Union Pacific reports strong earnings, but job cuts are likely as executives tout cost-cutting moves

Union Pacific reports strong earnings, but job cuts are likely as executives tout cost-cutting moves
World-Herald News Service

Union Pacific reported better-than-expected quarterly profits Thursday as the company looked ahead to its continuing drive to run a more efficient railroad.

In that drive to efficiency, the railroad’s executives on Thursday pointed to more job cuts down the line, though they didn’t detail the timing or specific positions that could be targeted. A spokeswoman didn’t immediately return a question asking for details on possible cuts.

Over the last quarter of 2018, there has been a reduction in the management workforce of 1 percent and a reduction in the mechanical and engineering workforce of 2 percent, Union Pacific executives said on a conference call following the release of its most recent financial performance.

In 2019, the railroad plans to wring out more costs, aiming for $500 million in productivity gains. “Labor productivity” will be a part of that, executives said Thursday.

What exactly that could mean for U.P. workers isn’t yet clear. The company in October announced 500 job cuts on top of several rounds of job cuts that had come in the previous two years before that.

Still, it’s clear there will be some change, heralded by the arrival of a new chief operating officer, Jim Vena, who began with the railroad 10 days ago. He came out of retirement to return to railroading at U.P. after 40 years at Canadian National, where in his most recent role, he led the railroad’s relentless drive for efficiency — using a playbook that others in the industry, like U.P., now are trying to replicate.

He’ll look to use that playbook at U.P., as the railroad looks to reduce its so-called operating ratio — or, essentially, amount of every dollar that it takes in that it spends. Right now, that ratio is 61.6, and the company wants to get that down to below 61 this year and below 60 by 2020.

How to get there? “There is nothing that’s not on the table,” Vena said on the Thursday conference call, in which he noted that he had the support of Chief Executive Lance Fritz.

A Wall Street analyst said that with a company as large and diverse as Union Pacific, it can be hard to make big changes quickly.

Vena allowed that there’s “going to be some noise on the way there,” but that he was confident the railroad could be operated more efficiently — by moving trains more quickly through its network. He’s implementing a plan known in the industry as PSR, or precision scheduled railroading.

If you’re more efficient on how you service locomotives, for instance, Vena said, “you need less of them and you need less people.”

Fritz said changes would be made “the U.P. way — at the right speed, engaged with customers.”

Daniel Sherman, a Wall Street analyst following railroads for St. Louis-based investment adviser Edward Jones, said he thought U.P. would “swiftly move to the precision scheduled railroading operating model, meaning better utilization of operating assets and labor, better service for its customers, and better earnings growth for shareholders.”

The company on Thursday reported fourth quarter net income of $1.6 billion, or $2.12 per share, besting the $2.06 that was expected by Wall Street analysts, according to data compiled from FactSet.

The company said it had spent slightly more on compensation and benefits in the fourth quarter of the year compared to the fourth quarter of last year, driven largely by expenses from employee severance costs tied to job cuts.

In the wake of the better-than-expected report, Union Pacific’s stock shot higher, rising more than 3 percent in morning trade on a day when the broader market was flat.

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