UP Earnings Drop on Management Gaff

[Anonymous]

Below is todays article on UP earnings for 3Q 2004 that were released today. Note that UP Management is falling down on the job, again. They only managed to hedge 8% of fuel costs while even CSX managed 25%. NS led with 71%. And you wonder why investors like NS. Who is minding the store at UP. Better not be any management bonusses this year...

LC

UP railroaded by high diesel costs

Bloomberg News

Union Pacific Corp. will report today that higher fuel costs contributed to lower third- quarter
profit, as the biggest U.S. railroad trailed rivals in purchase contracts and other hedges against
rising diesel prices.

Union Pacific hedged 8 percent of its diesel fuel in the quarter, compared with 71 percent for
Norfolk Southern Corp., 57 percent for Burlington Northern Santa Fe Corp. and 25 percent, through
July, for CSX Corp., according to the companies. Retail diesel prices rose 25 percent in the
quarter.

"Over the past few years, most railroads have hedged one-third to one-half of forward fuel prices to
protect against oil spikes," said Morgan Stanley analyst James Valentine in Chicago. "Union Pacific
has chosen not to take that conservative route and now they are feeling the volatility of oil
prices."

Railroads, like other transportation companies, are seeking to cope with rising prices for fuel,
which according to the U.S. Energy Department reached a record $2.18 a gallon for diesel last week.

Fuel prices also are contributing to third-quarter losses at major U.S. airlines. The nation's U.S.
truckers have paid $7.3 billion more for diesel this year, the American Trucking Associations trade
group said.

"As prices went up, we felt that getting more involved in hedging at that point was not a good
decision," Union Pacific spokeswoman Kathryn Blackwell said in a interview. "We didn't expect fuel
prices to keep creeping up as they have."

Westar Energy Inc. has named a Kansas City, Mo., executive and a Topeka college president to its
board of directors.

Sandra Lawrence is senior vice president and treasurer of Midwest Research Institute, a nonprofit
laboratory that conducts scientific research and technology development for industry and government.

Jerry Farley is president of Washburn University, a 7,000-student university that provides liberal
arts and professional degrees.

[Junctionfan]

UP must have too many old non fuel efficient locomotives in service. I know NS and CSX have or are buying a slew of new locomotives to replace their old crummy ones but so is UP so I don't really know what is UP's problem.

[oltmannd]

...it ain't the locomotives!!

[Junctionfan]

What is the railroads' problem than?

[Anonymous]

It's the Railroads themselves,it's all in how thay want to run their company.

[Anonymous]

Fuel hedging is a funny / risky thing. Its legalized gambling. If you lock in on a future rate that is too high, you'll overpay.

Somebody didn't read the tea leaves correctly, but I'd guess none of us could have done much better? UP is the largest single consumer of diesel fuel in the US. They surpassed even the US navy.

[Junctionfan]

Can UP use some ethanol laced fuel or is that not a viable option to reduce costs?

[Anonymous]

I thought hedging was stockpiling fuel when the price is low? or is it buying a contract or option for future fuel at a certain price?

Either way it sounds like somebody did not think long term and or did not want to spend the money in the short term. I feel a little hesitant to critisize though because I know very little about fuel markets.

[Anonymous]

QUOTE: Originally posted by jruppert

I thought hedging was stockpiling fuel when the price is low? or is it buying a contract or option for future fuel at a certain price?

Either way it sounds like somebody did not think long term and or did not want to spend the money in the short term. I feel a little hesitant to critisize though because I know very little about fuel markets.

JR-

This is a BIG bungle. You are correct hedging is the purchase of futures contracts for diesel fuel or like arrangements with fuel suppliers not made through the futures markets. Look at how much money has been saved by the NS by hedging. Further, not to hedge if you are using the kind of fuel that UP is using in a rising fuel price environment is simply throwing money out the window. Look at all the negatives out there in the oil supply world and the rising price of oil as a result. Remember that we are just beginning the winter fuel oil season as well. Someone was asleep at the switch at UP and probably cost the company $millions in increased fuel costs. As a shareholder, considering this latest bungle, the absolute nightmare that UP has made of human resources planning and their scandalous loans to senior management so they could receive extra shares I am OUTRAGED!!

LC

[dknelson]

Fuel efficiency? UP don't need no stinkin' fuel efficiency. They'll make it up in lawsuit winnings by suing model train manufacturers.
Dave Nelson

[Anonymous]

I have heard the frase "micro culture" before, used to describe a culture - a self perpetuating set of values that takes root in a specific group of poeple in an office or company.

I suppose a micro culture could be good or bad or maybe even both depending on how it effects the performance of a company.

So, I guess this and many other posts critisizing the UP leads me to ask, "what kind of culture exists at the UP?"

And, "If the existing culture negatively effects performance at UP, what can be done to change it?"

I cannot honestly present these questions without saying that I cannot begine to answer them, but in some way they may help somewhere.

[Anonymous]

Costomer Service?

[co614]

It's a complete mystery how *** Davidson&Co. still have thier jobs after the repeated and massive screw-ups they've produced over the last 5 or so years.
Where's the BOD, where's the institutional investors??? These guys completely botched the C&NW "merger", then produced the complete meltdown of the '90's, then the current Meltdown2 and now the non-hedgeing of the fuel!!! And to add insult to injury they've been paid hideous bonuses to boot!!
Sure is a mystery!!

[Anonymous]

One thing I have noticed over the last ten years or so is that poeple who are highly skilled and hold vital positions in a company are worked ever harder, and yes they may be compensated, but those in charge simply increase the workload rather than expand hiring. Another thing is that while middle class wages have stayed unchanged in comparison, top management compensation has skyrocketed.

In my own experience, I have worked only for small companies or individuals outside of my military experience, and maybe also what I have seen in my parents machine tool rebuilding shop is that pay really does not affect a person's nature. If you pay a lazy person a lot of money - they will still be a lazy person. The same goes for workmanship. Somebody who continually makes mistakes will do so reguardless of pay.

But I do not believe the opposite is true, a skilled individual who works hard and takes pride will not stay if he is not fairly compensated or appreciated. But I believe this has more to do with the basic necessities of life than "getting rich".

What I have seen in some companies is a culture of disposability - responsibilities are divided further and further, pay cut accordingly, and turnover rises. If somebody walks out the door, so what? we'll have another sucker tomorrow, and he doesn't need any training anyway.

What I have seen in other places is just the opposite, they find somebody who knows what the heck he's doing and they latch onto him and push em as far as they can, if he complains, they give him a raise, but either can't or don't want to find him some help.

Either way it seems to boil down to efforts of "controlling costs". From what I see in european companies is a real long term view to developing talent and loyalty, something long gone in american companies.

Somebody please tell me I'm wrong.