As Union Pacific reported better-than-expected quarterly profits Thursday, it also looked ahead to its continuing drive to run a more efficient railroad.
In that drive to efficiency, the railroad’s executives pointed to more job cuts down the line, though they didn’t detail the timing or specific positions that could be targeted.
In response to a question from The World-Herald on how possible cuts could affect Omaha-area workers, Raquel Espinoza, a spokeswoman for the company, said “we do not provide location-specific information.”
“Workforce reductions are impacting various locations across our system,” she said. The company operates across 23 states.
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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 dismissals that had come in the previous few years.
In the last quarter of 2018, there was a reduction in the management workforce of 1 percent compared to the same period in 2017 and a reduction in the mechanical and engineering workforce of 2 percent, Union Pacific executives said on a conference call following the release of U.P.’s most recent financial performance. Its total workforce was roughly unchanged from the same period last year.
What’s clear is that there will be change coming down the line. That’s heralded by the arrival of a new chief operating officer, Jim Vena, who began with the railroad less than two weeks ago.
He came out of retirement to take command of operations at U.P. after 40 years at Canadian National, the railroad where in his most recent role he led a relentless drive for efficiency. He used a playbook that others in the industry — like U.P. — now are trying to replicate.
Vena’s biggest task: reducing the company’s so-called operating ratio — or, essentially, the share of every dollar that it takes in that it spends. Right now, that is 61.6 percent, and the company wants to get that down to below 61 percent 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.
Vena said he’d visited a train yard last week and saw opportunities to make operations more efficient, though he said he would examine the entire company before announcing decisions.
“I’d be remiss to say, ‘Listen, we’re going to shut down X amount of yards’ with 10 days on the job,” he said, according to a transcript of the conference call. “But we’re going to spend a lot of time to make sure we get the plant set up to handle the business as efficiently as possible with great service.”
Bascome Majors, an analyst with Wall Street firm Susquehanna, said that with a company as large and diverse as Union Pacific, it can be hard to make big changes quickly.
“You’re coming in as an unquestionable change agent in a very large organization,” he said.
The company recently had around 42,000 workers, including about 8,000 in Nebraska.
Vena allowed during the call that there’s “going to be some noise on the way,” to getting the railroad to run more efficiently, but he said he was confident U.P. could get there — by moving trains more quickly through its network, for instance. He’s implementing a plan known in the industry as PSR, or precision scheduled railroading.
If you’re more efficient in how you service locomotives, for instance, Vena said, “you need less of them. You need less people to service them.”
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, beating the $2.06 that was expected by Wall Street analysts, according to estimates compiled from data provider FactSet.
In the wake of the better-than-expected report, Union Pacific’s stock shot higher, closing up nearly 4 percent on the day, compared to the broader market, which was flat. So far this year, U.P.’s stock is up 16 percent, handily outpacing the broader market’s 5.4 percent gain.