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By JOSH FUNK
The Associated Press
OMAHA, Neb. -- Union Pacific on Wednesday hired the CEO recommended earlier this year by a hedge fund pressuring the railroad to improve, as the company cut its outlook after reporting disappointing results driven by weakening consumer demand and higher labor costs.
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' 8-year tenure in all key measures. Soroban declined to comment on the hire Wednesday, but investors resoundingly endorsed it by sending Union Pacific's stock soaring more than 9% to $235.63 in afternoon 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, and "that needs to be remedied." 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 after cutting too deep during the pandemic. 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.
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 who both have experience has CEOs of other companies.
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 and the cost of adding sick time and $67 million of bonuses for conductors as part of one recent agreement. 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 of track in
23 Western states.