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Union Pacific’s Second-Quarter Profit Drops 15% Due To Weaker Demand

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Union Pacific's Second-Quarter Profit Drops 15% Due To Weaker Demand

(CTN News) – A hedge fund that had pressed Union Pacific to improve earlier this year appointed the company’s CEO. The railroad cut its outlook after reporting disappointing results due to weakening consumer demand.

Omaha, Nebraska-based railroad said former chief operating officer Jim Vena will take over as CEO next month.

Due to Vena’s expertise in streamlining operations, the Soroban Capital Partners hedge fund, which owns a $1.6 billion stake in Union Pacific, has been urging the railroad to hire him.

The hedge fund stated that UP lagged behind its peers in all key measures over the past eight years under Lance Fritz. Union Pacific’s stock rose more than 8% in premarket trading on Wednesday morning after Soroban announced the hiring news.

In a statement, Vena stated, “I am looking forward to returning to Union Pacific and maintaining our position as the safest, most reliable, and most efficient railroad in the industry.”

Working closely with the entire team, I will be responsible for ensuring the company delivers industry-leading customer service and operating excellence, cultivates and empowers its employees, and cares for its communities from the beginning.”

Rail industry safety has been under pressure since the fiery Norfolk  Southern derailment in Ohio in February caused evacuations and sent a towering plume of black smoke over East Palestine. New railroad regulations are being considered by lawmakers and regulators.

It was anticipated that Vena would help Union Pacific change to a new operating model utilizing fewer, longer trains and fewer employees and locomotives to move freight.

However, Vena left the company after less than two years on the job.

In addition, Union Pacific promoted board member Mike McCarthy to chairman, appointed chief human resources officer Beth Whited president, and added two independent directors on Wednesday.

In addition to the hiring news, Union Pacific reported its second-quarter profit declined 14.5% to $1.6 billion, or $2.57 per share, due to lower freight volumes and rising costs, including higher wages promised to workers during last year’s bitter contract battle. A year ago, the company earned $1.8 billion, or $2.93 per share.

According to FactSet Research, analysts were generally expecting $2.74 per share, but the company delivered $2.61 per share.

The railroad’s revenue of $5.96 billion was also disappointing. It was expected that $6.09 billion would be generated by analysts.

According to Union Pacific, the weakening consumer demand and higher costs will now make it difficult for the company to achieve its previous goal, which was to have the number of shipments it hauls grow faster than industrial production.

According to the railroad, its volume will likely fall short of the current forecast for industrial production to grow by 0.1% this year.

In 23 Western states, Union Pacific operates a network of 32,400 miles (52,000 kilometers) of track.

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