So, what does CEO Jeff Immelt say about General Electric
Today he announced record first-quarter sales and earnings. Revenue, up 19%, exceeded the high end of guidance. Even more impressive was that organic (non-acquisition and non-currency-related) sales growth increased 10%, well above the 8% target. Earnings, up 25% ($0.38 a share), also exceeded the high end of guidance.
Nine of the 11 business units delivered double-digit earnings increases. One "trouble spot" is insurance. Sales during the latest quarter increased 6%, but operating earnings fell 7%. The 2004 annual report says, "Our expansion into difficult insurance markets had left us with underperforming businesses and excess leverage." Well, that's frank. But look at what GE is doing in insurance.
First, a "strategic repositioning" started with selling 30% of insurer Genworth Financial
Next, GE added capital so the insurance unit's remaining businesses kept strong agency ratings, even though the company plans to continue to reduce its exposure in insurance. Then, the company focused on improving underwriting so the business can yield a better operating margin than the current 6% (while all of GE yielded an excellent 13.5% this quarter).
It is the constant winnowing of underperforming assets and the focus on overall growth that has allowed GE to build the diversified and highly profitable business it is -- and one of the few companies in the world with a triple-A bond rating (even though it carries roughly $370 billion in borrowings on its books).
GE's stock, up 2.5% today to $36.75, has yet to claw its way back to its 2000 high of $60.50 a share, although earnings, cash flow, and dividends are all much higher today. The stock trades at 17.8 times estimated 2006 earnings. Bear in mind, with GE you are buying one of the best broadly diversified companies in the world.
I'll let CEO Immelt have the last word: "We are in the right businesses with the right people executing our strategy, and we are on track for double-digit growth in earnings and cash flow in 2005 and beyond."