Propelling the Franchise RBC Capital Markets’ Transportation and RBC Capital Markets Transportation Industrials Conference Conference December 1, 2010 December 1, 2010 Picture1.jpg Donald W. Seale Donald W. Seale Executive Vice President & Chief Marketing Officer Executive Vice President & Norfolk Southern Corporation Chief Marketing Officer
Agenda RBC Capital Markets’ Conference • Summary of current business results • Operating metrics/productivity update • NS market drivers and outlook • Propelling the NS Franchise
Improving Financial & Operating Metrics Nine-Month Financial Highlights Propelling the Franchise Favorable % Change Income From Railway Operations $2,034 Mill. +44% Net Income $1,094 Mill. +50% Diluted Earnings Per Share $2.91 +50% Operating Ratio 71.4% +6%
Solid Revenue Gains Produce 5 Consecutive Quarters of Sequential Improvement Propelling the Franchise January – September 2010 vs. 2009 $7.1 Billion in Railway Operating Revenue – Increase of $1.3 Billion, or 22% 38% MetCon Increased Volume 36% Automotive Improved Pricing & Fuel Revenue 27% Chemicals 21% Coal 3Q 2009 – 3Q 2010 Revenue in $ Millions 18% $2,456 $2,430 Intermodal $2,238 $2,106 $2,063 14% Agriculture 7% Paper 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010
Solid Volume Gains Produce 5 Consecutive Quarters of Sequential Improvement Propelling the Franchise January – September 2010 vs. 2009 5.1 Million Units Through September – Increase of 665,200 units, or 15% Continued strong volume in 4 th quarter, – up 10% to-date 27% MetCon Solid Growth in Core Markets 21% Chemicals Strong Project Growth 17% Intermodal Conversions From the Highway 14% Agriculture 3Q 2009 – 3Q 2010 Units 10% 1,752,678 Automotive 1,719,809 9% 1,567,133 1,582,861 Coal 1,522,215 9% Paper 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010
Railway Volume 4 th Quarter-to-Date vs. 2009 Propelling the Franchise 4QTD 2010 Vs. 2009 Vs. 2009 Units Abs. % Chg. Agriculture 89,938 5,301 6% Chemicals 54,542 6,433 13% MetCon 85,766 12,888 18% Paper 42,101 (918) (2%) Automotive 42,669 (8,348) (16%) Intermodal 420,630 46,501 12% Coal 224,393 23,305 12% Total 960,039 85,162 10% Source: AAR carloadings through November 20, which are reported weekly and may not equal NS’ reported volume
Outlook – Business Portfolio Chemicals • Manufacturing recovery & project growth • Build out of ethanol network and export grain Agriculture growth Domestic Intermodal • Truckload conversions International Intermodal & • Improving imports/exports Export Coal Domestic Met Coal & Steel • Recovery in global steel production • Falling stockpiles and increased electricity Utility Coal generation • New business, improved auto production and Automotive sales • Uncertainty in housing, but improving paper Forest Products markets
Improving Railroad Productivity January - October 2010 vs. 2009 Propelling the Franchise 15% Carload Volume 5% Crew Starts (1%) Railroad Employees 16% GTMs per Employee 2% GTMs per Gallon 1% GTMs per Train Hour
Improved Safety Process Improvements Lower Operating Ratio Propelling the Franchise Operating Ratio Injury Ratio 89 RailEdge 1.4 LEADER 1.3 84 TOR ECP 1.2 79 LEAN 1.1 UTCS 74 1 Six Sigma 69 0.9 OPD TYES 0.8 64 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Y-T-D Operating Ratio Injury Ratio per 200,000 Employee Hours
Increased Revenue Per Unit Contributes to Better Operating Ratio Propelling the Franchise $2,400 $2,100 $1,800 $1,500 $1,200 $900 $600 $300 $0 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 Merchandise Intermodal Coal Total
NS Local Market Dynamics Propelling the Franchise Within our service territory: 74% of the 2009 U.S. population 58% of total energy consumption in U.S. 63% of U.S. manufacturing One study suggests that at least 30 million truck shipments over 550 miles touch our service territory
Increasing Highway Congestion - Truck Volume in 2007 Propelling the Franchise
Increasing Highway Congestion - Projected Truck Volume in 2040 Propelling the Franchise
Comprehensive Safety Analysis 2010 & the Changing Truckload Market Propelling the Franchise • CSA 2010 safety rating program – Calculates carriers & drivers safety ratings using defined set of criteria • Hours of service regulations – Reduction of workday to 10 hours of driving time FMCSA Training requirements • New regulations governing recruitment and improving training • ID requirements Imposes strict national standards for issuance of state ID documents – Net Effect – More than 300,000 drivers will be disqualified between now and 2012 – doubling current driver shortage – Driver shortage may cost shippers an additional $25 billion – Estimated that new regulations will decrease trucking productivity by over 5%
Balanced Portfolio of Business Propelling the Franchise Percentage of Total Book of Business in Revenue Agriculture 10% Energy 31% Intermodal 18% Manufacturing 41%
Balanced Portfolio of Business Intermodal Propelling the Franchise Percentage of Total Book of Business in Revenue Agriculture 10% Energy Intermodal 31% 18% Manufacturing 41%
NS Intermodal Network Flows Chicago Harrisburg Golden Triangle volume up 19% % of Jan.-Sept. Atlanta Total 2010 vs. Volume 2009 Domestic 60% 27% International 40% 10% Maps use variable scales
Ayer NS Intermodal Mechanicville Corridor Strategy Detroit Bethlehem Chicago NY/NJ Harrisburg Philadelphia Columbus Cincinnati Pritchard Roanoke Lynchburg Norfolk Charlotte Memphis Atlanta Birmingham Shreveport Meridian Jacksonville New Orleans Titusville
Ayer NS Intermodal Mechanicville Corridor Strategy Detroit Bethlehem Chicago NY/NJ Harrisburg Philadelphia Columbus Cincinnati Pritchard Roanoke Lynchburg Norfolk Charlotte Memphis Corridor Volume Jan.-Sept. Increases 2010 vs. 2009 Atlanta Birmingham Premier Route 20% Shreveport Meridian Jacksonville New Orleans Titusville
Ayer NS Intermodal Mechanicville Corridor Strategy Detroit Bethlehem Chicago NY/NJ Harrisburg Philadelphia Columbus Cincinnati Pritchard Roanoke Lynchburg Norfolk Charlotte Memphis Corridor Volume Jan.-Sept. Increases 2010 vs. 2009 Atlanta Birmingham Premier Route 20% PanAm Southern 36% Shreveport Meridian Jacksonville New Orleans Titusville
Ayer NS Intermodal Mechanicville Corridor Strategy Detroit Bethlehem Chicago NY/NJ Harrisburg Philadelphia Columbus Cincinnati Pritchard Roanoke Lynchburg Norfolk Charlotte Memphis Corridor Volume Jan.-Sept. Increases 2010 vs. 2009 Atlanta Birmingham Premier Route 20% PanAm Southern 36% Shreveport Meridian Crescent Corridor 31% Jacksonville New Orleans Titusville
Ayer NS Intermodal Mechanicville Corridor Strategy Detroit Bethlehem Chicago NY/NJ Harrisburg Philadelphia Columbus Cincinnati Pritchard Roanoke Lynchburg Norfolk Charlotte Memphis Corridor Volume Jan.-Sept. Increases 2010 vs. 2009 Atlanta Birmingham Premier Route 20% PanAm Southern 36% Shreveport Meridian Crescent Corridor 31% Meridian Speedway 40% Jacksonville Titusville 167% New Orleans Titusville
Balanced Portfolio of Business Manufacturing Network Propelling the Franchise Percentage of Total Book of Business in Revenue Agriculture 10% Energy Intermodal 31% 18% Manufacturing 41%
NS Manufacturing Network Flows Jan.-Sept. 2010 vs. 2009 Metals/Construction 27% Chemicals 21% Paper 9% Maps use variable scales Automotive 10%
Continued Success in Industrial Development Propelling the Franchise Revenue in Millions Carloads $300 140,000 $250 120,000 $200 100,000 80,000 $150 60,000 $100 40,000 $50 20,000 0 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Revenue Carloads
Industrial Development January – October 2010 Propelling the Franchise Number of New Jobs Estimated Annual Projects Carloads 59 1,022 55,076 New Industries 26 827 67,912 Expansions 85 1,849 122,988 Total Projects
Balanced Portfolio of Business Agriculture Network Propelling the Franchise Percentage of Total Book of Business in Revenue Agriculture 10% Energy Intermodal 31% 18% Manufacturing 41%
NS Agriculture Network Flows Jan.-Sept. 2010 vs. 2009 Export Grain 127% Domestic Grain 13% Fertilizer 72% Maps use variable scales 28
Balanced Portfolio of Business Energy Network Propelling the Franchise Percentage of Total Book of Business in Revenue Agriculture 10% Energy 31% Intermodal 18% Manufacturing 41%
NS Energy Network Flows N. APP/PA/OH PRB 29% 19% Illinois Basin 8% C. APP 40% Jan.-Sept. 2010 vs. 2009 Utility (5%) Alabama 3% Export 56% Domestic Metallurgical 84% Industrial 3% Maps use variable scales Ethanol 12% 30
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