The 2016 All-America Executive Team: Which CEOs Do Analysts Admire?
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The 2016 All-America Executive Team: Which CEOs Do Analysts Admire?


Money managers and sell-side researchers value corporate leaders who champion innovation.

Deere & Co. may be most famous for its iconic green and yellow tractors, but those vehicles — along with the rest of the company’s large agricultural, construction and forestry equipment — now boast advanced communications systems that enable farmers to capture data for agronomic decision-making and allow different pieces of machinery to talk to each other.

This development has gained significant traction under the leadership of Samuel Allen, who became Deere’s chief executive officer in 2009. “It’s the ability for the farmer to not only optimize his equipment and his whole logistics but also to get the data off the piece of equipment and put it into a system that’s able to analyze and tweak what we call his prescription of what he’s going to do next year to improve yields,” he says. “Farmers do see 5 to 10 percent year-over-year yield improvements by doing this.”

Allen, 62, notes that the Moline, Illinois–based manufacturer employs about 2,400 software developers. “A lot of people don’t appreciate that we have that much going on in our intelligent solutions group and that level of sophistication,” he believes. “Take one of our flagship tractors, the 8R row crop tractor. It will have more lines of software code in it than the first Microsoft operating system had, and it will have more computing power than the first space shuttle.”

Another major accomplishment of Allen’s tenure has been the company’s growing presence in markets outside the U.S., exemplified by the opening of three facilities in China, two in Brazil and one each in India and Russia. At these centers Deere makes construction machinery, farm tractors and seeding and tillage equipment for use locally, to meet customer needs and reduce the costs of shipping products from other areas.

And, despite suppressed crop prices and a projected drop in total equipment sales amid a sluggish global economy, Deere has been spending a record amount on research and development — more than $1.4 billion in each of the past three fiscal years — and is maintaining that commitment, according to Allen. “We’ve chosen to stay at that high level, to continue to bring out a suite of new products over the next couple of years to help mitigate some of the downturn,” he explains, pointing to the company’s first four-track tractor, as well as a hybrid wheel loader that achieves a 40 percent improvement in fuel economy over conventional models.

“Even though it hasn’t paid off yet in the way we think it will — globalizing the company, seven new plants, completely expanding the product line in support of that — I feel good that that positions the company for the next decade plus,” he explains.

The widespread use of telematics and the expansion of its geographic footprint are examples of innovations at Deere, which posted its two highest-net-income years in fiscal 2012 ($3.54 billion) and 2013 ($3.16 billion), and they underscore how the most heralded CEOs are able to set their companies apart from the competition and prepare them for the future.

Portfolio managers and sell-side analysts who participate in the All-America Executive Team, Institutional Investor’s annual ranking of the nation’s best corporate leaders, are impressed. Deere is the across-the-board winner in Machinery, with Allen named the sector’s best CEO. Survey results reflect the opinions of nearly 2,040 investment professionals at close to 680 financial services firms. Respondents from the buy side work at firms that collectively manage an estimated $7.1 trillion in U.S. equities.

The Honored Companies table in the navigation panel at right lists the U.S. businesses that received the highest scores in each of 45 industry sectors. Click on the Best CEOs, Best CFOs and Best Investor Relations Professionals to view the winning individuals in each category. Best IR Companies shows which entities come out on top when responses to IR attribute questions are aggregated.

Another company that dominates its category — in this instance, Retailing/Food & Drug Chains — is CVS Health Corp. Larry Merlo, who became CEO in 2011, set the bar high for corporate innovation in 2014 when the company boldly eliminated tobacco products from its 7,800 outlets. He describes the move as “the right decision for our brand, our business and for the health of the country.”

For instance, the move has helped to validate the Woonsocket, Rhode Island–based company’s role in the health care marketplace. “If we wanted CVS Health to be credibly viewed as a setting where health care is delivered, then the sale of tobacco had no place in our business model,” explains Merlo, 59. “Second, the fact that companies and consumers are now seeing us as a convenient and affordable point of access for quality care creates longer-term growth opportunities for our business.”

In addition, he reports that smokers in states where CVS had at least a 15 percent share of the retail pharmacy market purchased 95 million fewer packs of cigarettes in the eight months following the company’s cessation of tobacco sales and, at the same time, those markets saw a 4 percent increase in nicotine patch purchases. “I think a decade from now we’ll look back on our exit from tobacco as a truly seminal moment in our company’s history, evolution and continued success,” he declares.

Acquisitions have also been key to CVS’s drive to expand its core business and broaden its base of operations. In August it completed its $12.7 billion takeover of Cincinnati-based pharmacy services provider Omnicare, allowing the company to serve a growing senior patient population by dispensing prescriptions in assisted-living and long-term-care facilities. It is also in the midst of a $1.9 billion purchase of more than 1,600 Target Corp. pharmacies and 80 walk-in clinics that it will add to its network of more than 1,000 retail MinuteClinic locations (which offer routine care for common ailments and such wellness services as flu shots); Merlo expects the deal to clear regulatory review by late December.

Meanwhile, the Patient Protection and Affordable Care Act has led to more opportunities for the company as consumers play “an increasing role in their health care decisions,” he observes. “As a result, we see people taking more financial responsibility for their health care choices and costs, and CVS Health is now in the consideration set because our reach and unique suite of offerings provide more convenient access to high-quality, affordable care with improved health outcomes.”

Discover Financial Services, which sweeps the Consumer Finance category, has taken a different tack, harnessing technology in its drive toward innovation. “If we have the goal of being the leading direct bank, obviously technology is something that we embrace — and we have to be a leader to be successful,” asserts David Nelms, who became CEO of the Riverwoods, Illinois–based outfit in 2004.

DFS partnered with online payment services providers PayPal and Google Wallet back in 2012 and Apple Pay in September 2015 and tasks its technology staff with creating advanced credit card tools such as Freeze It. This security feature allows users to turn off new activity on a card temporarily if it has been misplaced and turn it back on when it has been found, instead of going through the hassle of canceling the card and getting a new one issued.

“We have a history of innovation,” says Nelms, 54. “If you go way back, we were the first no-fee card, the first reward card, the first 24-hour customer service card, and today we’re the only people that have 100 percent U.S.-based customer service representatives. We spend a lot of time understanding what customers want and what is possible with technology — and then implementing that.”

DFS launched a state-of-the-art banking system in 2014. “If our strategy is one of differentiation and building for the future, we felt like we really couldn’t be on the same technology platforms that others were on,” says Nelms. “We had to be on a better one.” The firm’s entire deposit base has been converted to the new system, he adds, while customers with personal loans will be migrated in early 2016 and those with student loans later in the year.

Although Discover Financial doesn’t disclose information about customer numbers, Nelms does say that it averaged about 5 percent loan growth in each of the past three years, versus the industry’s being flat to down during the same period.

“David has been very thoughtful and deliberate during his time at Discover,” says Sanjay Sakhrani of New York–based Keefe, Bruyette & Woods, now in his fourth straight year at No. 1 in Consumer Finance on the All-America Research Team. “When DFS was spun out of Morgan Stanley [in 2007], a lot of investors were skeptical of the ability of the company to succeed in a pretty competitive environment. David has been able to accomplish a lot more than the company was given credit for when it became a stand-alone public company.”

Although David Grzebinski has held the top job at Houston’s Kirby Corp. for less than two years — he was promoted from CFO to president and COO in January 2014 and then to CEO in April of that year — he sails into first place in the Shipping sector. The majority of Kirby’s business is composed of transporting oil and petroleum products in small barges with 10,000- to 30,000-barrel capacities inland along the continental U.S. river system. However, in 2011 and 2012, the company spent more than $1 billion on East Brunswick, New Jersey–based K-Sea Transportation Partners and three other acquisitions to get into the business of delivering product in nearly 200,000-barrel barges along the East, West and Gulf coasts, up to Alaska and around Hawaii.

“It added a lot of breadth to our company and, if you think about what we move and the customers that we move for, principally we did it on the inland rivers,” says Grzebinski, 54. “Now we’re doing it all over the U.S. for the same customer group. We were moving petroleum products inland, and they were moving it coastwise, so it’s a great expansion of our service.” Kirby’s operating income margins were 1 to 2 percent when the K-Sea deal was struck; today they are in the mid-teens, he reports.

Not all the news is positive, however. Oil prices have dropped precipitously during Grzebinski’s tenure, from more than $100 per barrel of Brent crude in the summer of 2014 to roughly $44 in November 2015. Moreover, the resulting curtailing of hydraulic fracturing, or fracking, of shale rock has affected Kirby’s diesel engine operations, which repair and supply the equipment that supports shale activity.

“Unfortunately, we’re losing a little bit of money in that land-based diesel engine business,” he affirms. Earlier this year, in a bid to reduce operating costs and increase efficiency, Kirby consolidated the five facilities where it repaired and manufactured fracking units into a new factory, in Oklahoma City.

Also, as the price of oil has been declining, crude production has been falling, resulting in far fewer barges needed to transport supply. “The uncertainty of what’s happening to the crude market has made our customers a little more cautious with looking at their barge needs,” Grzebinski notes.

On the other hand, lower crude prices are beneficial for refined products, such as gasoline and jet fuel, which are enjoying an ensuing boost in demand, he adds.

Another bright spot is the U.S. chemicals industry’s anticipated investment of more than $100 billion to expand infrastructure, mostly along the Gulf Coast, since fracking has produced an oversupply of ethane, a key chemical feedstock. Although it probably won’t come to fruition until 2017 or 2018, “there should be more barge moves because chemical volumes from these new plants will start to emerge,” he explains. “Given that 50 percent of what we move, both coastal and inland, is chemicals, it’s very important.”

Also essential: positioning the company for additional growth. Kirby is spending close to $300 million on new offshore equipment and is actively looking for M&A opportunities, Grzebinski says: “When business gets a little tougher and there’s some downward pressure, that’s typically when we invest countercyclically and use our balance sheet appropriately.”


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