General Electric Company (GE)
Q1 2010 Earnings Call
April 16, 2010 8:30 am ET
Trevor Schauenberg – VP, Investor Communications
Jeff Immelt - Chairman and CEO
Keith Sherin - Vice Chairman and CFO
Chris Glynn – Oppenheimer
Scott Davis - Morgan Stanley
Steven Winoker – Sanford Bernstein
Jeff Sprague – Vertical Research Partners
Steve Tusa - JP Morgan
John Inch - Merrill Lynch
Bob Cornell – Barclays Capital
Terry Darling – Goldman Sachs
Previous Statements by GE
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We are pleased to host today’s first quarter 2010 earnings webcast. Regarding the materials for this webcast we issued the press the press release this morning and the presentation slides are available via the webcast. The slides are also available for download and printing on our website at www.GE.com/investor. We will have time for Q&A at the end.
As always elements of this presentation are forward looking and are based on our best view of the world and our businesses as we see them today. Those elements can change as the world changes. Please interpret them in that light.
For today’s webcast we have our Chairman and CEO, Jeff Immelt, and our Vice Chairman and CFO, Keith Sherin.
Now I’d like to turn it over to our Chairman and CEO, Jeff Immelt.
On the overview page; we think this was a good quarter. Our environment continues to improve; we saw some encouraging signs in places like revenue pasture miles and losses declining in GE Capital. The business model is performing, we’ve got better margins and strong cash flow, and really most metrics GE Capital improved in the quarter, Keith will go through that, losses, delinquencies, and not earning assets all declined.
We think the 2010 framework remains achievable really with upside potential based on how we’re doing at GE Capital. We see earnings growth for the balance of 2010 and we might do more restructuring and financial asset sales to position for the future. We continue to invest in research and development and restructuring and we really think this quarter is a pretty good testament to our ability to grow earnings and dividends in 2011 and beyond. We feel really good about how we finished the quarter and where we’re positioned.
We’ve review the next page on several times vis-à-vis GE Capital and some of the critical metrics around safe and secure. Our long term debt funding is in great shape, we’ve funded about $8 billion year to date, the funding costs are low and we feel very good about how we’re positioned here. Our commercial paper is on track. Leverage, particularly, Keith will go through the impact of FAS 167, is declining, our capital structure is very strong.
The lower right really just updates our goals on ending that investment; it factors in the impact of FASB 167, the impact of the GE Capital Corporate, some of the FX plusses and minuses that change over time. If you put in those factors we stand at $516 billion today. We reduced $22 billion in the last quarter and we’re on track, I think for a number that we used to talk about as being $440 billion as we go through these changes. We’re on track; we’re actually ahead of plan there. It boils down to about $20 or $25 billion reduction per year and we feel like that is in great shape and we’re making good progress towards those goals.
We $17.1 billion in order, the backlog is stable. Equipment is heading towards easier comps. Service really would have been flat except for a couple of one time orders in transportation last year. We’ve got a strong pipeline of commitments. A lot of our new orders are coming from outside the United States, a strong pipeline of commitments. There’s a $1.2 billion Iraq order that has moved through their process, it’s a solid commitment that will turn into an order in the second quarter. That gives you a sense of some of the backlog that we’ve got on orders going forward.
Like I said, a lot of the orders are coming from outside the United States right now. The Tech Infra macro environment is improving and we feel really good about the backlog, the visibility and our position as we go through the remainder and balance of the year.
Margins were healthy in the quarter; we had expanding margins ex the Olympics. This gives you a sense of the dynamics; energy, healthcare, home and business solutions had good expansion. Our service margins across the company expanded by 250 basis points, and NBC because of the Olympics was a drag on margins overall. A lot of that’s driven by a positive value gap. We’re holding price in backlog, we’re seeing positive new order pricing on the index and still getting deflation and we think this positive value gap will continue into the future.
Restructuring benefits continued to payoff. We saw about $500 million based on a lot of work we’ve been doing in the last few years and that will continue into the future. We’re investing more in research and development. We grew R&D spend by 16% in the quarter. We’re launching Offshore Wind, new healthcare products, energy efficient product in Transportation and appliances and again a great pipeline of products as we go forward in the future.
Cash flow remains on track, we’re on track for $14 to $15 billion for the year. Our cash flow from operating activities expanded greater than our net income plus depreciation and we think as we work through the year working capital improvements will offset declines in progress, that’s what we did last year and we think we’ll do that again this year. We’ve got $70 billion cash on the balance sheet, more than $10 billion of cash on the parent and as I said we’re on track for $13 to $15 billion of full year cash flow from operating activities.
With that I’ll turn it over to Keith to go through how we did in the first quarter from a performance standpoint.
I’m going to start with just the consolidated results summary as always. For the quarter we had continuing operations revenues of $36.6 billion they were down 5%. Our industrial sales at $23.5 billion were down 2% a little less than the average because of the financial services were down more, at $13.2 billion down 9% reflecting some of the dispositions we did last year plus the continued shrinkage that we have.
We earned $2.3 billion in net income which was down 18% and for earnings per share we earned $0.21 a share including the cost of the preferred dividend. As Jeff just covered on cash the total cash flow from operating activity was $2.6 billion that’s in line with our expectations and on track for a total year estimate.
In terms of taxes, the consolidated rate for the first quarter is 15% for the company that’s up from -12% in 2009 since we don’t have a repeat of last year’s first quarter decision where we agreed to permanently reinvest some prior year earnings that was $700 million one time benefit last year that doesn’t repeat. Having that item not repeat pretty much explains all the tax variance for the whole company first quarter ’10 versus first quarter ’09.