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General Electric Company (GE)

Annual GE Outlook Meeting

December 13, 2011 3:00 pm ET


Trevor A. Schauenberg - Vice President of Corporate Investor Communications

Jeffrey R. Immelt - Executive Chairman, Chief Executive Officer and Member of Public Responsibilities Committee


Scott R. Davis - Barclays Capital, Research Division

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Jeffrey T. Sprague - Vertical Research Partners Inc.

Terry Darling - Goldman Sachs Group Inc., Research Division

Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division

Deane M. Dray - Citigroup Inc, Research Division


Trevor A. Schauenberg

Hello, everyone. Good afternoon, and welcome to our Annual GE Outlook Meeting. As usual, this meeting is being recorded and webcast, and all the information relevant to that is on our website at

Our host for today is our Chairman and CEO, Jeff Immelt. And we'll have the usual Q&A today. Please lift your hands, pages and microphones to capture for the webcast. Afterwards we'll have a leadership reception here; plenty of time to mix and mingle with our group. And as always, I have to say elements of this presentation are forward-looking and based on the world as we see today. As you know, those elements can change as the world changes. Please interpret them in that light. I'd like to get excited here and turn it over to Jeff Immelt, our Chairman.

Jeffrey R. Immelt

I would say the world never changes, so we never have to change anything, right, Trevor? So 5 things I want to go through today. We'll talk a little bit about the environment and what we've done to prepare for the world we're in today. I think in many ways, we kind of see this as a continuation of what started 4 years ago. So we've prepared the company for a volatile environment and the one that we're seeing.

We like our portfolio, good balanced, strong portfolio, towards a competitive advantage of really technology, services, a very strong focus on globalization driving organic growth. Lots of momentum on the margin side. Talk about 50 basis points a year for the next few years. But we have a funnel that's in excess of 200 basis points that we're working on.

A good capital allocation. I think we've stayed true to the capital allocation strategy we talked about a couple of years ago and are executing on that. We did another dividend increase last Friday. We'll go through the financial performance, but 2011 really on track. We'll have a good finish to the year. Strong double-digit growth this year, and our framework for next year is double-digit earnings growth, double-digit industrially, double-digit in GE Capital, so kind of what we've been talking about throughout the year. And I'm going to wrap up just by talking about some things that are on your mind and how we've tried to address them and give you a financial framework for the company going forward.

So I'll just go through the environment. I think we feel like we're pretty well prepared. CEOs aren't great economists. I don't want to be the big prognosticator. I think what I'll try to do today is just give you a sense for our mosaic of the businesses that we see. I tell you it's generally pretty good, but there's a lot of volatility. And we're preparing for a tough year.

So I think the things that we see that are still pretty good is good growth in the emerging markets. We have what I would call a good energy trade: high oil prices and low gas prices, right? High oil prices, you saw the big Southwest announcement today, the aviation retooling. That's really driven by oil prices. GE Technology is very well positioned for that. And low gas prices are really great for the heavy-duty gas turbine business as the fuel of choice, and so we feel good about that trade.

The U.S. wind market in 2012 is going to be robust, but we're counting on that unwinding in 2013, so that's more short-lived. And then we just see good infrastructure investment on a global basis. Lots of potential in the future. So those are the things that are good.

I think there are some things that are mixed. You see the U.S. consumer spending a little bit more. We have a lot of inflation built in the plan. That could be better as I think about next year. So there are some things that are still mixed.

And then there are some things that are tough, that are challenges. Europe is going to be a challenge. More regulation; governments are going to have to close their budget deficits and housing. So on balance, we'd say generally positive, volatile and preparing for Europe. That's how I'd talk about it.

Now we've taken steps, I'd say, to get ready for this environment. And GE Capital has a lot of liquidity and a lot of capital strength. And so I think we -- Mike and Jeff and Bill and the team went through all this with you last week. I think they're very well prepared for macro volatility.

We have, I'd say, maybe from an industrial standpoint, the world's best growth market portfolio. We're about $40 billion in 2012 and emerging in growth markets. Those markets will grow 20% plus this year, about 15% next year. We're really winning where it counts.

We've invested $16 billion between 2010, 2011, 2012 in new products. We have 50% more products being launched in 2012 than we had in 2010. So we're very well positioned, I think, to gain share in a slow-growth market. $140 billion of service backlog, $45 billion of service revenue in 2012. I'd say recession-tested, high-margin and then backlog. These are all, I think, great mitigants for volatility that we might see next year.

From a portfolio standpoint, we kind of traded out media for energy, short-cycle Media business for longer-cycle Energy business. Those deals will be kind of in full bloom, let's say, next year. So accelerating margins, good performance from an energy standpoint.

We've created what I would call cost and cash buffers. Really, we're running the internal play, I'd say, to create a hedge so that we can still grow earnings double digit in various macroeconomic uncertainties. So we're running the internal plan hard, given the environment, and creating a buffer from a cost and cash standpoint.

And then we can manage Europe. Again, I'm not going to forecast Europe. What I'll tell you is our GE Capital earnings will grow 20% plus, 25% plus this year. Our Industrial orders in Europe this year are up 5%. Our GE Capital business is senior secured, well underwritten. We've got very low sovereign debt exposure, what the team went through last year. We're going to restructure some of the industrial businesses in Europe to get ready, and I think we're just as well prepared. We're running through numerous macro economic scenarios for Europe. But I think if you go through these 7 factors, we feel like we've really prepared the company for the kind of environment and to win in the kind of environment we're going to see in 2012.

Second section, second idea. Just we like the balance and the dynamics in the portfolio today. We're going to go through a stronger Industrial portfolio, higher growth, higher margin, a more focused Specialty Finance business, one that should be able to generate cash and show you to a certain extent how they fit together as a company.

If you think about GE today, probably the world's biggest infrastructure company, focused especially in finance. We've made the industrial company faster growth, higher services, more globally positioned. In 2012, we're going to have organic growth between 5% and 10%, very strong. That's the Industrial business.

GE Capital's smaller, higher return, stronger balance sheet. And if you look at both of them from an industrial standpoint, we got to generate cash, or we got to generate cash ahead of net income. And from a GE Capital standpoint, we expect to begin having GE Capital dividends to the parent next year, and we think there's room with how well we're capitalized to get additional dividends over time.

If you put those 2 things together over the next, let's say, 4 or 5 years, we're going to have $100 billion of cash to allocate. So very capital efficient, kind of the GE model coming back into focus, and we can put that cash into increasing the dividends in line with earnings, like we've said. Small bolt-on acquisitions, reducing the share count, doing other things we have to do to make the company more competitive and healthy over time. So this is really the way we think about the portfolio.

I'd say 3 big strategies we've run over the last 5 or 10 years industrially. The first one is to build what I would call stronger businesses, more diversified businesses. We have a great energy business. John Krenicki has done a great job. In 2011, we'll earn about what we earned in 2002, right? So we just had a huge bubble a decade ago. And what we've tried to do is build businesses that are more diversified, more robust, so that we can weather these cycles better in the future, and we think we're long down the path to being able to do that.

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