March 4 (Reuters) - Emerson Electric Co. said it expects sales at its vast China operations to take a painful hit in the first quarter as a result of the coronavirus, but that about half of that lost business will be made up later in the year as China scrambles to stimulate its economy, which will fuel demand for Emerson’s industrial equipment.
“At this point we’re running all our (China) facilities full out,” Emerson CEO David Farr told Reuters in an interview on Wednesday.
The improvements in China come as anxiety is rising in other parts of the world, including the United States, where the Federal Reserve on Tuesday slashed its benchmark overnight interest rate by a half percentage point to a target range of 1.00% to 1.25%. It was the first emergency rate cut since 2008, amid the financial crisis.
Farr said about 90 percent of Emerson’s 11,000 Chinese workers are back on the job, working through backlogged orders as the larger business climate in China remains stalled. Emerson, based in St. Louis, is projecting economic disruptions in that country will shave $75 million to $100 million off its China sales in the first quarter. The company’s China sales are about $2 billion a year.
Farr said the situation on the ground in China’s industrial heartland appears to have stabilized, with more goods moving and fewer barriers, such as checkpoints on highways that have slowed recovery up to now. One key metric Farr tracks, updated twice a day in a larger report Farr receives from China, is that 95 percent of the company’s suppliers are back online, running at about 75 percent of capacity.
The problems in China haven’t hobbled Emerson’s operations in other parts of the world, a common problem for many global producers, largely because the company locked up large blocks of air-freight capacity at the beginning of February, said Farr.
“I’m paying a premium for this, but we knew there was going to be a huge bottleneck,” said Farr, adding that the question now is whether Emerson extends its air-freight plans to the end of April.
Reopening factories in China has been a daunting process. Getting approvals to reopen often required multiple government inspections and navigating an array of rules aimed at curbing the spread of disease. In some areas, for instance, Farr said authorities required all conference rooms inside Emerson factories to be taped shut—to assure no gatherings of larger groups of people in those locations. (Reporting by Timothy Aeppel Editing by Chizu Nomiyama)