2012 Citi Global Industrials Conference September 20, 2012 John P. Rathbone Executive Vice President Finance and Chief Financial Officer
Norfolk Southern Update Second Quarter Results Third Quarter Update Market Drivers Business Outlook
Operating Results Second Quarter 2012 vs. 2011 ($ Millions) Second Qtr Second Qtr Favorable 2012 2011 $ % Railway operating revenues $ 2,874 $ 2,866 $ 8 -- Railway operating expenses 1,940 1,991 51 3% Income from railway operations $ 934 $ 875 $ 59 7% Railway operating ratio 67.5 69.5 2.0 3%
Norfolk Southern Update Second Quarter Results Third Quarter Update Market Drivers Business Outlook
Total Railway Volume 3Q 2011 – 3Q 2012 Units (000) 1,809.9 1,806.7 1,799.3 ~1,780 1,730.8 YOY - 2% 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 Forecast
Coal Carloads 3Q 2011 – 3Q 2012 Units (000) 405.1 405.8 359.0 354.8 ~350 YOY - 13% 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 Forecast
General Merchandise Carloads 3Q 2011 – 3Q 2012 Units (000) 604.1 586.8 578.1 ~570 566.0 YOY - 1% 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 Forecast
Intermodal Units 3Q 2011 – 3Q 2012 Units (000) ~860 840.4 834.9 826.7 785.0 YOY + 4% 3Q '11 4Q '11 1Q '12 2Q '12 3Q '12 Forecast
Revenues – Year over Year 3Q12 Fcst vs. 3Q11 Volumes ~($120) FSC Lag ~($80) Total Variance ~($200)
Merchandise Volume 2Q12 vs. 2Q11 and 3Q12 vs. 3Q11 +4% -1% Change in Units Change in Units 2Q12 vs. 2Q11 3Q12 Fcst vs. 3Q11 16% 8% Automotive 4% -8% MetCon 3% 5% Chemicals Agriculture 0% 0% (3%) Paper (5%)
Train Speed 2012 - YTD through September 7, 2012 NS Train Speed Better (miles per hour) 25.5 25.0 24.5 24.0 23.5 23.0 22.5 22.0 21.5 Source: As reported publicly to the AAR
Terminal Dwell 2012 - YTD through September 7, 2012 NS Terminal Dwell Better (hours) 25.0 24.0 23.0 22.0 21.0 20.0 19.0 18.0 17.0 16.0 Source: As reported publicly to the AAR
Composite Service Performance 1Q10 – 3Q12* 84% 82% 80% 78% 76% 74% 72% 70% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12* * 3Q12 reflects August quarter-to-date.
Norfolk Southern Update Second Quarter Results Third Quarter Update Market Drivers Business Outlook
Market Drivers • Automotive strength • Sourcing and regulatory changes in coal • Energy exploration and drilling activity • U.S. crop conditions • Consecutive year-over-year growth in housing starts • Highway conversions for Intermodal
Continued Strength in Automotive • Automotive volume up 18% YTD • North American vehicle production forecasted at 15.4 million units for 2012, up 15% vs. last year • Average vehicle age at all-time high Vehicle Age US Vehicle U.S. Vehicle Age vs. Sales (yrs.) Sales (M) 12 20 18 11 16 10 14 9 12 8 10 7 8 6 6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Ward’s, Polk
NS Coal Tonnage YTD 2012 – 99.7M tons Western 17.4 M Tons 17% Northern Appalachia 26.7 M Tons 27% Illinois Basin 12.9 M Tons Central 13% Appalachia 40.4 M Tons Southern 41% Appalachia 2.3 M Tons Norfolk Southern 2% Railway and its Railroad Operating Subsidiaries - - - NS Trackage and Haulage Rights Excludes coke & iron ore
Marcellus & Utica Shale Deposits NS Shale Volume Up 27% YTD vs. 2011
Drilling Activity in NS Service Region YTD Permit and Rig Activity in PA, OH, WV Active Rigs Permits 250 3,000 2,500 200 2,000 150 1,500 100 1,000 • New York pending decision to lift moratorium 50 500 • Market shift from dry to wet gas • Natural gas price above $3.00 in September 0 0 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Source: EIA, RigData
Crude Oil to East Coast, Gulf Coast and Midwest Refineries Alberta Chicago Bakken • Efficient and direct routing to East Coast, Gulf Coast and Midwest refineries • Unit train staging & delivery
Grain Market Sourcing and Service Flexibility • Sourcing from non-traditional origins • Additional West to East flows • Imports through East coast ports • Rationalization in ethanol production 90 day Precipitation During growing season Yield (bu/ac) Corn Yield and Price Price ($/bu) $8 150 $6 100 $4 50 $2 0 $0 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 Crop Year Source: NOAA, USDA
Intermodal Corridors Harrisburg 2Q 2012 1H 2012 Corridor vs. 2011 vs. 2011 Pan Am 3% 9% Southern Crescent 22% 22% Corridor Heartland 27% 23% Corridor Meridian 14% 12% Speedway
Crescent Corridor Sets the Stage for up to 34 New Service Lanes in 2013 Bethlehem Harrisburg Greencastle Memphis To/From West Charlotte Atlanta Birmingham Meridian Meridian New Orleans To/From Mexico To Mexico Terminal Investments
New Terminal Capacity on Crescent Corridor New investment, plus current capacity, will support over 500,000 new revenue moves in Crescent related lanes Total NS Incremental Targeted Terminal Investment Investment lifts Completion $M $M Rossville 200,000 $137.9 $76.0 2012 Birmingham 150,000 $101.5 $42.4 2012 Charlotte 115,000 $90.9 $75.1 2013 Greencastle 150,000 $99.9 $54.9 2012 Rutherford 95,000 $60.9 $45.9 2014 Harrisburg 97,000 $30.1 $10.1 2013 Total 807,000 $521.2 $304.4
Norfolk Southern Update Second Quarter Results Third Quarter Update Market Drivers Business Outlook
Business Outlook Coal Utility coal impacted by higher stockpiles in first half and competition from natural gas Moderating strength, but continued growth in the domestic metallurgical market to support steel production Weaker demand in European market for both met and steam coal Softening opportunities in Asian market
Business Outlook Coal Utility coal impacted by higher stockpiles in first half and competition from natural gas Moderating strength, but continued growth in the domestic metallurgical market to support steel production Weaker demand in European market for both met and steam coal Softening opportunities in Asian market Merchandise Project growth in crude oil and demand for plastics Moderating growth in materials for natural gas drilling operations Solid automotive/steel production and new business development projects Reduced U.S. corn and soybean crop
Business Outlook Coal Utility coal impacted by higher stockpiles in first half and competition from natural gas Moderating strength, but continued growth in the domestic metallurgical market to support steel production Weaker demand in European market for both met and steam coal Softening opportunities in Asian market Merchandise Project growth in crude oil and demand for plastics Moderating growth in materials for natural gas drilling operations Solid automotive/steel production and new business development projects Reduced U.S. corn and soybean crop Intermodal Increasing opportunities for highway conversion - tightening truck capacity New Memphis terminal open July 1 Growth with NS international shipping partners Expansion in premium market segment
Thank You
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