Stifel 2017 Annual Transportation & Logistics Conference - PowerPoint PPT Presentation

Stifel 2017 Annual Transportation & Logistics Conference February 14, 2017 Marta R. Stewart Executive Vice President Finance and Chief Financial Officer 1

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. 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. Forward-looking statements are made as of the date they were first issued and reflect the good- faith evaluation of Norfolk Southern Corporation’s (NYSE: NSC ) (“Norfolk Southern” or the “Company”) management of information currently available. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. These and other important factors, including those discussed under “Risk Factors” in the Company’s Form 10 -K for the year ended December 31, 2016, as well as the Company’s other public filings with the SEC, may cause our actual results, performance or achievement to differ materially from those expressed or implied by these forward-looking 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. 2

2016 Improvements in Service and Efficiency Composite Service Metric 2016 Efficiency Initiatives  Consolidated from 11 divisions to 10  Consolidated from 3 regions to 2 80% 72%  Idled Knoxville hump yard & terminal  Idled Ashtabula coal dock 2015 2016 GTM / T&E Employee  Restructured coal subsidiary (Millions)  Rationalized over 1,000 line miles, + 6% including short lining, concentrating flows, and speed reductions 33.1 31.3 2015 2016 NS achieves balance between service and efficiency 3

2016 Financial Highlights 2016 vs. 2015 ($ millions except per share) Income from Operations Operating Ratio % + 7% Record 72.6 $3,074 $2,884 68.9 2015 2016 2015 2016 Earnings Per Share Free Cash Flow (1) + 10% $5.62 $1,147 $5.10 $523 2015 2016 2015 2016 Operational efficiencies produced solid financial results 4 1. Please see reconciliation to GAAP posted on our website.

2017: Return to Growth Volume Pricing  Focus on pricing  Improved economic conditions − Solid pricing to continue  Intermodal volume gains − − Domestic truck rate increases projected Strong service product as capacity tightens − Tightening capacity in the trucking − market Leveraging value of service product  Coal growth with market normalization  Long-term view of markets and pricing − Normal weather conditions and higher natural gas prices − Export improving but volatile Volume and Resource Alignment  Merchandise flat overall − Continued challenges in energy markets  Adapt and evolve through changing market − Automotive plant downtime conditions and volume expectations − Improving construction activity Solid pricing and strong Intermodal volumes position NS for growth in 2017 5

Planning for Growth  People  Equipment  Targeted capital investment 6

People  New crew planning model  Minimum T&E employee levels at core locations on main routes  Guaranteed extraboards for all engineers and conductor pools  Predictable workforce scheduling 7

Equipment  Locomotive Acquisition and Rebuilds  New locomotives  Acceleration of DC-to-AC rebuilds  Maintain surge fleet  Streamlined Freight Car Fleet  New technology to optimize distribution of empties  More homogeneous fleet  More flexible car types 8

2017 Infrastructure Upgrades Buffalo Mechanicville Crossovers and Sidings Detroit Ayer Des Moines Chicago Toledo Cleveland Crossovers and Signaling Connection Track Northern NJ Columbus Pittsburgh Philadelphia Cincinnati Kansas City Baltimore Louisville St. Louis Siding Extension Norfolk Knoxville Memphis Charlotte Atlanta Birmingham Charleston Dallas Shreveport Savannah Jacksonville Mobile New Orleans 9

2017 Intermodal Terminal Expansions Buffalo Mechanicville Detroit Ayer Des Moines Chicago Cleveland Pittsburgh Croxton Philadelphia Columbus Cincinnati Kansas City Baltimore Louisville St. Louis Norfolk Knoxville Memphis Charlotte Atlanta Birmingham Charleston Dallas Shreveport Savannah Jacksonville Mobile New Orleans 10

Improving the Customer Experience  Improved customer portal  Maintain service levels and consistency  Shared KPIs 11

Focus on Efficiency  Current headcount will absorb modest volume increase  Locomotive fleet remains steady, handles additional volume, and maintains surge fleet  Continue to improve fuel efficiency  Leveraging locomotive productivity  Increased use of distributed power  Utilizing technology (LEADER and Trip Optimizer) 12

2017 Weekly Volume Q1 Q2 Q3 Q4 160,000 2015 155,000 2016 150,000 2017 145,000 140,000 Weekly Volume 135,000 130,000 125,000 120,000 115,000 110,000 105,000 100,000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Week Strong comparisons versus weak January 2016 13

Current Railway Volume First quarter AAR carloads through week 6 (ended February 11, 2017) Total units (000’s) 4.7% increase in units AAR 1QTD 2017 vs. 2016 843.4 805.8 23,257; Coal 24% 12,313; Intermodal 3% 6,535; MetCon 10% (367); Agriculture +4.7% (1%) (891); Automotive (2%) (1,478); Paper (4%) (1,739); Chemicals (3%) 2016 2017 Coal volume greatly improved year-over-year 14

Coal Drivers  Utility: Natural Gas Prices - Henry Hub $7 ‒ Weather $6 ‒ Natural gas prices Dollars per MMBtu $5 $4 ‒ Stockpiles $3  Export: $2 $1 ‒ Market prices $0 ‒ Production availability Export Prices Utility - Total Stockpiles $300 100 $280 $260 80 $240 Days of Burn $220 $200 60 $180 $160 $140 40 $120 $100 $80 20 $60 $40 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017* Queensland Coking Coal API 2 * API 2 for 1Q projected from forward curve 15 Source: EIA; Platts; SNL; NYMEX; EVA

Current Railway Volume First quarter AAR carloads through week 6 (ended February 11, 2017) Total units (000’s) 4.7% increase in units AAR 1QTD 2017 vs. 2016 843.4 805.8 23,257; Coal 24% 12,313; Intermodal 3% 6,535; MetCon 10% (367); Agriculture +4.7% (1%) (891); Automotive (2%) (1,478); Paper (4%) (1,739); Chemicals (3%) 2016 2017 Strength in Intermodal and Metals markets 16

Net Fuel Impact 2016 vs. 2015 ( $ in millions) Q1 Q2 Q3 Q4 2016 Decrease in fuel surcharge revenue $ (114) $ (69) $ (46) $ (12) $ (241) Decrease in fuel expense (115) (81) (40) - (236) Net change in operating income $ 1 $ 12 $ (6) $ (12) $ (5) Percentage change in OHD 40% 30% 21% 20% 10% 2% 0% -10% -10% -20% -19% -30% -29% -40% 1Q16 2Q16 3Q16 4Q16 Jan 17 17

Service Metrics – 1QTD (through 02/10) 2016 2017 Composite  Continued service focus 78.6 78.3  Maintain train speeds Speed (mph)  Handle 5% higher volume 23.6 22.9 18

2017 Expense Outlook Outlook Compensation and benefits: Flat as lower non-train and engine (T&E) levels offset Headcount increased T&E base Efficiencies Leverage from top line growth, and overtime reductions Wage and H&W rates 5% combined wage and health and welfare inflation rates Depreciation Increases with larger capital base, ~ 3.5% Materials Aligned with 2H16 normalized quarterly run rate Inflation and volume-related increases, partly offset by Other productivity Balancing resources to support volume growth while building on efficiencies 19

Continued Progress on Strategic Plan Key Financial Targets Key Focus Areas 2016 Actual 2020 Target Optimize revenue – both pricing Disciplined pricing increases above rail inflation and volume Improve productivity to deliver Operating Ratio < 70 Operating Ratio < 65 efficient and superior service Increase asset utilization Double-digit compound annual EPS growth Focus capital investment to CapEx ~19% of revenue CapEx ~17% of revenue support long-term value creation Dividend payout target of ~33% over the longer term and Reward shareholders with continuation of dividend growth and significant share significant return of capital repurchases 20

Delivering Value to Shareholders 2006 through 2016 13% CAGR in Dividends $6.1 Billion Dividends per share 160.3M shares Share $10.3 Billion Repurchases avg. ~ $64.34 per share 21

Thank You 22