At a time when the world generally is cutting budgets, General
Electric Co. (
) recently announced that sales of its huge-ticket items like jet
engines, gas turbines, energy infrastructure and locomotives are
really doing very well. It's an accomplishment that's given
investors some faith that this massive conglomerate can, at long
last, grow again. Suddenly, GE, a perennial dog of the Dow, is a
The share price has particularly gained ground since CEO Jeff
Immelt's post-results road show in which growth, finally, was a
key theme. Immelt told analysts to expect GE's underlying
industrial sales (excluding acquisitions and disposals) to rise
10% in 2012. He also expects 10% profit growth from those
businesses this year and again in 2013.
Those internal gains would go a long way to reverse a
five-year revenue slide that's made investing in GE such a slog.
Until 2001, former CEO Jack Welch built the modern GE and its
then-delightful investor returns on massive acquisitions.
Successor Jeff Immelt's necessary divestitures during the
crises-ridden years that followed have kept Welch-era investors
disappointed ever since.
GE Revenue TTM
Investors buying GE today are betting that Immelt's industrial
portfolio, paired with the company's huge wallet, is finally
poised to earn or buy growth for their GE shares. (They are also
making some assumptions about GE Capital, the company's other big
revenue source, but that's a topic for another day.)
Immelt has spent the past decade trying to make GE industrial
businesses more diversified and less volatile. Now GE sells wind
turbines, smart grid systems and oil and gas technology around
the world, as well as the big gas power turbines that made it an
industry leader in the U.S. a long time ago. In search of
specialized products with higher profit margins, Immelt raised
R&D spending well-above the company's traditional levels even
while cutting the dividend, resulting, for example, in 12 new jet
airplane engines this decade. He focused a lot on emerging
markets -- a decision vindicated this year when sales there more
than made up for weakness in Europe. Revenues are up in all of
GE's industrial segments this year, which is a big improvement
over the widespread declines in 2009 and 2010. The backorder for
industrials now is the company's biggest ever.
Can these businesses continue to perform as Immelt predicts?
It would take pages to analyze GE's businesses individually, but
GE's cash means they don't necessarily have to be wildly
successful. Cash, particularly when used for acquisitions, can
cover up a lot of mistakes or slowdowns in the existing
businesses by providing instant growth. Immelt's growth strategy
calls for acquisitions of between $1 billion and $3 billion. GE
raised $7 billion in a bond issue Oct. 1, mainly because it
could, very cheaply. Forecasts call for the company to generate
another $100 billion in cash from operations between 2012 and
2016, which could buy a lot of growth if necessary.
It's important for GE to increase its
now, as many analysts have made doing so a test of Immelt's
leadership. No one believes it will be easy, but the company has
every division manager focused on that goal now.
GE Profit Margin
GE has already promised to repurchase shares and raise
dividends -- the current
is close to 3% -- with this newfound success, and that, too, has
helped the shares gain ground this year. But what they really
want to see is a company that's growing again, even if those
heady days of double-money years are long gone.
Dee Gill is an editor for the
YCharts Pro Investor Service
which includes professional