CNBC Exclusive: Immelt Confident in GE's Prospects for '07
In an exclusive interview on CNBC and cnbc.com, General Electric Chairman and Chief Executive Jeffrey Immelt expressed confidence in the company's outlook for next year, even if economic growth slows in the U.S.
"Look, if the world world falls apart, it's going to impact everybody, but I think we position the company to be able to grow in slower times," Immelt said, during an interview on CNBC's "Squawk Box" and later on cnbc.com's home page. GE is the parent company of CNBC.
With its broad range of businesses, many see the diversified conglomerate as proxy for the global economy. Speaking the day after Immelt provided GE's 2007 earnings outlook, he said the company is not trying to signal that there's a global slowdown with its earnings forecast.
However, if the economy slows a bit, it could change investor's appetite for risk - and GE's stock price
"A Little Less Loving"
"I would say over the last few years there has been very little risk premium put in the marketplace," Immelt said. "When that happens, a large-cap, tripled–A-rated company like GE, perhaps, tends to get a little less loving than it does at other times."
GE shares are up about 1.7% this year, but the stock has lagged a broad rally in U.S. stocks.
He also said the best way to get GE shares growing is to concentrate on increasing the company's stock price.
"When I go to work every morning, I think the biggest job I have is to grow earnings, grow earnings faster," he said.
Yesterday, GE raised its quarterly dividend by 12%, and said it expects earnings next year to be in the range of $2.17 to $2.23. On average, analysts had expected earnings of $2.24 next year.
According to Immelt, the bulk of the company's earnings are in high-visibility businesses. He cited GE's businesses that are tied to infrastructure, where there are long, lead times and big backlogs; its healthcare businesses, which are tied to demographic growth, and its consumer finance business, which he said has "a great position."
The 2007 estimate assumes GE's infrastructure and healthcare business will perform on par with this year, he said. Meanwhile, NBC Universal is projected to perform stronger next year than it did this year. However, the industrial business is expected to be "somewhat worse" next year than this year, he said.
"Smart to Be Conservative"
As for the company's financial services business, Immelt said, "with higher interest rates and some pressure on margins, we think it is smart to be conservative in financial services in 2007."
Last year, GE estimated profits at its financial services would rise by 10% to 15%, but the unit outpaced these forecasts by rising by 17%. Next year, profits at this division are once again being forecast to increase by 10% to 15%.
Immelt expects the global economy remains healthy.
"I think the global economy is somewhat less leveraged to the U.S. consumer than it has been in the past," Immelt said, pointing to increased strength in Europe and Japan.
"On a relative basis, the European consumer feels more wealthy today, and more able to purchase goods," Immelt said.
GE also expects to benefit from growing economies in China and India.
Yesterday, GE also reaffirmed its fourth-quarter and 2006 earnings. It said it still expects earnings of 62 cents to 64 cents a share for the fourth quarter, and $1.97 to $1.99 a share for the year 2006.
At the time of the announcement, analysts expected GE to earn 64 cents and $1.98, respectively for the fourth quarter and full year, according to Reuters Estimates.
Strong Revenue Growth
The company also said it expects to deliver another year of strong revenue growth.
The increase in the GE dividend brings it to 28 cents a share from 25 cents, for a full-year dividend of $1.12 a share, up from $1.00 a share. This means GE pays out half its earnings in dividends.
"If earnings growth is 12% next year, we think it is logical to grow the dividend along with it," Immelt said.
During the interview, Immelt didn't rule out reshaping GE's portfolio through acquisitions and divestitures. However, he made it clear that acquisitions aren't the only way for GE to fuel its profit growth.
"I don't think that you want to be in a position where the only lever that you can pull is acquisitions," he said, explaining that when a company finds itself in that position, it tends to overpay for the deals it makes.
According to CNBC's David Faber, who interviewed Immelt on cnbc.com, the part of GE that could see the biggest reshaping is its industrials division, which includes the plastics business.
"With all the liquidity on the outside," Immelt said, referring to the private equity sector, "now is the time that we should be going through a tough consideration, not only for the plastics business, but for all the businesses in the portfolio."