2007 BB&T Transportation Conference

Transcription

1 2007 BB&T Transportation Conference February 15, 2007 Rob Knight, Chief Financial Officer

2 Cautionary Information This press release and related materials contain statements about the Corporation s future that are not statements of historical fact, including statements regarding future operational and financial improvements and views regarding economic indicators and the Corporation s outlook regarding future performance and financial results. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of Forward-looking statements also include, without limitation, information or statements regarding: expectations as to continued or increasing demand for rail transportation services; expectations regarding operational improvements, including the effectiveness of network management initiatives that have been or will be implemented to improve operations, customer service, and shareholder returns; expectations as to increased returns, cost savings, revenue growth, and earnings; expectations regarding fuel price and our ability to mitigate fuel costs; the time by which certain objectives will be achieved, including expected improvements in operations and implementation of network management initiatives; estimates of costs relating to environmental remediation and restoration; proposed new products and services; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial position, results of operations, or liquidity; statements concerning projections, predictions, expectations, estimates or forecasts as to the Corporation s and its subsidiaries business, financial, and operational results, and future economic performance; and statements of management s beliefs, expectations, goals, and objectives and other similar expressions concerning matters that are not historical facts. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forward-looking information, including expectations regarding operational and financial improvements and the Corporation s future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement. Important factors that could affect the Corporation s and its subsidiaries future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements include, but are not limited to: whether the Corporation and its subsidiaries are fully successful in implementing their financial and operational initiatives, including those plans and management initiatives to improve system velocity and network performance or otherwise improve operations; the outcome of claims and litigation, environmental contamination, personal injuries, and occupational illnesses arising from hearing loss, repetitive motion and exposure to asbestos and diesel fumes; the impact of a rail accident involving the release of hazardous materials, which we are required to transport under federal law; legislative and regulatory developments, including possible enactment of initiatives to re-regulate the rail industry; changes in labor costs, labor stoppages, and the availability of qualified personnel required for our operations; the impact of ongoing track maintenance, upgrades, and restoration work being performed in the Southern Powder River Basin of Wyoming; natural events such as severe weather, fire, floods, hurricanes and earthquakes; changes in fuel prices or changes to our ability to recover fuel costs, including any changes resulting from regulatory or legislative activities; adverse economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities we carry; industry competition, conditions, performance and consolidation; legislative, regulatory and legal developments involving taxation, including enactment of new federal or state income tax rates, revisions of controlling authority and the outcome of tax claims and litigation; changes in securities and capital markets; the effects of adverse general economic conditions, both within the United States and globally; any adverse economic or operational repercussions from terrorist activities and any governmental response thereto; and war or risk of war. More information regarding risk factors and other cautionary information are available in the Corporation s Annual Report on Form 10-K for 2005, which was filed with the SEC on February 24, The Corporation updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC). Forward-looking statements speak only as of, and are based only upon information available on, the date the statements were made. The Corporation assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If the Corporation does update one or more forward-looking statements, no inference should be drawn that the Corporation will make additional updates with respect thereto or with respect to other forward-looking statements. References to our Web site are provided for convenience and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by reference herein.

3 Conference Topics 2006 Financial Improvement UP Franchise Investing for Capacity and Efficiency 2007 Outlook & Longer Term Objectives 3

4 2006 Highlights Record Financial Results 5.3 Point Operating Ratio Improvement to 81.5% Record Volume Pricing Strength 90% Fuel Surcharge Recovery Operating Improvement 4

5 Enhancing Shareholder Value Improving Long Term Value Investing for Growth Increasing Returns Dividend Increase 17% quarterly increase $0.35 per share Share Repurchase 20 million common shares 7% of outstanding stock 3-year purchase period 5

6 Strength of the Franchise 2006 Freight Revenue CP Industrial Products $3.2 B Energy $3.0 B Automotive $1.4 B Intermodal $2.8 B Agricultural Products $2.4 B Chemicals $2.1 B Business Mix 21% Industrial Products 20% Energy 19% Intermodal 16% Agricultural Products 14% 10% Chemicals Automotive 6

7 Agricultural Products 2006 Recap Revenue: $2.4 Billion +22% Revenue Mix Ag Products Density Map Lane thickness depicts carload density Grain Products 40% Whole Grains 38% Food & Beverage 22% 7

8 Agricultural Products Volume Growth Three to Five Year Outlook Strong Domestic Franchise Serve Growth Markets Food Products Ethanol/DDGS 2% to 4% Volume CAGR 8

9 Growing Ethanol Demand Ethanol & DDG Shipments 2006 Revenue = $202 Million 7% of Total Agricultural Products Revenue 22% CAGR Dried Distiller Grains (DDGs) Ethanol Destination Unloading Facilities Railroad Support Facilities 49 Existing Ethanol Production Facilities 36 Potential Ethanol Production Facilities 9

10 Automotive 2006 Recap Revenue: $1.4 Billion +13% Revenue Mix Automotive Density Map Lane thickness depicts carload density Auto Parts 20% Finished Vehicles 80% 10

11 Automotive Volume Growth Three to Five Year Outlook Franchise Strength International Volume Growth Parts Opportunities 1% to 4% Volume CAGR 11

12 Chemicals 2006 Recap Revenue: $2.1 Billion +13% Revenue Mix Chemicals Density Map Lane thickness depicts carload density Liquid & Dry 25% Soda Ash 18% Plastics 21% LPG/Petro 23% Fertilizer 13% 12

13 Chemicals Volume Growth Three to Five Year Outlook Mature, Stable Markets Franchise Position (1%) to 2% Volume CAGR 13

14 Energy 2006 Recap Revenue: $3.0 Billion +15% Revenue Mix Energy Density Map Lane thickness depicts carload density SPRB 68% CO/UT 24% Other 8% 14

15 Energy Volume Growth Three to Five Year Outlook High Natural Gas Prices Favorable Economics 100+ Year Reserves Low Sulfur Content Electrical Demand 4% to 7% Volume CAGR 15

16 Proposed U.S. Coal-Fired Plants ( ) Coal Units In-Progress Coal Units Proposed Coal Units Newly Completed Source: National Energy Technology Laboratory 16

17 Industrial Products 2006 Recap Revenue: $3.2 Billion +13% Revenue Mix Industrial Products Density Map Lane thickness depicts carload density Steel 18% Paper 14% Lumber 25% Consumer/ Gov t/waste 11% Non- Ferrous 14% Construction Products 18% 17

18 Industrial Products Volume Growth Three to Five Year Outlook U. S. Population Growth Highway Construction Steel International Bulk Shipments Municipal Solid Waste 1% to 4% Volume CAGR 18

19 Intermodal 2006 Recap Revenue: $2.8 Billion +14% Revenue Mix Intermodal Density Map Lane thickness depicts carload density International 57% Domestic 36% Premium 7% 19

20 Intermodal Volume Growth Three to Five Year Outlook Strong International Growth Long Haul Highway Conversion Sunset Provides Competitive Advantage to Fastest Growing Markets 5% to 8% Volume CAGR 20

21 International Growth and Opportunity International Volume (000s) 2006 Transpacific Port Share PNW 2,195 LA/LB Vancouver Oakland 1,812 1,991 East Coast Ports (Panama Canal) % of Asian Imports Enter U.S. from West Coast 40% New Vessel Capacity by 2008 Growth Projections Range between 6% and 10% Annually 21

22 Mexico A Key Link Business Mix $1.4 Billion in 2006 Calexico Nogales El Paso Intermodal 9% Industrial 22% Agriculture 30% Hermosillo Chihuahua Torreón Culiacán Aguascalientes Guadalajara Eagle Pass Monclova Saltillo Lázaro Cárdenas Mexico City San Luis Potosí Laredo Monterrey Querétaro Puebla Brownsville Veracruz Coatzacoalcos Salina Cruz Mérida Chemicals 9% 22 Automotive 30%

23 Future Volume Potential Three to Five Year Outlook Compound Annual Growth Ag Products Autos Chemicals Energy Industrial Products Intermodal TOTAL -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 23

24 Drive Higher Returns Percent of Revenue Mix of Business Not Yet At Minimum Returns Minimum Returns Not Yet at Minimum Returns Industrial Products Intermodal Ag Products Autos Chemicals Energy 24

25 Pricing Opportunities Realize Legacy Opportunities Re-balanced Business Portfolio Contracts vs. Public Pricing Leverage Market Demand 2010: 4% : 3% 13% 2008: 7% 2007: 5% 2006: 13% Repriced 2004 thru % 25

26 2007 Capital Spending Key Infrastructure Investments 2006 Progress Sunset Double Track Los Angeles Yuma Tucson Terminal Improvements Corridor Improvements Salt Lake City El Paso North Platte Denver Ft. Worth San Antonio Kansas City Chicago Shreveport Angleton St. Louis Iowa Signal Project Joint Line 3 rd Main Track San Antonio 2007 Highlights Sunset Corridor Double Track Terminals Texas & Pacific Route to Southeast San Antonio Intermodal Terminal Central Corridor Joint Line Complete Iowa Signaling 26

27 Network Performance Update 2006 Avg. 7-Day Carloadings (000) 194 Good AAR Velocity MPH January 2007 Good 22.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q AAR Terminal Dwell Hours Good 25.9 Industry Spot/Pull Percentage Good Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 27

28 2007 Business Volumes First Quarter* Carloadings Agricultural Automotive Chemicals Energy Industrial Intermodal TOTAL -11% -14% 1% -1% -17% -1% -5% Winter Storms Impacted January Loadings Slow Start to 2007 Auto Production Soft Housing Market Chinese New Year Timing Capacity in Domestic Intermodal Market * Updated Through February 10,

29 2007 Commodity Outlook Revenue ($ Billions) % Volume: 2-3% Key Drivers Significant Volume Growth in Only Intermodal and Energy Yield Gains Revenue Growth in All Groups

30 2007 Outlook Full Year Revenue Growth = 6 to 7% Operating Ratio below 80 EPS Growth = 10 to 15% ROIC Improvement 1 st Quarter 2007 Outlook: EPS = $1.25 to $

31 Long-Term Outlook Freight Revenue Growth 6% to 8% CAGR Continuous Process/Productivity Improvements Operating Ratio Improving to Mid-70 s Double-digit EPS Growth Generate Strong Free Cash Flow Meeting and Beating Cost of Capital 31

32 Accelerating Return on Invested Capital Revenue Growth Contract Renewals Sustained Demand Market to Strengths Strategic Investment Operating Productivity Service Enhancement Unified Plan Lean Technology Capital Efficiency 32

33 2007 BB&T Transportation Conference