OMAHA, Neb. -- Shares of Union Pacific Corp. jumped 10% Monday on news the rail carrier plans to replace its CEO later this year.
Announced Sunday, the leadership change comes after a hedge fund holding a $1.6 billion stake in the company went public with concerns about its current leadership.
Eric Mandelblatt, managing partner of Soroban Capital Partners, said in a letter the Omaha, Neb.-based company has lagged behind competitors during CEO Lance Fritz's eight-year tenure and that a leadership change is overdue. The hedge fund has been privately pressuring Union Pacific to oust Fritz at least since last year.
"(Union Pacific) has repeatedly and significantly failed to reach its potential under Mr. Fritz's leadership," Mandelblatt wrote. "UNP has ranked the worst in safety, volume growth, revenue growth, cost management, EBIT growth, and total shareholder return. These are highly underwhelming results despite UNP having the premier railroad franchise in North America."
Mandelblatt urged Union Pacific to hire former Chief Operations Officer Jim Vena, who helped overhaul its operations several years ago. But the company's board said in a statement it has been working with a leadership consultant since last year to identify the best internal and external candidates for the job.
Vena came to Union Pacific in 2019 from Canadian National to help the rail carrier change to a new operating model --precision scheduled railroading-- that relies on fewer, longer trains and significantly fewer employees and locomotives to move freight, but Vena left after less than two years on the job.
Nearly all the major U.S. freight railroads have adopted the model since CSX first began using it in 2017 after pressure by a different hedge fund to make changes. Rail unions have expressed concerns that the precision scheduled railroading model has made the industry riskier because workers are spread so thin; nearly one-third of all rail jobs have been eliminated over the past six years.
The unions say such practices make incidents like Norfolk Southern's fiery derailment in Ohio earlier this month more likely, but the railroads have defended their safety record.
Union Pacific's lead independent board member Michael McCarthy praised Fritz in a statement Sunday for helping grow the company's profits through the uncertain times of the pandemic -- and through the challenges of last year's bitter contract negotiations with its 12 unions.
"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," McCarthy said. "We are immensely grateful to have Lance's continuing leadership and support and know he will ensure a smooth transition.
Union Pacific posted a $1.6 billion profit in the fourth quarter, but over the past year, the company has struggled at times to handle all the shipments companies have asked it to deliver. Twice regulators ordered Union Pacific to deliver emergency shipments to livestock producer Foster Farms to ensure that company wouldn't run out of feed for the millions of chickens it raises.
The U.S. Surface Transportation Board also held a special hearing in December to examine the way Union Pacific puts short-term limits on shipments to clear up congestion on its rail network, because the company has been using the tactic much more than other major railroads.
Union Pacific has been steadily improving its performance since spring 2022, hiring hundreds of additional employees to operate its trains.
Fritz said in a statement he has been honored to lead the company he's worked at for the past 22 years. He praised Union Pacific's employees and touted its performance without directly addressing the hedge fund's criticism.
"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," Fritz said.
Shares of Union Pacific Corp. dipped at the start of trading Monday, the first day of trading since the leadership-change announcement, before settling at $212.20 on the day for a 10.1% gain in New York.
Union Pacific is one of the nation's largest rail carriers, with a network of 32,400 miles of track in 23 Western states. In Arkansas, Union Pacific operates the Downing B. Jenks Locomotive Facility in North Little Rock.
Often called the Jenks Shop, it is the largest of its kind in the Union Pacific network and among the largest in the world, according to the company. The complex employs more than 1,100 people, who perform heavy maintenance on a fleet of 7,000 locomotives that pull more than 2,000 trains daily through the western two-thirds of the United States, according to Union Pacific.