General Electric: Eliminates Quarterly Guidance, Acknowledges Global Challenges

On Tuesday, at the company’s annual outlook meeting in New York, General Electric (GE) Chairman and CEO, Jeff Immelt provided an operational update.

In his remarks, Mr. Immelt acknowledged that the current fiscal year was a very challenging one for the global economy and GE’s many businesses. After reconfirming the company's Dec. 2, fourth quarter EPS outlook of $0.50-0.52, and full-year ‘08 EPS of $1.78-1.84 from $185 billion trailing twelve in revenue — GE’s chief announced that the conglomerate would eliminate quarterly EPS guidance but will provide full year operating framework with detail in the industrial and financial businesses.

Mr. Immelt also announced lower profit projections for the company’s industrial businesses, including jet engines, power turbines and medical equipment, but said the units should still be profitable despite the global economic contraction.

GE had to cut its earnings forecast twice this year, which is a factor that has contributed to a 52% decline in its shares in ‘08.

Immelt also noted that despite an intensification of the financial crisis, GE has remained focused in terms of its profitability as a company, and is aggressively reducing costs and improving cash generation. While business-wise, fiscal ‘09 will be a challenging year for GE, Immelt said that the company, “has set forth a framework of industrial businesses’ earnings growth of 0-5%.” GE expects its financial services businesses to earn approximately $5 billion in 2009.

GE also expects its major equipment and services backlog to remain strong in ‘09 as the company expands its industrial margins, which already compares favorably to other competitors. On Tuesday, GE announced that it won a contract worth $3 billion to supply gas turbines in Iraq, which will support the reconstruction of the country’s power generating capability.

Immelt also said GE remains focused on paying investors a dividend. The conglomerate’s board of directors declared on Dec. 16 a quarterly dividend of $0.31 per outstanding share, for a full-year total dividend of $1.24 in ‘09, consistent with the ‘08 dividend payment.

Immelt’s aim is that of returning GE to 10% earnings growth. The company however, will miss that target this year.

We have multiple drivers of growth in a downturn, including services, infrastructure and strong margins,” Immelt said. “We are committed to our strategy of growing globally, driving innovation, developing partnerships and using our scale. We are confident that as the economy recovers, GE will return to its historical earnings growth rate.

Disclosure: None

Comments

[strategyleader:]

GE Back to Reality and doing sound strategic thinking and decision making.

In my book, THE SECRET TO GE's SUCCESS, I challenged Immelt's assertion that he could grow GE at an 8% compounded growth rate, which translated into added $14 billion plus revenues per year. This challenge was based on my extensive experience, study and evaluations of major companies and especially GE.

This is what I wrote (page 250) : " He (Immelt) is clearly convinced and has the missionary zeal to make it happen. However, based on my experience and study. I am not convinced that he can do it and am concerned that he has created an unrealistic expectation. It is possible that in the long term he will have doubled the revenues every nine years, but it is really impossible to add $14 billion plus revenues year after year?

What happens if he doesn't make it, even for one year? Will this have a negative impact on the stock price and put his reputation in jeopardy?

I think it will!"

Unfortunately, I was right... it is impossible for any organization to growth continually. There are always down cycles and the strong organizations are willing to adapt to these changes, set more realistic expectations and move ahead. I hope that Immelt and his team are re instituting the "strategic thinking and decision making disciplines that enabled Borch and Jones to admit their mistakes and refocus the company's portfolio.

Recent actions and words appear to indicate that this type of strategic thinking and decision making is being used, but only time will tell.

2008 Dec 18 08:56 AM