The Most Important Call of the Year: “I’ve Got All The Clarity I Need”
We have, in the past, highlighted in these virtual pages the comments of David Farr, the outspoken and common-sense-laden CEO of Emerson Electric Co.
Readers not familiar with Emerson should become familiar with it, for in its long history (it was founded in 1890) Emerson has outperformed its more famous relative, General Electric (founded two years later), by a wide margin…and never needing taxpayer dollars to bail itself out from bad decisions like Jack Welch’s bad decision to turn GE from a company that made stuff for Main Street to a company that ‘made the numbers’ for Wall Street, using GE Finance as a perpetual motion machine that lasted only as long as the credit cycle lasted.
We once talked to an ex-executive at Emerson about the GE comparison. He said to us: “You know we used to have a finance operation like GE, right?” We said, “No, what happened to it?” He said, “We shut it down.” We asked “Why?” He said, “Because our CEO decided it was too risky.” That’s the kind of CEO the ‘beat-the-numbers’ folks at GE could have used.
In any event, Farr runs one of the most value-added earnings calls of the season, offering frank and unvarnished observations about not only Emerson’s far-flung operations, but also about the operating environment in which the company lives.
And that environment is not getting any prettier, if yesterday’s call is any indication. Indeed, we think yesterday’s call was the single most important this season, and perhaps this year-to-date.
Now, for a full flavor of Farr’s comments, readers ought to get a hold of the full earnings transcript—or, better yet, listen to a replay of the call itself.
But the heart of the call came two-thirds of the way through the Q&A, when he was asked by one of Wall Street’s Finest what triggered Emerson’s recent warning that growth was slowing, and whether it stemmed from the need for greater clarity out of Washington.
Here’s what Farr said:
“I just look at the order pace. I think the biggest issue that I’m watching right now is they’re not really — either in the US or Europe really addressing the gut issues. The US have enormous regulations coming at us right now.
“There’s — the incentive to invest in the United States is negative and from my perspective.
“People talk about ‘we want clarity’. I’ve got all the clarity I need. They’re spending, they’re regulating us, the tax rates, they’re talking about raising the tax rate.
“Our tax rate this year will be around — in the US will be around 36%. We’ll pay in US taxes this year over $500 million, actually pay the US government over $500 million, and they say they want to raise it even more. And so I’m looking at that as a — I run a Company, I have a lot of money to invest and I look at that and I say I’m not going to invest it here and I think customers — I think a lot of customers have the same concern.
“And then when you have a company like Boeing, you’re talking about one of the iconic US companies gets sued by the federal government. If that doesn’t get your attention, nothing will. They get sued for investing $2 billion in South Carolina. Last time I saw South Carolina was a part of the United States of America and you get sued for that. I tell what you, the CEO, you get my attention.”
Let’s hope Farr’s comment get some attention where it matters.
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2011) Available now at Amazon.com
© 2011 NotMakingThisUp, LLC
The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.