Union Pacific Defends Slow-and-Steady Turnaround Plan

Date : 10/25/2018 @ 5:54PM
Source : Dow Jones News
Stock : Union Pacific Corp. (UNP)
Quote : 172.17  -0.48 (-0.28%) @ 9:00PM

Union Pacific Defends Slow-and-Steady Turnaround Plan

Union Pacific (NYSE:UNP)
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By Paul Ziobro 

Union Pacific Corp. executives defended the phased rollout of the railroad's turnaround plan, saying they are seeking to avoid disruptions that marked similar overhauls at some of its rivals.

The railroad this month began implementing its version of precision-scheduled railroading, an operating strategy pioneered by deceased railroad executive Hunter Harrison, on the eastern portion of a network that spans the Western U.S. Analysts have said that a slower introduction indicates that Union Pacific isn't fully committed to the changes necessary to improve results.

"I can assure you that is not the case," said Tom Lischer, Union Pacific executive vice president of operations.

So far, Union Pacific is following the early stages of the playbook. It has idled 625 locomotives, with plans for another 150 by year's end, and has removed 6,000 cars from its network with plans to cut another 10,000 over the near term. It also recently announced it would lay off nearly 500 employees and eliminate 200 contractors, as well as other organizational restructuring to support the new plan.

The company plans to make about 150 changes on the portion of its network that it is overhauling first. "I want to point out that in all these cases, we work closely with the customers to end up with a win-win solution," Mr. Lischer said.

Union Pacific's changes do require customers to alter to their operations, like having shippers assemble railcars themselves, which Chief Executive Lance Fritz said does cause some anxiety.

"We certainly are having some difficult conversations, but our customers trust us when we say the endgame is consistent: more reliable service," Mr. Fritz said in an interview.

Union Pacific last month said that it would execute a turnaround plan modeled by the one Mr. Harrison used to overhaul two major Canadian railroads and, more recently, the U.S. railroad CSX Corp., which operates east of the Mississippi River. Mr. Harrison died last year after quickly implementing his ideas at CSX, which proved disruptive to the network with extensive delays.

CSX's performance has improved significantly since, with trains moving faster and profit surging.

That has put pressure on other railroads to consider overhauling their operations as well. On Wednesday, Norfolk Southern Corp., which competes with CSX in the Eastern U.S., said it would go down the same path while trying to minimize disruption to shippers.

"We will implement PSR principles where they lead to a better result for customers and shareholders," Norfolk Southern Chief Executive Jim Squires said.

Union Pacific said it hopes the plan can improve lingering service issues that trace back to Hurricane Harvey last year and improve stalled financial performance.

In the latest quarter, Union Pacific reported a surge in earnings to $1.59 billion, or $2.15 a share, up from $1.19 billion, or $1.50 a share, last year. The increase was led by a lower tax rate.

Revenue rose 10% to $5.9 billion on a 6% increase in volume.

The company warned of risks to its profit targets for the full year from higher expenses needed to improve its service. The expected seasonal increase in its grain export business also isn't materializing as fast as normal because of tariffs and foreign competition.

Mr. Fritz said on an earlier earnings call that there are some signs of risk of a global slowdown, including the impact from tariffs and a slowdown in some economies in Europe, but that overall he expects growth.

"I don't think it's all rosy on the horizon, but we just don't see any specific markers that tell us growth isn't going to happen," Mr. Fritz said.

Write to Paul Ziobro at Paul.Ziobro@wsj.com


(END) Dow Jones Newswires

October 25, 2018 12:39 ET (16:39 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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