UP No Longer on the Fritz

[C855B]

UP shares jumped 10% this morning on the announcement that a hedge fund had prevailed in persuading the board to fire CEO Lance Fritz, alleging that the company has underperformed on his watch. Claim is that UP "had ranked worst in key operating metrics including safety, volume growth and total shareholder return" among Class I RRs during the eight years Fritz was in charge.

IMO that was awfully subjective especially against the likes of my whipping boys, NS and CSX. Whatever. Fritz is out, regardless. If he doesn't want it, I'll take his golden parachute, if that's OK.

@Ed Kapuscinski , you have the gist of it given that hedge funds are calling the shots now. A magnitude worse than Harvard MBAs in the C-suite. Scary.

[signalmaintainer]

@Ed Kapuscinski , you have the gist of it given that hedge funds are calling the shots now. A magnitude worse than Harvard MBAs in the C-suite. Scary.

I agree.

Curious that the hedge fund griped about safety. Real safety costs money that could otherwise be going back to Wall Street.

And the hedge fund also wants UP's trains to run on time. That has to involve hiring more conductors and training more engineers, and with the a$$-kicking in public perception the carriers took last fall and this winter over working conditions and employees' health, that would have to entail significant cultural changes in the C Suites.

https://www.google.com/amp/s/www.cnbc.com/amp/2023/02/26/union-pacific-says-it-expects-to-name-a-new-ceo-in-2023-after-hedge-fund-called-for-lance-fritz-to-be-replaced.html

https://www.railwayage.com/freight/up-and-soroban-cn-deja-vu-all-over-again/

I also wonder if Soroban also just got tired of seeing UP's name in headlines involving the STB, and especially the Fritz-endorsed stubborness to responding in professional ways to the STB within the past several months.

[Jbub]

I agree.

Curious that the hedge fund griped about safety. Real safety costs money that could otherwise be going back to Wall Street. But the hedge fund also wants trains run on time.

https://www.google.com/amp/s/www.cnbc.com/amp/2023/02/26/union-pacific-says-it-expects-to-name-a-new-ceo-in-2023-after-hedge-fund-called-for-lance-fritz-to-be-replaced.html

https://www.railwayage.com/freight/up-and-soroban-cn-deja-vu-all-over-again/

Yes, real safety costs money, but so does lack of it. And when there is a safety accident that is very observable i.e. East Palestine derailment, the cost of non compliance starts to exceed the cost of safety.

[signalmaintainer]

Yes, real safety costs money, but so does lack of it. And when there is a safety accident that is very observable i.e. East Palestine derailment, the cost of non compliance starts to exceed the cost of safety.

Yep.

[wazzou]

I've read Soroban wants Jim Vena to take his place, however I've also read he isn't universally liked either.

[Ed Kapuscinski]

Yep. And all those hedge fund demands come down to one thing: they don't actually care about the business, they care about the things that affect its stock price.

The threat of regulatory action drives that down, so they have to pretend to try and "do better". The same holds for the other factors they mention.

I think it's funny though, for being a railroad known as one of the country's worst companies to work for, the CEO is getting fired for not being PSR enough.

I feel for everyone who works for UP. It is now confirmed that not only will the beatings continue until morale improves, they're graduating from a whip to a cat o nine tails.

At least it might be good for those of us with investments tied up with UP (provided we get out, or our people get us out, before it all blows up).

[learmoia]

Well.. it's tough to keep dwell times down when you blanket embargo the north east quarter of your network for 2 weeks over a snow storm.... a month after your called into congress to testify on excessive use of embargo...

Then you extend the embargo by another 2 weeks while connecting roads are looking out their windows at bright sunny mid 30s weather with no snow on the ground.. (Some may have even sent pictures to the UP Embargo desk..  )

Meanwhile the other 3 Class 1s in the effected area are running trains like normal the whole time.

JFRTM..

~Ian

[wazzou]

From an article in a daily newsletter I get every morning. (The Lumber Newswire)
Enjoy the buzz-word salad.

"Union Pacific Corporation (“Union Pacific” or the Company”) provided an update on the status and timing of the Board of Director’s active leadership succession planning process. Since assuming the CEO role in February 2015, Lance Fritz has overseen a period of growth, innovation and value creation, and transformed the Company’s operating plan to improve asset efficiency. Under his leadership, since 2017, the Company has achieved a 52% increase in net income, a 27% increase in operating income and a 3.7 point increase in return on invested capital. Mr. Fritz guided the Company to achieve this financial growth despite the volatile operating environment spurred by the COVID-19 pandemic, global supply chain disruption, labor negotiations and service and labor challenges, while instilling an inclusive and accountable organization with an industry-leading sustainability program.

Following discussion between the Board and Mr. Fritz regarding the path for identifying Union Pacific’s next CEO, in March 2022 the Board engaged a leading outside consultant and subsequently formed a task force of directors composed of each of the Board committee chairs in November 2022. The Board is seeking a CEO with a strong track record of success and expertise across safety, operational excellence, enhancing and driving customer service, innovation, employee culture and sustainability. The Board is focusing the process on highly-qualified candidates both within the industry and adjacent industries to identify a CEO capable of leading the Company for a long-term tenure. The Board expects to name a successor who will assume the position in 2023.

“The Board is grateful to Lance for his unwavering leadership, dedication and oversight in driving our Company forward over the last eight years as CEO. Lance created an environment that has allowed Union Pacific to make a measurable impact with our customers, communities and employees alike,” said Michael McCarthy, Lead Independent Director of the Board. “He has capably led our company during a time of significant challenge and change, positioning Union Pacific to deliver long-term sustainable value for shareholders and customers. We are immensely grateful to have Lance’s continuing leadership and support and know he will ensure a smooth transition.”

“It is my honor and privilege to serve this great company. I am proud of our team and all we have built together,” said Lance Fritz, Union Pacific Chairman, President and Chief Executive Officer. “I’ve always said that our fundamentals for long-term success are powered by our people – our best-in-class employees and the passion they have for our customers and communities. Union Pacific has embarked on a transformative journey that will result in stronger, more consistent service for our customers, with enhanced earnings growth and value creation for our shareholders. Union Pacific has been my home for 22 years and I am confident that now is the right time for Union Pacific’s next leader to take the helm. I look forward to working with the Board as we identify our next CEO to lead the Company into the future.”

As part of the Board’s succession planning process, it has considered shareholder input and will continue to do so. The Board has been actively engaging with Soroban Capital Partners (“Soroban”) since 2017. In recent conversations, Soroban indicated it intended to move discussions to a public level. The Board decided it is in the best interests of all shareholders to provide a public update on its ongoing succession process and expected timing."

[Hawghead]

I've read Soroban wants Jim Vena to take his place, however I've also read he isn't universally liked either.

He's the one that fired all the roundhouse personnel and the carmen, shut down all the hump yards and put half the motive power in storage.  If he comes back the U.P. will be sold for scrap in the next 10 years.

Scott

[Lenny53]

Under his leadership, since 2017, the Company has achieved a 52% increase in net income, a 27% increase in operating income and a 3.7 point increase in return on invested capital.

If this is what gets you fired, what will the board expect of the next guy?

[lock4244]

He's the one that fired all the roundhouse personnel and the carmen, shut down all the hump yards and put half the motive power in storage. If he comes back the U.P. will be sold for scrap in the next 10 years.

Scott

Until recently my only exposure to UP was on vacations to California (2006), WA/OR/ID 2008, WY/UT/CO 2009, AR/NM 2010, and the thing that struck me was the trains were short and usually had four 4000+HP locomotives up front. Having watched CN go from 80 cars and thee GP40's to 150 cars and two GEVO's, I get that PSR leaves zero room for error or road failures, but four big units on a 70 to 80 car train seemed overkill to me... and these trains got two rear end  helpers in Oregon's Blue Mountains, Cheyenne Hill, and the Tehachapi's. There seemed to be room for improvement, maybe go from four to three units or add cars to the trains.

But the shareholder driven approach (hedge funds) does tend to leave a broken company in it's wake. They don't care where he company is in 10 years, and there's probably a good reason for that. Railroads becoming consistently profitable seems to have worked against the industry long term as the Bankers are running them now (remember when thought the bean counters were bad?). There's nothing wrong with going to a barber, but the hedge funds take the company to the butcher.

[Hawghead]

Until recently my only exposure to UP was on vacations to California (2006), WA/OR/ID 2008, WY/UT/CO 2009, AR/NM 2010, and the thing that struck me was the trains were short and usually had four 4000+HP locomotives up front. Having watched CN go from 80 cars and thee GP40's to 150 cars and two GEVO's, I get that PSR leaves zero room for error or road failures, but four big units on a 70 to 80 car train seemed overkill to me... and these trains got two rear end  helpers in Oregon's Blue Mountains, Cheyenne Hill, and the Tehachapi's. There seemed to be room for improvement, maybe go from four to three units or add cars to the trains.

But the shareholder driven approach (hedge funds) does tend to leave a broken company in it's wake. They don't care where he company is in 10 years, and there's probably a good reason for that. Railroads becoming consistently profitable seems to have worked against the industry long term as the Bankers are running them now (remember when thought the bean counters were bad?). There's nothing wrong with going to a barber, but the hedge funds take the company to the butcher.

It's not unusual to see more units in a train than those that are being used for power.  Often those are being repositioned to other locations on the railroad.  A good example of this is bulk commodity trains (grain, soda ash, potash etc.)  When they are traveling west they are loaded and can be 16k to 27k tons with three to six engines online (on the Portland Sub).  Going east those same trains would be empty and while they would still have the same number of engines on them as when they were loaded, there is only one or two of them online.  Additionally you may see trains that originate with more engines than they need or even DPUs that they don't need in anticipation of the need for the extra power over upcoming territory.  We often have more units on a train than we need going from Portland to Hermiston because leaving Hermiston those trains are going to go over the Blue mountains which is heavy grade territory and need the extra power.  However those extra engines were not online going Portland to Hermiston, but it prevents having to add extra power when the train crew changes at Hermiston.

Scott

 

[lock4244]

It's not unusual to see more units in a train than those that are being used for power.  Often those are being repositioned to other locations on the railroad.  A good example of this is bulk commodity trains (grain, soda ash, potash etc.)  When they are traveling west they are loaded and can be 16k to 27k tons with three to six engines online (on the Portland Sub).  Going east those same trains would be empty and while they would still have the same number of engines on them as when they were loaded, there is only one or two of them online.  Additionally you may see trains that originate with more engines than they need or even DPUs that they don't need in anticipation of the need for the extra power over upcoming territory.  We often have more units on a train than we need going from Portland to Hermiston because leaving Hermiston those trains are going to go over the Blue mountains which is heavy grade territory and need the extra power.  However those extra engines were not online going Portland to Hermiston, but it prevents having to add extra power when the train crew changes at Hermiston.

Scott

The examples I cite are all merchandise or intermodal. It was during UP's 4 units per train era iirc, which really was an official thing. I know about power balancing and this wasn't what they were doing, the power was (seemingly) irrespective of tonnage. And at that time DP's were basically a coal train thing, as only CN was really doing the 1+1+0 set up on stupid long, ridiculous tonnage merch trains. They started testing DP's up in northern Quebec on the trains into the Saguenay region, which spread to the Toronto - Montreal route in 2007 (a pic of mine taken east of Toronto was used in CN internal documents explaining to non operating personnel what DP's were), then system wide. Not sure when this started to migrate to the US on non bulk trains, but CP started doing it on transcon trains around 2010 iirc.

Having become used to CN's land barges, seeing such short, overpowered trains on UP was shocking. I recall shooting trains between Telocaset and La Grande in 2008 with four (one with five up front) and a pair of helpers on the rear, all 4000+HP and 70-80 cars. I don't recall rear end units along the Columbia River, so I assume they were manned helpers or DP's added/removed at Hinkle/Nampa.

Now 2009 in Powder River I think most UP coal trains I saw were 2x0x1 or 2x0x2 AC4400s and Gevo's, but non bulk long distance DP's weren't a thing back then on UP afaik.