GE's Immelt: 'Tough Criticism' Was Deserved
Two weeks after General Electric's earnings shortfall stunned Wall Street, Chief Executive Jeff Immelt said the market reaction was "tough," but deserved.
In an interview with CNBC ahead of the company's shareholder meeting, Immelt said he continues to believe in the company and its strategy.
"I'm pretty convinced that the business model is the right business model," Immelt said. "We're in a tough economy now, but the company...still earned $4.4 billion in the quarter, (has a) very strong balance sheet, good cash flow. So I think we've got a lot of flexibility, and I think we're in the right place."
GE is the parent company of CNBC and CNBC.com.
The surprise drop in first-quarter earnings triggered the biggest one-day decline in GE's stock in 20 years. Immelt came under sharp criticism, including a withering comment from former CEO Jack Welch. Immelt said it's up to him to rebuild trust among investors.
GE has blamed its first-quarter earnings disappointment largely on the credit crisis, and to a downturn in the last two weeks of the quarter, when it couldn't close sales because customers couldn't obtain loans.
"This was late-breaking," Immelt told CNBC. "A lot of people would say that the last part of March was really tough. Clearly, if we had known it before, we would have said something, but we knew it when we knew it.... What I didn't want to do was dribble one thing out, without having the whole story."
In the future, Immelt plans to conduct the company's business-by-business reviews more frequently, and has increased cost cuts planned for this year to $3 billion from $2 billion.
"We had a very aggressive cost-out plan for the year," he said. "We've upped it by a billion dollars inside the company. We had planned for tough. It was a little tougher than we thought. We've now framed the year based on what we see, and what we think we can hit."
On the topic of the broader economy, he said American credit markets have improved somewhat, but the domestic consumer market remains weak.
"The capital markets are a little better" than they were at the end of March, when turmoil prompted by the near-collapse of Bear Stearns made it difficult for GE to complete deals, Immelt said.
"The U.S. economy hasn't gotten any worse or any better and the global economy still seems to be pretty good," Immelt said.
GE is the second-biggest U.S. company by market value and because of the size and breadth of its businesses it is often seen as an economic bellwether.
In the wake of its first-quarter earnings, GE trimmed its full-year earnings forecast to a range of $2.20 to $2.30 a share, which means profit will be flat to up 5 percent. Previously, the company forecast a rise in profit of at least 10 percent.
GE shares were recently up 31 cents, or 1 percent, at $32.64. The shares are down about 12.5 percent so far this year, a steeper drop than the 4 percent slide of the Dow Jones industrial average.