It's official. After 22 years with the company (and more than seven as its CEO), Union Pacific (UNP -0.13%) chief Lance Fritz is stepping down.

The decision was strongly encouraged by hedge fund Soroban Capital Partners. A letter from Soroban's managing partner Eric Mandelblatt penned to the railroad's board of directors doesn't mince words, pleading that the board "install new leadership who can get the trains to operate safely and on time." It looks like those wheels are finally turning.

As the old adage goes, though, be careful what you wish for because you just might get it. A new chief executive may well improve the rail carrier's on-time percentage and safety profile. But that effort could prove costly to shareholders.

Lots of growth, but at a cost

Mandelblatt is correct in pointing out that since Fritz has been in charge, Union Pacific has underperformed its peers in terms of growth and profitability. On the other hand, when you're one of the biggest railroads not just on the continent but also on the planet, meaningful fiscal progress is tough to come by.

And to his credit, Fritz has done what he could -- if not to grow the company then at least to cut significant costs where possible. Union Pacific's employee headcount has been pared back from nearly 48,000 in 2015 to roughly 30,000 workers as of 2021, for instance. While automation has helped make some of this employee reduction possible, certainly part of it also stems from smart streamlining. The rail carrier's annual revenue is right around where it was when Fritz took the helm, but per-employee revenue is roughly 50% higher since then.

UNP Total Employees (Annual) Chart

UNP Total Employees (Annual) data by YCharts

The more important outcome? By reducing the company's single-biggest expense, Fritz has extended a long-standing streak of growing profit margin rates. Prior to last year's slight profit stumble, operating margins had reached 42% of revenue, versus around 36% when he became CEO, and well up from roughly 30% back in 2010 when the world was easing out of the Great Recession.

UNP Total Employees (Annual) Chart

UNP Total Employees (Annual) data by YCharts

And there's the rub. Whoever's set to take over when Fritz steps down this year may well be able to "get the trains to operate safely and on time." Can they do it, however, without crimping -- or even crushing -- the operating margins Union Pacific shareholders have grown accustomed to?

It's easier said than done when the operation in question is as massive as Union Pacific's.

It's not the guy ... it's the company

Never say never. The market seems to think Fritz himself is the weak link, and signaled their approval by sending Union Pacific shares sharply higher on Monday following the announcement of his impending exit. Soroban's Mandelblatt suggests the stock's got a shot at doubling with someone else at the helm. And perhaps it does.

This could be one of those cases, however, where the story looks more compelling from a distance than it might up close.

The railroad business is more complicated than it seems on the surface, and even more so when the rail carrier in question is weighed down by its sheer size. It's possible the next Union Pacific CEO will yield the same results, as they are leading the same company with the same cost and structural limitations. Indeed, the railroad's already been back in net-hiring mode since 2021 despite other soaring costs eating into profits during that time.

It may be a sign the company realizes it cut too many workers loose to effectively manage its business now. In this same vein, while Union's industry-leading annual revenue per employee may seem like a sign of success on the surface, it's just as easily an indication that the company's been asking too much of its workers. Never even mind the entire rail industry's recently heated challenges with labor unions, which pose the further risk of higher labor costs.

Soroban Capital's letter doesn't suggest any specific, plausible changes that could be implemented to drive better profit growth either. It simply laments the poor fiscal results produced under Fritz's tenure.

Bottom line? Current shareholders, who were already looking for an exit point prior to Monday's bullish romp, may want to use the gain as an opportunity to sell. There's no assurance Union Pacific is in a position to drive better performance no matter who's in charge. And, even if it is, how much will it cost?

These sorts of unanswered questions are anything but bullish for stocks.