ST. LOUIS – Chief Executive Officer David Farr is focusing Emerson Electric Co. on four businesses with worldwide growth potential while shrinking his most profitable unit: the maker of wet-dry vacuums and InSinkErator disposals.
Farr said he considers network power, climate technologies and process management to be global franchises, and he wants to expand the industrial automation division to the same level. Businesses in the commercial and residential solutions unit can’t compete as well on a worldwide basis, he said.
They’re going to be good businesses, Farr, 57, said in an interview at Emerson’s St. Louis headquarters. You’re just going to have a small position in them, or over time you may move out of it.
Farr has shrunk sales at the commercial and residential solutions unit by half since 2008 while expanding into network power to hitch the company’s future to the world’s growing reliance on computing.
Emerson, which was founded in 1890 as a manufacturer of electric motors and fans, sold its motors and appliance controls business to Nidec Corp. in 2010 and this year is shedding a tool storage company called Knaack. Farr compared the businesses left in commercial and residential solutions, which include ClosetMaid organizers, to the company it sold to Nidec.
If you can’t compete on a global basis today, it’s hard to sustain a value proposition for a long, long term, Farr said. It’s just like the appliance-components business, you moved out over time.
The unit posted sales of $1.84 billion in the fiscal year through September 2011, or about 7.6 percent of Emerson’s $24.2 billion in revenue. When Farr took over 12 years ago, it made up 24 percent of total sales.
The businesses are the most profitable for Emerson. For the first nine months of fiscal year 2012, commercial and residential solutions had profit margins of 21 percent, compared with 19 percent for the process unit and 9 percent for network power.
Farr said he’s working to expand the global reach of industrial automation, which posted a profit margin of 17 percent in the nine-month period and makes factory equipment from conveyor-belt motors to welders that join plastic parts. The unit gets 67 percent of its sales from the United States Canada and Europe.
I think we can create Industrial Automation into a global franchise, but we haven’t done it yet, Farr said.
To keep building the four focus businesses, Emerson is making small acquisitions, Farr said, such as a refrigerated-container controls business from Johnson Controls Inc. in April. Concern that global growth is slowing has made companies cautious about larger purchases.