January 9, 2019 / 10:02 PM / 9 days ago

Union Pacific shares rise on improved efficiency hopes

(Reuters) - Union Pacific Corp (UNP.N), the No. 1 U.S. railroad, said on Wednesday that a key measure of performance would come in better than expected for 2018, sending shares up 1.6 percent in after-hours trade.

The Omaha, Nebraska-based company said its operating ratio was expected to be 62.7 percent for 2018, a 0.1 point improvement from 2017 after stronger-than-expected international container imports and cost controls bolstered results.

That was better than investors had hoped for after Union Pacific warned in November that slowing revenue growth and higher costs associated with employee severance and operational inefficiencies could weigh on results.

Operating ratio is a closely watched measure of expenses as a percentage of revenue. A lower ratio means more efficiency and higher profitability.

Union Pacific has vowed to reduce its operating ratio to at least 60 percent by the end of 2020.

The company, which connects 23 states in the western two-thirds of the United States by rail, also said this week that it was hiring former Canadian National Railway Co (CNR.TO) executive and turnaround expert Jim Vena as its chief operating officer - a move cheered by investors.

Vena will oversee Union Pacific’s “Unified Plan 2020” that incorporates principles Canadian National used to improve train punctuality.

During Vena’s time as Canadian National’s COO, the company generated the best operating ratio in North America and had the best safety incident ratio in company history, Union Pacific said.

Union Pacific rival CSX Corp (CSX.O) used a similar strategy to reduce its operating ratio to 58.7 percent in the third quarter.

Union Pacific’s third-quarter operating ratio was 61.7 percent. The company, which is cutting jobs and consolidating businesses, is scheduled to report fourth-quarter results on Jan. 24.

Union Pacific shares were up $2.45 to $152.81 in extended trading.

Reporting by Sanjana Shivdas in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Phil Berlowitz and Rosalba O'Brien

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