Second Quarter 2016 Earnings Call

Transcription

1 Second Quarter 2016 Earnings Call August 1,

2 Forward-Looking Statements This presentation contains forward-looking statements regarding future events and the future performance of that involve risks and uncertainties that could cause actual results to differ materially from those expressed or forecasted, including, but not limited to, risks related to the operation of our railroads, severe weather conditions and other natural occurrences, economic and market conditions (including employee strikes or work stoppages), the credit risk of customers and counterparties, customer demand, railroad network congestion, derailments, currency fluctuations, changes in commodity prices, increased competition in the relevant market, and others, many of which are beyond our control. The Company refers you to the documents that it files from time to time with the Securities and Exchange Commission, such as the Company s Forms 10-Q and 10-K, which contain additional important factors that could cause its actual results to differ from its current expectations and from the forward-looking statements discussed during this presentation. Forward-looking statements speak only as of the date of this presentation or the date they were made. does not undertake, and expressly disclaims, any duty to update any forward-looking statement contained in this presentation whether as a result of new information, future events or otherwise, except as required by law. 2

3 G&W Safety Performance 2016 Injury Frequency Rate per 200,000 man-hours G&W and Freightliner through June; others through April FRA Group 2 FRA Group 3 KCS NS Freightliner (a) a) Includes Freightliner operations in U.K., Europe and Australia b) Excludes Freightliner operations Class I Avg CSX BNSF UP G&W (b) 3

4 Q EPS Results Versus Guidance ($ in millions, except per share amounts) Q Actual Q Guidance Variance Variance % Net Income $ 48.4 $ 45.0 $ 3.4 8% Corporate Development and Related Costs 1.8 Restructuring Costs 4.0 Net Gain on Sale of Assets (0.2) Adjusted Net Income (a) $ 54.0 $ 45.0 $ % Diluted EPS $ 0.83 $ $0.80 $ % Adjusted Diluted EPS (a) $ 0.93 $ $0.80 $ % (a) Adjusted Net income and Adjusted Diluted Earnings Per Share (EPS) are non-gaap financial measures. Reconciliations of non-gaap financial measures accompany this presentation. 4

5 Q Operating Results Versus Guidance ($ in millions) Q Actual Q Guidance Variance Variance % Operating Revenues $ $ 490 $ % Operating Income $ 87.2 Operating Ratio 82.6% Corporate Development and Related Costs 2.6 Restructuring Costs 5.0 Net Gain on Sale of Assets (0.3) Adjusted Operating Income (a) $ 94.4 $ 84 $ % Adjusted Operating Ratio (a) 81.2% ~83% 180 bps Variance ($ in millions) Operating Revenues Adjusted Operating Income (a) North America $ 9.6 $ 10.8 Australia U.K./Europe 1.5 (1.6) Variance to Guidance $ 11.4 $ 10.4 Notes Revenue Mix and Cost Control NM Europe Intermodal, Poland Aggregates (a) Adjusted Operating Income and Adjusted Operating Ratio are non-gaap financial measures. Reconciliations of non-gaap financial measures accompany this presentation. 5

6 North American Operations: Q vs. Q Operating Revenues declined $6.4 million (or $5.2 million, excluding FX (a) ) $4.4 million, or 2%, decrease in freight revenues (lower utility coal, agricultural products and pulp and paper, partially offset by petroleum products (NGLs)) Operating Income increased $2.4 million, or 3.1% (Adjusted Operating Income increased $3.7 million, or 4.8%) (b) Favorable revenue mix and strong cost controls (US$ in millions) Q Q Change % Change % Change (ex. FX (a) ) Operating Revenues $ $ $ (6.4) (2.1%) (1.7%) Operating Income $ 79.0 $ 76.6 $ % 3.2% Operating Ratio 74.1% 75.4% 130 bps Adjusted Operating Income (b) $ 80.8 $ 77.1 $ % 4.9% Adjusted Operating Ratio (b) 73.5% 75.2% 170 bps (a) Foreign Exchange (FX) impact is calculated by comparing the prior period results translated from local currency to U.S. dollars using current period exchange rates to the prior period results in U.S. dollars as reported. (b) Adjusted Operating Income and Adjusted Operating Ratio are non-gaap financial measures. Reconciliations of non-gaap financial measures accompany this presentation. 6

7 Australian Operations: Q vs. Q Operating Revenues declined $11.5 million (or $8.8 million, excluding FX (a) ) $7.8 million, or 38%, decrease in Australian mining revenues (primarily fixed payment from now closed Southern Iron mine) Q included 1x move of manganese stockpile Operating Income decreased $5.8 million, or 38.0% (Adjusted Operating Income decreased $4.7 million, or 31.6%) (b) (US$ in millions) Q Q Change % Change % Change (ex. FX (a) ) Operating Revenues $ 55.3 $ 66.8 $ (11.5) (17.3%) (13.8%) Operating Income $ 9.4 $ 15.1 $ (5.8) (38.0%) (35.4%) Operating Ratio 83.0% 77.4% (560 bps) Adjusted Operating Income (b) $ 10.2 $ 15.0 $ (4.7) (31.6%) (28.7%) Adjusted Operating Ratio (b) 81.5% 77.6% (390 bps) (a) Foreign Exchange (FX) impact is calculated by comparing the prior period results translated from local currency to U.S. dollars using current period exchange rates to the prior period results in U.S. dollars as reported. (b) Adjusted Operating Income and Adjusted Operating Ratio are non-gaap financial measures. Reconciliations of non-gaap financial measures accompany this presentation. 7

8 U.K./European Operations: Q vs. Q Restructuring of U.K. coal business successfully completed in Q (restructuring charges of $4.6 million) Operating Revenues declined $22.9 million (or $15.9 million, excluding FX (a) ) $5.1 million, or 60%, decline in coal traffic $12.6 million, or 32%, decrease in Continental Europe intermodal revenues (freight + freight-related) Operating Income decreased $8.9 million (Adjusted Operating Income decreased $4.3 million, or 56.1%) (b) Impact of coal restructuring fully reflected in 2H 2016 Continental Europe focus on route rationalization (US$ in millions) Q Q Change % Change % Change (ex. FX (a) ) Operating Revenues $ $ $ (22.9) (13.9%) (10.1%) Operating Income $ (1.2) $ 7.7 $ (8.9) NM NM Operating Ratio 100.9% 95.3% (560 bps) Adjusted Operating Income (b) $ 3.4 $ 7.7 $ (4.3) (56.1%) (52.7%) Adjusted Operating Ratio (b) 97.6% 95.3% (230 bps) (a) Foreign Exchange (FX) impact is calculated by comparing the prior period results translated from local currency to U.S. dollars using current period exchange rates to the prior period results in U.S. dollars as reported. (b) Adjusted Operating Income and Adjusted Operating Ratio are non-gaap financial measures. A reconciliation of non-gaap financial measures accompany this presentation. 8

9 Priorities for 2H 2016 G&W Overall Safety Acquisitions and Investments Deliver Q3 and Q4 financial results similar to Q2 performance North American Operations Sustain solid results in an uneven economy Complete consolidation of Ohio Valley Region: now split between Midwest Region and Northeast Region U.S. Short Line Tax Credit extension Australian Operations Efficiency focus amidst modestly improving commodity environment U.K./ European Operations U.K. Efficiency following coal restructuring Commercial improvements to Continental Europe intermodal 9

10 North American Operations Operating Revenues: Q vs. Q ($ millions) $325 $300 ($1.2) ($5.9) ($6.8) $2.4 $3.5 $1.6 (2.1%) ($6.4) $311.0 $304.6 $275 (a) Change in presentation of revenues from certain port terminal railroad operations that were previously presented net of the related costs incurred. 10

11 North American Operations Carloads: Q vs. Q Commodity Change % Comment Agricultural Products (4,360) (8%) Low Grain Prices; Lower Export Volumes Autos & Auto Parts 696 9% Chemicals & Plastics (762) (2%) Coal & Coke (17,208) (27%) Utility Coal Food & Kindred Products (278) (2%) Intermodal - 0% Lumber & Forest Products (405) (1%) Metallic Ores 8 0% Metals 745 2% Pig Iron Minerals & Stone (3,990) (7%) Lower Rock Salt and Frac Sand; Higher Aggregates Petroleum Products 1,607 7% LPGs/NGLs and 1x Canada move Pulp & Paper (4,174) (9%) Truck Competition; Plant Consolidation After Merger Waste 1,296 13% New Contract Other (940) (5%) Total Carloads (27,765) (7%) 11

12 North American Operations Freight Revenues Average Revenues Per Carload Q Q Change Average Revenues Per Carload $ 588 $ % Changes in Commodity Mix (a) 2.0% Fuel Surcharge (2.7%) FX (Depreciation of C$) (b) (0.3%) Average Revenues Per Carload (excl. Mix, Fuel, FX) (c)(d) 3.3% (a) Changes in Commodity Mix illustrates changes between commodity groups, not within a commodity group (b) Foreign Exchange (FX) impact is calculated by comparing the prior period results translated from local currency to U.S. dollars using current period exchange rates to the prior period results in U.S. dollars as reported. (c) Average Revenues per Carload impacted by changes in customer mix within Coal and Minerals and Stone commodity groups (d) North American core pricing increased approximately 3.5% - 4.0% 12

13 Australian Operations Operating Revenues: Q vs. Q ($ millions) $70 ($2.7) $60 ($7.8) ($1.0) (17.3%) ($11.5) $50 $66.8 $40 $55.3 $30 Q FX Australia Mining Other Q

14 U.K./European Operations Operating Revenues: Q vs. Q ($ millions) $180 $160 ($7.0) ($12.6) ($22.9) $140 ($5.1) $1.8 (13.9%) $164.4 $120 $141.5 $100 Q FX Continental Intermodal Coal Other Q

15 Trends Impacting Guidance for 2H 2016 North American Operations Rates: 2% - 3% core freight pricing Weaker Carloads: Pulp & Paper and Petroleum Products Uncertain Carloads: Agricultural Products and Steel-related Fuel Price: DOE diesel $2.45/gallon versus $2.25/gallon in April guidance Expect ~$5 million negative impact at current fuel prices Australian Operations FX: Revenue impact ~$3 million 15

16 Trends Impacting Guidance for 2H 2016 (cont.) U.K./European Operations 10% British Pound depreciation following Brexit vote: (~$20 million revenue impact) U.K. Operations in line with expectations 2H 2016 operating income outlook approximately $6 million lower than previous guidance Depreciation of British Pound Weaker Continental Europe intermodal business Non-cash expense from accretion of Freightliner deferred consideration 16

17 Guidance Third Quarter 2016 ($ in millions, except per share amounts) North America Australia U.K./Europe Consolidated Q Guidance Operating Revenues ~$305 ~$55 ~$140 ~$500 Operating Ratio ~74% ~86% ~95% 81% - 82% Operating Income (a) ~$78 ~$8 ~$7 $90 - $95 Net Interest Expense ~$17 Depreciation and Amortization (b) ~$41 ~$8 ~$7 ~$56 Effective Tax Rate ~29% Diluted EPS $ $0.95 Diluted Shares 58.1 Q Carload Volumes 380, ,000 45,000-50, , ,000 % Change versus prior year (6%) - (9%) (7%) - 3% (3%) - 0% FX C$1.00 = US$0.76 A$1.00 = US$ = US$ = US$1.10 (a) Guidance for Q U.K./Europe operating income includes approximately $0.6 million of non-cash expense associated with the accretion of Freightliner deferred consideration full year impact estimated at approximately $2 million. (b) Includes amortization of non-cash equity compensation expense of $5 million and D&A of $51 million. 17

18 Guidance Fourth Quarter 2016 ($ in millions, except per share amounts) North America Australia U.K./Europe Consolidated Q Guidance Operating Revenues ~$300 ~$55 ~$135 ~$490 Operating Ratio ~74% ~87% ~93% 81% - 82% Operating Income (a) ~$78 ~$7 ~$9 $90 - $95 Net Interest Expense ~$18 Depreciation and Amortization (b) ~$41 ~$8 ~$7 ~$56 Effective Tax Rate ~29% Diluted EPS $ $0.95 Diluted Shares 58.2 Q Carload Volumes 380, ,000 44,000-48, , ,000 % Change versus prior year +/- 2% (5%) - 4% 3% - 7% FX C$1.00 = US$0.76 A$1.00 = US$ = US$ = US$1.10 (a) Guidance for Q U.K./Europe operating income includes approximately $0.6 million of non-cash expense associated with the accretion of Freightliner deferred consideration full year impact estimated at approximately $2 million. (b) Includes amortization of non-cash equity compensation expense of $5 million and D&A of $51 million. 18

19 Balance Sheet Net Debt (a) of $2.1 billion at June 30, x Net Debt/Adjusted EBITDA (b) at June 30, 2016 ($ in millions) 6/30/2016 Cash & Equivalents $ 25 Debt: Senior Secured Credit Facility, due March 2020 $ 2,089 Other Debt 77 TOTAL DEBT $ 2,166 Total Equity $ 2,591 TOTAL CAPITALIZATION $ 4,757 Debt/Total Capitalization 46% Net Debt/Total Capitalization 45% (a) Net Debt is calculated as Total Debt less Cash and Equivalents. (b) Adjusted EBITDA is a non-gaap financial measure. Reconciliations of non-gaap financial measures accompany this presentation. 19

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