Third Quarter 2015 Marketing Overview Alan H. Shaw Executive Vice President and Chief Marketing Officer 1
Adapting to our Changing Environment Current Conditions Fuel Surcharges Commodity Prices and Strength of Dollar Increased Truck Capacity Solid Pricing Approach to Broad Economic Changes Continued Focus on Pricing Network Reach Strategic Structuring 2
Railway Operating Revenue Third Quarter 2015 vs. 2014 Revenue RPU RPU Less Fuel* Volume $2.7 Billion; $1,401; $1,343; 1,936,300 units; down (10%) down (7%) up 1% down (3%) Revenue in $ Millions Revenue $ in Millions & y-o-y Percent Change $3,000 $2,600 $2,200 $1,800 $368 ($255) $113 $2,655 $2,600 ($55) Intermodal $621 (7%) Coal $482 (23%) Merchandise $1,610 (7%) $1,400 $1,000 3Q 2014 3Q 2015 Revenue Less Fuel * Fuel Surcharge 3 * Please see reconciliation to GAAP posted on our website.
Coal Market Third Quarter 2015 vs. 2014 Low natural gas prices, strong U.S. dollar, and a weak global market Revenue $482 Million (23%) Volume 278,800 (16%) RPU $1,726 (8%) Less Fuel Revenue $466 Million* (16%) RPU $1,666* 0% Units (000 s) 200 150 100 50 188.8 31.2 58.8 0 Utility Export Dom Met/Ind (11%) (38%) (15%) 4 * Please see reconciliation to GAAP posted on our website.
Intermodal Market Third Quarter 2015 vs. 2014 Domestic headwinds with International growth Revenue $621 Million (7%) Volume 999,500 (1%) RPU $622 (6%) Less Fuel Revenue $543 Million* 2% RPU $544* 2% Units (000 s) 800 600 400 200 627.7 371.8 0 Domestic International (5%) 9% 5 * Please see reconciliation to GAAP posted on our website.
Merchandise Market Third Quarter 2015 vs. 2014 Growth in Automotive, Agriculture, and Chemicals markets Revenue $1,610 Million (7%) Volume 658,000 (1%) RPU $2,447 (6%) Units (000 s) 200 150 183.3 152.9 134.3 109.7 Less Fuel Revenue $1,591 Million* 1% 100 77.8 RPU $2,420* 3% 50 0 MetCon Ag Chem Auto Paper (9%) 5% 2% 5% (2%) 6 * Please see reconciliation to GAAP posted on our website.
Business Outlook Near Term Headwinds Commodity Pricing and Strength of Dollar Export Coal Crude Oil Export Soybeans Domestic Intermodal Fuel Surcharges Growth Opportunities Market Based Consumer Products International and Domestic Intermodal Housing Price Improvement Strategic Changes 7
Third Quarter 2015 Operations Overview Mark Manion Executive Vice President and Chief Operating Officer 1
Safety Performance 1.5 1.0 0.83 Reportable Personal Injuries (Per 200,000 Employee-Hours) 1.18 1.22 1.05 3.0 2.0 Train Incidents* (Per Million Train Miles) 2.02 2.02 2.03 1.97 0.5 1.0 0.0 6 4 2 0 2012 FY 2013 FY 2014 FY 2015 YTD Crossing Accidents (Per Million Train Miles) 3.44 3.59 3.89 3.51 2012 FY 2013 FY 2014 FY 2015 YTD 0.0 2012 FY 2013 FY 2014 FY 2015YTD *Train incident ratio is calculated using FRA methodology Year-to-Date Comparison Injury rate (1.05) is down compared to 2014ytd (1.19) Train Incident rate (1.97) is down compared to 2014ytd (2.15) Grade Crossing Accident rate (3.51) is down compared to 2014ytd (3.98) 2
Composite Service Performance 85% Composite 80% 75% 73% 75% 69% 72% 75% 70% 65% 63% 64% 60% 55% 50% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 3
Jan-13 Jan-25 Feb-06 Feb-18 Mar-02 Mar-14 Mar-26 Apr-07 Apr-19 May-01 May-13 May-25 Jun-06 Jun-18 Jun-30 Jul-12 Jul-24 Aug-05 Aug-17 Aug-29 Sep-10 Sep-22 Oct-04 Oct-16 Jan-13 Jan-25 Feb-06 Feb-18 Mar-02 Mar-14 Mar-26 Apr-07 Apr-19 May-01 May-13 May-25 Jun-06 Jun-18 Jun-30 Jul-12 Jul-24 Aug-05 Aug-17 Aug-29 Sep-10 Sep-22 Oct-04 Oct-16 26 Train Speed & Terminal Dwell 2015 Speed (mph) 35 Dwell (Hrs) Better( ) Better( ) 24 30 22 25 20 18 20 16 15 4
Coal Line Rationalization Reductions in Central Appalachian Region Out-of-Service / Restricted Investment 300 miles within the last 18 months Includes Oct 1 st changes: 33 miles (Elmore, WV and Princeton, WV) 31 miles (Dismal, VA to Richlands, VA) Not abandoning lines to allow for participation in a market return 5
Third Quarter 2015 Financial Overview Marta R. Stewart Executive Vice President Finance and Chief Financial Officer 1
Operating Results Third Quarter 2015 vs. 2014 ($ millions) Sub 70 operating ratio despite lower volumes and restructuring costs (Unfavorable) Favorable 2015 2014 $ % Railway operating revenues $ 2,713 $ 3,023 $ (310) (10%) Railway operating expenses 1,891 2,025 134 7% Income from railway operations $ 822 $ 998 $ (176) (18%) Railway operating ratio 69.7 67.0 (2.7) (4%) 2
Railway Operating Expenses Third Quarter 2015 vs. 2014 ($ millions) Net decrease of $134 / 7% $166 $2,025 $26 $39 $22 $3 $1,891 2014 Fuel Compensation Materials & Benefits & Other Depreciation Purchased Svcs & Rents 2015 3
Restructuring Costs Third Quarter 2015 ($ millions) Triple Crown Roanoke Restructuring Closure Total Accelerated depreciation $ 26 $ -- $ 26 Moving and other costs 1 10 11 Effect on Operating Expenses $ 27 $ 10 $ 37 Effect on Net Income $ 23 Effect on Earnings per Share $ 0.08 4
Fuel Third Quarter 2015 vs. 2014 ($ millions) Total decrease of $166 / 43% $147 $387 $2.96 per gallon * $2 $17 $221 $1.71 per gallon * 2014 Price * Consumption * Other Fuel 2015 5 * Reflects locomotive fuel only
Compensation and Benefits Third Quarter 2015 vs. 2014 ($ millions) Net decrease of $26 / 4% Lower incentive compensation Increased pay rates Higher payroll taxes Increased trainee levels $728 $702 2014 2015 6
Materials and Other Third Quarter 2015 vs. 2014 ($ millions) Net decrease of $3 / 1% Decline in material usage Lower derailment related expenses Roanoke relocation costs $245 $242 2014 2015 7
Depreciation Third Quarter 2015 vs. 2014 ($ millions) Increase of $39 / 17% TCS restructuring Increased capital base Properties Balance $37,970 $40,026 $236 $275 Sept 2014 Sept 2015 2014 2015 8
Purchased Services and Rents Third Quarter 2015 vs. 2014 ($ millions) Net increase of $22 / 5% Higher equipment rents Increased engineering costs Roanoke relocation costs $429 $451 2014 2015 9
Other Income - Net Third Quarter 2015 vs. 2014 ($ millions) Net increase of $7 / 22% Gain from sales of property Lower returns from corporateowned life insurance Decline in coal royalties $32 $39 2014 2015 10
Income Taxes Third Quarter 2015 vs. 2014 ($ millions) Effective tax rate for the quarter was 37.6% $333 Eff. Rate 37.3% $272 Eff. Rate 37.6% 2014 2015 11
Net Income and Diluted Earnings per Share Third Quarter 2015 vs. 2014 ($ millions except per share) Decline of $107 million or 30 cents per share Net Income Change vs. Prior Period: (19%) Diluted Earnings per Share Change vs. Prior Period: (17%) $559 $452 $1.79 $1.49 2014 2015 2014 2015 2015 results included expenses associated with restructuring the company s Triple Crown Services subsidiary and closing its Roanoke, Va., office, which together reduced net income by $23 million, or $0.08 per diluted share. 12
13 Thank You