Four Key Points from GE's Q408 Conference Call

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Includes: GE, IYT, PXEYF, XLE
by: Judy Weil

It is probably a good idea to read General Electric’s Q408 conference call transcript (NYSE:GE) just to get a good overall macro picture about how different industries are faring in America. GE is so widely diversified that its earnings call can shed light on anything from corporate lending to amusement parks to Hulu.com.

From GE’s Q408 conference call:

Various industries:

For the quarter… energy was flat, the thermal business was up 1%, and wind was up 5%. Oil and gas was down 19%, down 9% when you adjust for FX given the global nature of their business and we did see some push outs in the oil and gas business.

Healthcare you can see was down 6%, life sciences was up strong, surgery was up favorably obviously with the OEC orders and shipments and DI was down 14%. Aviation had some tougher comparisons. Last year the fourth quarter was up 66% but even with the orders down 26% that still allowed them to grow their backlog at a high absolute level order was more than the sales.

For transportation you can see equipment orders were down 48% in the quarter and 59% for the year. We do anticipate fewer locomotive deliveries in the ’09… [Universal] parks had a mixed performance. Per cap spending was pretty strong, attendance was mixed… Hulu continues to perform, get great recognition and good growth.

Commercial paper market:

The CP market is in better shape. We have strong demand, rates are very low. Our backup lines plus our cash exceed our CEP balances. We haven’t used the CPFF since it opened in November. We’ve had a very good response in the marketplace from commercial paper. We’re going to continue that reduction in 2009, our targets to get down to $50 billion by the end of the year and we have every ability to do that

Lending (GE Capital):

We did $48 billion [new originations] in the fourth quarter… GE Money, assets at $185 billion were down 12% year over year [and] down 3% from the third quarter as new volume declined in all the products as we’ve tightened underwriting globally everywhere.

Commercial real estate:

We saw an increase in the commercial delinquencies and non-earnings in the fourth quarter. We’re seeing pressure across most of the portfolio. We’re up 56 basis points from third quarter on the delinquency rate… When you think about the $4 billion of embedded losses in real estate we are an operator of these assets. We have the ability to hold for the long term.

Q: Given what’s happened with commercial real estate markets and the pressure these industries are under could you describe how we should be thinking about prospective losses or write downs in that business looking ahead. How long can you hold these levels without having to take a much bigger hit?

A: We invest in these properties to hold them for the long term. We don’t mark them to market... We collect operating income... Our whole period on this equity book is going to be five plus years.

You can see further declines [in commercial real estate] from an actual fair value mark to market versus this book.

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