By Geoffrey Smith
Investing.com -- Union Pacific (NYSE:UNP) stock jumped in premarket trading on Monday after the company was bounced by disgruntled shareholders into acknowledging that it's looking for a new chief executive to replace Lance Fritz.
Soroban Capital Partners, an investor since 2016 and one of the railroad operator's 10 biggest shareholders, went public with its concerns at the weekend, publishing a letter that expressed "displeasure with years of persistent operating underperformance" and its belief that "current management is not capable of driving strong operating performance."
"While it is highly atypical for Soroban to publicly disclose our communication with a board of directors, given the Board's prolonged inaction despite years of underperformance, we feel it is critical for the Company’s future that we highlight the need for Mr. Fritz to be replaced with best-in-class leadership," Soroban said in its letter.
It noted that, under Fritz's leadership, "UNP has ranked the worst in safety, volume growth, revenue growth, cost management, EBIT growth, and total shareholder return."
Union Pacific said it had started looking for a successor in November 2022, hiring outside consultants and forming an internal task force to oversee the succession. It expects to complete the process this year. However, Soroban's action indicated frustration that the process isn't going fast enough.
Soroban said it wants Union's former chief operating office Jim Vena, who left the company in 2020, to return as CEO. Vena had upset some customers with the implementation of Precision Scheduled Railroading - a management process that sharply reduces cost - especially on labor - but which has been criticized for also delivering poorer service and compromising safety.
The latter issue, in particular, has been much in the headlines recently after the derailment of a Norfolk Southern (NYSE:NSC) train carrying hazardous chemicals.
"A return of Vena to the company would be well met by Wall Street, but may be a tougher sell to other industry stakeholders," said analysts at Bernstein in a note to clients.
Fritz took over as CEO in 2015 during a golden period for U.S. railroads, when shipments of oil and refined products, in particular, were booming. The pandemic also juiced returns as lockdowns triggered a massive rush for durable goods, many of which had to be distributed by rail after being imported from Asia and Europe.
However, Union Pacific stock peaked in March last year and has lost one-third of its value since then, despite a widespread rotation to ‘value’ stocks in old-economy sectors.
Union Pacific stock rose nearly 10% on the news by 08:30 ET (13:30 GMT), compared to a rise of 0.5% in S&P 500 stock futures. That puts it on course to open at its highest in three weeks.