(The following story by Stacie Hamel appeared on the Omaha World-Herald website on May 5.)
SALT LAKE CITY, Utah — Unprecedented demand was the bright spot in 2004, a year darkened by slow rail service, worker and equipment shortages, and skyrocketing fuel costs, Dick Davidson, Union Pacific Corp. chairman and chief executive, told shareholders Thursday morning at the company’s annual meeting here.
U.P. railroad – the corporation’s largest operating unit – has made gradual but steady progress so far in 2005, Davidson said.
Still, 2004 was “a disappointment for all of us,” he said during an interview before the meeting.
In December, U.P.’s monthly average train speed dropped to 19.5 mph, its lowest point since the late 1990s. Net income dropped 62 percent in 2004 to $604 million, its worst showing since 1998, even though revenue was up 6 percent, to $12.2 billion.
Davidson, 63, said he wants disappointment in the year’s results to be only a memory by the time he reaches U.P.’s mandatory retirement age of 65 for its top executives. His goal, he said, is “to have this company humming.”
That goal has replaced another that he said the company clearly won’t reach before he retires. The Malcolm Baldrige National Quality Award is out of reach for now, he said.
“It’s a personal disappointment to me. I felt sure we were going to achieve that.”
That disappointment, though, doesn’t match “the disappointment we gave our customers, employees and shareholders in ’04,” Davidson said.
Davidson guided the corporation through recovery from a service crisis in 1998-99 that created near-gridlock in the Houston area after the Southern Pacific merger. Rail and financial performance improved so much that for three years – in 1994, 2001 and 2002 – U.P. was named a finalist for the Baldrige Award, a prestigious quality management award.
“We came close,” he said.
Davidson said he doesn’t plan to request that the U.P. board allow him to remain beyond age 65. “We’ve got so many good young people in the company. They deserve their chance.”
Shareholders re-elected the corporation’s 11 board members. The board held its regular meeting here Thursday and attended the annual meeting.
U.P. made 2004 a rebuilding year, Davidson said, by hiring 7,500 employees – 5,000 of them for train service – and adding about 400 locomotives.
“It’s starting to show,” Davidson said. “Not like a rocket taking off but slow, gradual improvement.”
Davidson cited as examples record volumes for the time of year; improving train speed and other performance measures; and word from customers that service is becoming more reliable.
In an earlier first-quarter earnings report to stock analysts, Davidson said, “We’re not back to our 2003 performance yet, but we’re gaining ground.”
That year, the railroad ran efficiently while bringing in record revenue and earnings.
Train speed has improved gradually since January storms nearly shut down West Coast operations. In the five weeks through April, train speed averaged 21.6 mph, compared with 21.4 mph in April 2004 and 24.3 in April 2003.
The amount of time railcars spend waiting at terminals also has decreased, from an average of 31.2 hours in April 2004 to 27.3 hours in the five weeks through April of this year. In April 2003, the average was 25.4 hours.
The railroad also handled more carloads of freight, with a 3 percent increase so far in the second quarter, compared with the same period in 2004.
The company began an operational overhaul, called the Unified Plan, in the second quarter that already is helping, though it won’t be fully implemented until later this year, Davidson said. The plan is intended to rebalance work on the railroad, he said, so that blocks of freight cars run greater distances without being handled.
The result should be lower failure costs, estimated at $300 million in 2004. Those costs are caused by inefficiences, such as poor use of locomotives and freight cars. Also contributing is the sending of new crews to relieve others, which because of federally allowed work hours, have to be replaced.
“I have the greatest of confidence that it will make significant impact,” he said.
Also during Thursday’s meeting, the company honored a few of its employees who have returned from service in Iraq. Nearly 90 U.P. workers now are on active duty; more than 185 have returned.
Union Pacific makes up the difference between an employee’s military pay and regular salary, and has been named by Forbes magazine as a top 10 employer for reservists and by G.I. Jobs magazine as a top military-friendly employer.
The company also received the Patriotic Employer Award from the National Committee for Employer Support of the Guard and Reserves.