OMAHA, Neb. (AP) — Union Pacific hired the CEO Wednesday that a hedge fund pressuring the railroad to improve recommended earlier this year, and it cut its outlook after reporting disappointing results driven by weakening consumer demand.
The Omaha, Nebraska-based railroad said its former chief operating officer Jim Vena will take over as CEO next month. The Soroban Capital Partners hedge fund that holds a $1.6 billion stake in Union Pacific had been urging the railroad to hire Vena because of his expertise in streamlining operations.
The hedge fund said that UP lagged behind its peers during Lance Fritz' tenure in all key measures over the past 8 years. Soroban declined to comment on the hiring news Wednesday morning, but investors resoundingly endorsed it by sending Union Pacific's stock soaring more than 9% to $235.54 in early trading.
"I am excited about returning to Union Pacific and look forward to the journey to be the safest, most reliable and most efficient railroad in the industry," Vena said in a statement. "Working closely with the entire team, my focus from day one will be to ensure the company delivers industry-leading customer and operating excellence, cultivates and empowers our employees, and cares for the communities in which we operate."
Fritz acknowledged that the railroad didn't deliver "consistent and reliable" service during his tenure. He said proving to Union Pacific customers they can count on good service will help the railroad attract new business and improve profits in the future. At times, UP has struggled to handle everything companies wanted to ship and regulators had to twice order the railroad to deliver emergency shipments to livestock producer Foster Farms to ensure that company wouldn't run out of feed for the millions of chickens it raises.
The rail industry has also been under pressure to improve safety ever since the fiery Norfolk Southern derailment in Ohio in February prompted evacuations and sent a towering plume of black smoke over the town of East Palestine. Lawmakers and regulators are considering imposing new rules on railroads.
Vena was brought in to Union Pacific in 2019 from Canadian National to help the railroad change to a new operating model that relies on fewer, longer trains and significantly fewer employees and locomotives to move freight, but Vena left after less than two years on the job.
Union Pacific also promoted board member Mike McCarthy to chairman and named its chief human resources officer Beth Whited president Wednesday and added two new independent directors.
In addition to the hiring news, Union Pacific said its second-quarter profit declined 14.5% to $1.5.7 billion, or $2.57 per share, as it hauled 2% less freight and dealt with rising costs, including higher wages promised to workers in last year's bitter contract fight. That's down from $1.835 billion, or $2.93 per share, a year ago.
That fell short of the $2.74 per share that the analysts surveyed by FactSet Research were generally expecting.
The railroad's 5% decline in revenue to $5.96 billion also disappointed. Analysts had been expecting $6.09 billion.
Union Pacific said the weakening consumer demand and higher costs will now make it hard to meet its previous goal of seeing the number of shipments it hauls grow more than industrial production. The railroad said its volume will likely will likely fall short of the current forecast for industrial production to grow by 0.1% this year.
Union Pacific is one of the nation's largest railroads with a network of 32,400 miles (52,000 kilometers) of track in 23 Western states.
