Union Pacific cuts hundreds of jobs as it pushes for more profits, better efficiency

The Efficiency Express barreled into Omaha on Tuesday, taking with it nearly 500 jobs as Union Pacific said it would cut further into its workforce to operate as a more profitable company.

A push to decrease expenses, provide better and more efficient service to customers and — on the way — improve the company’s return to investors has led to multiple rounds of job cuts at the Omaha-based railroad in recent years. Last September, the company said it would cut 750 jobs, most of them at its headquarters. In 2015, it cut “several hundred” management jobs.

The company said the most recent cuts, which also would eliminate the positions of 200 contractors, would “streamline decision-making by removing unnecessary or redundant processes.” A memo to employees obtained by The World-Herald said the cuts would be made by the end of the year and affect “various locations across the U.P. system.” A spokeswoman wouldn’t quantify how many jobs would be cut at the Omaha headquarters or in the region as a whole.

The railroad in recent years has employed around 8,000 people in Nebraska and 42,000 nationwide.

The railroad reports its latest financial performance figures Thursday. Wall Street analysts have said the drive to more efficiency — doing more with less — makes Union Pacific  attractive to investors.

It’s not that the railroad isn’t making money: In its last statement of financial performance in July, the railroad reported second-quarter profit of $1.5 billion — up from the $1.2 billion in net income for the same period in 2017.

But a measure of its efficiency worsened: Its so-called “operating ratio” rose. That’s essentially a gauge of how much of every dollar a company spends on things like salaries, equipment and other expenses. Union Pacific’s in the second quarter was 63 percent, up 1.1 percentage points — in other words, the wrong way from its goal.

(It certainly is a marked improvement, at least by the efficiency scorecard, from the nearly 90 percent ratio the company clocked in 2004, according to an analysis by wealth adviser Edward Jones.)

The company has been pushing to decrease its operating ratio to 55 percent. Last year, Rob Knight, the company’s chief financial officer, said of getting to 55: “That is kind of how we wake up every morning.”

To that end, Union Pacific in September announced its “Unified Plan 2020,” through which the railroad said it would aim for an operating ratio of 60 percent by 2020, en route to the coveted 55.

To get there, the company said it would implement what’s known in the industry as “precision scheduled railroading,” which in layman’s terms is basically the more efficient moving of trains, cars and their cargo around the railroad’s network.

“Unified Plan 2020 is our path forward to secure our place as the industry leader in safety, service and financial performance,” Union Pacific Chairman and Chief Executive Lance Fritz said in a statement announcing the plan.

Stock analysts at Wall Street investment bank Credit Suisse performed an analysis of the company’s potential stock price based on improved operating ratios, and found a “very attractive” picture for investors if the company meets its goals of pushing costs down to 60% by the end of 2020 and 55% thereafter.

Daniel Sherman, a transportation industry analyst for St. Louis-based wealth adviser Edward Jones, said Union Pacific “has delivered on such goals in the past, and we believe that over time it is likely to reach these as well.”

And the company so far has turned in a market-beating performance when considering its stock, which is up more than 7 percent so far this year, compared to the broader stock market, which is up just a hair more than 2 percent.

Still, to succeed in its drive to 55, one of the obstacles the analysts at Credit Suisse flagged was a “required cultural shift — the need to get long-time employees to fundamentally change the way they do things.”

The shift, culturally or otherwise, will continue to affect the company’s workforce as the company does indeed embark to change some of the ways it does things.

In a statement, U.P.’s chief, Fritz, acknowledged the changes do come at some cost, saying the job cuts are “extremely difficult decisions to make because we recognize the impact they have on families, friends and co-workers.”

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