) Industrial Production +1.0% -0.7% -1.4% Real Consumer Spending +3.1% +2.9% +2.8% WTI Crude Price ($/barrel) $40.54 $39.14 $43.14 Henry Hub Nat Gas Price ($/mmbtu) $2.88 $2.25 $2.22 USD Exchange Rate With Major Trading Partners +4.7% +5.6% 0.0% Indicator Most recent update available as of: Dec 2015 Mar 2016 June 2016 Inventories/Sales Ratio* (total business, adjusted) Source: IHS; WardsAuto Forecast; EIA; Census Bureau * Inventories/Sales ratio from 2 months prior

14 CONSUMER SPENDING GAINS NEEDED TO LIMIT ADDITIONAL INVENTORY GROWTH Inventories vs. Sales (Index 2014: January=100) Durable Goods $1,400 $1,350 $1,300 $1,250 $1,200 $1,150 $1,100 $1,050 $1,000 Personal Consumption Expenditures (in Billions of Dollars, Seasonally Adjusted) $2,800 $2,700 $2,600 $2,500 $2,400 $2,300 $2,200 Nondurable Goods Source: Census Bureau; BEA Sales Inventories Durable Goods Nondurable Goods

15 MANUFACTURING IMPROVEMENT; INDUSTRIAL PRODUCTION CONTINUES TO LAG ISM Manufacturing: PMI (Seasonally Adjusted) Expanding Contracting 1.0% 0.5% 0.0% (0.5%) (1.0%) (1.5%) (2.0%) (2.5%) (0.2%) U.S. Industrial Production (YoY Percent Change) 0.3% 0.4% (0.3%) (0.5%) (2.0%) (2.3%) (1.3%) (1.8%) (2.0%) (1.2%) (1.4%) Source: Institute for Supply Management, Federal Reserve

16 INTERNATIONAL TRADE 98.0 Trade Weighted US Dollar vs. Basket of Currencies 96.0 Index 1973 = Cosco Shipping Panama, the first ship through the newly expanded Panama Canal on June 26, Source: Federal Reserve; AP

17 VOLUME IMPACTED BY MARKET CONDITIONS 160, ,000 Weekly Volume 150, , , , , , , * 22* ** 27** Week * Weeks 21 and 22 impacted by Memorial Day ** Weeks 26 and 27 impacted by Fourth of July

18 YTD VOLUME FOLLOWS ECONOMIC TRENDS Change in Units YTD 2016 vs Automotive 8% 3,919.4 Total Units (000 s) YTD 2016 vs ,702.3 Met/Con (2%) (3%) (4%) (9%) 0% Agriculture Intermodal Paper Chemicals (6%) (23%) Coal Year to date through Week 27, 2016 (ended July 9, 2016)

19 POTENTIAL FOR INCREASED TRUCK CONVERSIONS Two-thirds of the nation s freight (by weight) moves by truck US Class I Operating Revenue is roughly 10% of the size of the gross freight revenue for the domestic trucking industry 255,008 80, Loadings (000s) by Length of Haul 207, ,606 Short-Haul (<125 mi) Medium-Haul (from 125 to 299 mi) Long-Haul (from 300 to 549 mi) Super Long-Haul (550+ mi) Source: AAR; FTR

20 CAPACITY LOOSER IN NEAR TERM; EXPECTED TO TIGHTEN 105% Active Truck Utilization (%) 6% YoY Change in Dry Van Rates (seasonally adjusted, rev/mi, without fuel) 100% 95% 90% 85% 80% 4% 2% 0% (2%) (4%) (6%) Source: FTR

21 GOOD OPPORTUNITY TO SHIFT TO RAIL Flexibility to adapt to changing market conditions Investment focused on operational fluidity Service product that promotes consistency, reliability, availability Truck capacity is set to tighten

22 THANK YOU NORFOLK SOUTHERN