By Bob Sechler
Union Pacific Corp. (UNP) Chief Executive Jack Koraleski faced
immediate challenges after taking the helm a year ago, with coal
shipments on a steep decline and a drought sapping demand for grain
transport.
But one of the biggest tests of 2012 for the largest publicly
traded railroad by revenue was the circumstance that elevated Mr.
Koraleski to the top job in the first place--former CEO Jim Young's
abrupt diagnosis of pancreatic cancer.
"That sent a shockwave through the company," Mr. Koraleski
said.
Mr. Koraleski, a 41-year veteran of Omaha, Neb.-based Union
Pacific, was 61 at the time and just seven months away from a
planned retirement of travel and charity work. "I would be sitting
in Maui, looking at the whales right now" had all gone as planned,"
he quipped in a recent interview.
Instead, he was named acting CEO on March 2 last year--with the
"acting" dropped a couple months later--and intends to stay on at
least until he's 65.
Mr. Young, 60 years old, remains chairman and is said by the
company to be doing well in his treatment. He worked 34 years at
the company prior to his diagnosis, including six as CEO.
Mr. Koraleski is credited by analysts with seamlessly handling
the surprise top management change. By his own admission, he's made
few changes to the railroad's business plans, having helped develop
them alongside Mr. Young while serving in a number of senior
management positions, most recently executive vice president for
marketing and sales.
"It was sudden, which is unfortunate, but it's been business as
usual" for Union Pacific, said Jefferies & Co. analyst Peter
Nesvold.
He praised Mr. Young for emphasizing new markets during his
tenure, such as intermodal shipments and shale-oil transport--both
of which have helped offset the recent declines in coal and
agriculture business. But he noted that Mr. Koraleski has
successfully continued the strategy, making it appear "from outside
like everything takes care of itself."
Mr. Koraleski, an Omaha native and, like Mr. Young, a graduate
of the University of Nebraska, said he moved quickly "to assure our
employees, our customers and our shareholders that we weren't
planning on changing strategies" or day-to-day railroad
operations.
As he enters his second year in the top job, he said his biggest
worry is that the political rancor and fiscal uncertainty in
Washington, D.C., chokes off consumer confidence and the nascent
economic recovery.
A number of CEOs, including General Electric Co.'s (GE) Jeff
Immelt, have expressed similar concerns.
"Right now, people are buying cars and starting to buy houses,"
Mr. Koraleski said. "But we could see that go away pretty easily"
if consumer confidence is undermined.
Union Pacific finished 2012 with flat overall volume, despite a
14% decline in coal shipments a 4% slide in agriculture shipments.
Its booming business hauling materials to and from new shale-oil
drilling sites served as counterbalance, as did rising automotive
and intermodal transport.
Profit climbed 20%, to $3.94 billion, on a 7% rise in
revenue.
Union Pacific shares, trading recently around $140, are up about
25% during Mr. Koraleski's tenure, outpacing gains of 12.5% and 8%
for rival railroads CSX Corp. (CSX) and Norfolk Southern Corp.
(NSC), respectively, and a 20% gain for the Dow Jones
Transportation Average.
Mr. Koraleski is forecasting continued earnings growth for 2013,
and he said he expects Union Pacific's overall volume to start
turning positive by the end of the year. The trend likely will be
led by intermodal shipments, comprised largely of consumer goods,
as well as by automobiles and building materials, such as lumber,
used in housing construction.
"Those are things that are kind of fundamentally driving our
growth," he said. "But they're also things that will go away if
whatever happens in Washington, D.C., shakes consumer
confidence."
Union Pacific's year-to-date volume through early March was off
1%, led by a 21% decline in coal shipments, which have been hurt by
low natural gas prices and high stockpiles at power-generation
plants. But shipments of intermodal containers were up 9%, while
shipments of petroleum products were up 50%.
Write to Bob Sechler at bob.sechler@dowjones.com
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