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MarketScreener Homepage  >  Equities  >  Nyse  >  Emerson Electric Co.    EMR

EMERSON ELECTRIC CO.

(EMR)
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The Covid Crisis Taught David Farr the Power and Limits of Leadership

12/04/2020 | 10:32am EST

By Thomas Gryta | Photographs by Whitney Curtis for The Wall Street Journal

David Farr looked down at the empty parking lot and blew up. It was March 20, a cloudy day with a chill in the air. The coronavirus and lockdowns were grinding the U.S. economy to a halt, sending much of the American workforce home, including most of those at the Ferguson, Mo., headquarters of Emerson Electric Co.

Mr. Farr, who had run the industrial conglomerate for two decades, wasn't going anywhere. He told his assistant to summon the other eight members of the OCE -- the Office of the Chief Executive.

"We have a company to run," he growled, his voice echoing through the empty sixth floor.

Mr. Farr wasn't naive. The virus had torn through China and Europe, disrupting Emerson's operations. It was just a matter of time before it spread in the U.S.

But World War II wasn't won by hiding, he liked to tell people, and generals can't lead their armies from the bunker. He expected employees to be present, and he wasn't going to run the company from his home office.

"We have customers to serve and we can't frickin' do it if nobody is here!" he bellowed to the group assembled in his office.

Covid-19 has tested executives like few other events in modern history. How they respond is making some careers and breaking others.

In more than three dozen interviews throughout the course of the year, Mr. Farr and his top lieutenants showed what it's like to guide a global enterprise without a map.

The CEO reveled in his firm control and belief in constant action. The pandemic rendered much of that experience irrelevant.

It sprouted crises for Emerson's widespread global operations faster than Mr. Farr could contain them. He butted up against the reality of government regulations, suppliers struggling to meet commitments and sick workers idling production.

For all his attention to detail, Mr. Farr knows he underestimated the threat. "Why did we miss it?" Mr. Farr, 65 years old, said last month. "I fault myself for that because I would have been better prepared."

And yet he never stopped moving. Pushing through a crisis, with small and reversible steps, and making tough choices, such as pursuing an acquisition and pushing out a lieutenant, is better in his mind than waiting to act.

"I might be wrong, but we get paid to make decisions and make calls," he said in April after he shared financial projections with Emerson's board of directors. "I would never jump off a cliff without knowing a bit about what is at the bottom. But I know you have to take jumps."

Seven charter planes

Emerson, with 90,000 employees around the globe, has roots in the 19th century, when it made the first electric fans sold in the U.S. Built up by acquisitions, it now produces cutting-edge systems that automate factory processes, and heating and air-conditioning equipment. It makes giant valves used in the oil industry as well as Insinkerator garbage disposals and the red Ridgid pipe wrenches used by generations of plumbers. It runs more than 200 manufacturing sites, with two-thirds of them outside the U.S. To shareholders, it's a business worth $45 billion.

On Jan. 21, Mr. Farr was in Mumbai with five of his top executives when he opened an email from the head of Emerson's China business, Jennie Li. She wanted to talk about a virus outbreak -- and a possible government plan to lock down the sprawling city of Wuhan.

The company employed 8,000 people in China at three dozen facilities. Fewer than 1,000 people were infected by the virus globally, and it was impossible to gauge where this would go.

Within days, China extended its Lunar New Year holiday to help slow the spread of the virus. Mr. Farr finished his trip to India and headed home, certain something big was brewing, even if its extent was unclear.

Back in Ferguson, Mr. Farr asked his chief operating officer, Steve Pelch, to put together a team to make sure they were doing everything they could to keep the China operations safe and running.

Mr. Farr knew that if China shut down, it could choke the company and the global economy. Production would slow as parts inventory thinned, orders would back up or be canceled and the loss of scale and sales would make each transaction less profitable. The resulting slowdown could reshape industries as companies shrank and others -- those smart enough to be ready -- grabbed market share.

Emerson's products were essential to keeping power and water utilities and other critical services running smoothly, even refrigeration for medicines and food. But now, a truck full of flow meters coming from its Nanjing factory and going to Shanghai was finding it almost impossible to get through.

The company reserved seven charter planes, ensuring it could get its products out of the country for months to come. It proved to be a lifeline when the cost of logistics skyrocketed.

This could all be managed, Mr. Farr thought. Seeing the Chinese government deal with the virus early in the year and reopen without major outbreaks gave him some confidence. "I got into a lot of heated battles around here in St. Louis because I had the opinion that you can live with this virus," he said.

On Feb. 4, Emerson reported first-quarter earnings. The coronavirus was mentioned nine times by executives on the conference call with Wall Street analysts. Mr. Farr expressed his concern for the Emerson workers in China. He predicted that the sales impact from virus disruption would be moderate but warned economic growth could stall later in the year.

The company expected its Chinese factories to restart on Feb. 10, Mr. Farr told analysts and investors. The Chinese plants did come quickly back on line. But Mr. Farr didn't anticipate what came next.

'I'm too busy to die'

Mr. Farr is old school. He runs an industrial conglomerate.

He likes golf and the company jet. He likes a glass of wine, or a vodka on the rocks, and goes on walks with his wife, Lelia, almost every night through their upscale neighborhood of Ladue just outside the city of St. Louis. He is up at 5:30 a.m. and tries to stop working around 8 p.m., but is still quick to answer emails later than that. He doesn't watch television outside the office and spends most nights reading, lounging with Rocket and Doon, his two King Charles spaniels, and going to bed early.

He grew up in Corning, N.Y., where his father was a math teacher before becoming a plant manager at glassmaker Corning Inc. The job moved the family to England, where his mother died from a cerebral hemorrhage when Mr. Farr was 18.

Fresh out of business school, he joined Emerson in 1981 and rose through the ranks working for a tough CEO who ran the place for 27 years with a focus on grinding down costs. Mr. Farr, too, is hard on his managers. His shouting is balanced by an affinity for hugs, handshakes and kisses. He dictates long memos to his secretary and enjoys "good debates, bad debates and yelling debates."

He is politically conservative and an admirer of Jack Welch, the hard-nosed former boss of General Electric Co. At an investor conference in 2009, he said he wouldn't hire more U.S. workers because the Obama administration was out to "fundamentally destroy" manufacturing with its environmental and labor rules. He declares a lack of interest in politics, yet he talks with the White House, governors and mayors and makes sure people know it.

Emerson's salesman in chief rarely misses the chance to pitch the company's products, even interrupting a conversation to tout a Ridgid "closet auger," a device for unclogging toilets. He roots, in jest, for heat waves, storms and flooding so Emerson can sell more air conditioning compressors and wet/dry vacuums.

Mr. Farr keeps five baseball bats in his office, including one signed by St. Louis Cardinals greats Stan Musial and Albert Pujols. He likes to swing the bats while he thinks. During earnings calls, he is known to poke people with a bat if he thinks they aren't doing a good job of talking to investors.

He has delivered steady gains for investors. Since he took over in October 2000, Emerson shares have logged a 311% total return, including dividends, compared with the 275% return from the S&P 500 index, and a 239% return for the S&P Capital Goods Industry Group Index.

He was just 45 when he was named CEO. Months into the job, he faced the bursting of the dot-com bubble in 2001 and the Sept. 11 terrorist attacks. The company's 43-year streak of earnings growth came to an end.

In an era of shrinking CEO tenures, Mr. Farr's has also spanned the 2008 financial crisis and the 2014 racial unrest in Emerson's hometown of Ferguson stemming from the fatal police shooting of Michael Brown, an unarmed Black teenager. Mr. Farr plans to retire next year, which means the pandemic will likely be his final challenge.

Though he didn't serve in the military, Mr. Farr approaches crises as if he was commanding his troops from the front line. "I'm not going to die, " he said in the first weeks of the pandemic. "I'm too busy to die."

Downward slide

As February turned to March, the virus ebbed in China but emerged in a new hot spot: Northern Italy, where Emerson has five factories and nearly 2,000 workers. The government locked down areas around Lombardy and Milan, then widened the shutdown to other regions and eventually the entire country.

"Is it going to grow in just pockets or is it going to grow across the whole country?" Mr. Farr wondered.

A major Emerson conference for European customers scheduled for mid-March in Milan was canceled. The company pulled out of an oil-and-gas conference in Houston. In the relatively untouched U.S., Emerson started shutting down offices and giving employees instructions for working from home.

(MORE TO FOLLOW) Dow Jones Newswires

12-04-20 1031ET

Stocks mentioned in the article
ChangeLast1st jan.
CORNING INCORPORATED -0.21% 38.45 Delayed Quote.6.81%
DJ INDUSTRIAL 0.83% 31188.38 Delayed Quote.1.06%
EMERSON ELECTRIC CO. 1.15% 84.39 Delayed Quote.3.81%
GENERAL ELECTRIC COMPANY -0.35% 11.39 Delayed Quote.5.46%
LONDON BRENT OIL -0.09% 55.62 Delayed Quote.5.90%
NASDAQ 100 2.31% 13296.450006 Delayed Quote.0.84%
NASDAQ COMP. 1.97% 13457.247715 Delayed Quote.0.86%
NEDBANK GROUP LIMITED -0.89% 127.84 End-of-day quote.-1.27%
S&P 500 1.39% 3851.85 Delayed Quote.2.55%
WTI -0.08% 52.893 Delayed Quote.8.53%
WYNDHAM WORLDWIDE 2.70% 49.49 Delayed Quote.10.32%
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Financials (USD)
Sales 2021 17 272 M - -
Net income 2021 1 967 M - -
Net Debt 2021 4 166 M - -
P/E ratio 2021 25,7x
Yield 2021 2,35%
Capitalization 50 589 M 50 589 M -
EV / Sales 2021 3,17x
EV / Sales 2022 2,96x
Nbr of Employees 83 500
Free-Float 62,3%
Chart EMERSON ELECTRIC CO.
Duration : Period :
Emerson Electric Co. Technical Analysis Chart | EMR | US2910111044 | MarketScreener
Technical analysis trends EMERSON ELECTRIC CO.
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 24
Average target price 85,70 $
Last Close Price 84,39 $
Spread / Highest target 23,2%
Spread / Average Target 1,55%
Spread / Lowest Target -17,1%
EPS Revisions
Managers and Directors
NameTitle
David N. Farr Chairman & Chief Executive Officer
Michael H. Train President
Steven J. Pelch Chief Operating Officer & Executive Vice President
Frank J. Dellaquila Chief Financial Officer & Senior Executive VP
Jake Fritz Chief Information Officer & Vice President
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