General Electric Company (GE)

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General Electric (GE)

Q1 2011 Earnings Call

April 21, 2011 8:30 am ET

Executives

Trevor Schauenberg - Vice President of Corporate Investor Communications

Keith Sherin - Vice Chairman and Chief Financial Officer

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

Analysts

Scott Davis - Morgan Stanley

John Inch - BofA Merrill Lynch

Shannon O'Callaghan - Lehman Brothers

Terry Darling - Goldman Sachs Group Inc.

Jason Feldman - UBS Investment Bank

Steven Winoker - Sanford C. Bernstein & Co., Inc.

Robert Cornell - Barclays Capital

Stephen Tusa - JP Morgan Chase & Co

Julian Mitchell

Deane Dray - Citigroup Inc

Nigel Coe - Deutsche Bank AG

Christopher Glynn - Oppenheimer & Co. Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the General Electric First Quarter 2011 Earnings Conference Call. [Operator Instructions] My name is Tom, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Trevor Schauenberg, Vice President of Investor Communications. Please proceed.

Trevor Schauenberg

Thanks, Tom. Good morning, and welcome, everyone. We're pleased to host today's first quarter 2011 earnings webcast. Regarding the materials for this webcast, we issued a press release earlier 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. Due to the holiday tomorrow, we are reporting one day early, and we recognize this is a very busy earnings day for analysts and investors. To manage time constraints, we'll move through the presentation fairly quickly and we would appreciate if you could limit the questions to 1 per person during the Q&A period.

As always, elements of this presentation are forward-looking . They 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.

Jeffrey Immelt

Thanks, Trevor. Good morning, everyone. Just on the first page, just to give you an overview, I think another good quarter for the company. Just to summarize some of the highlights. Despite the general volatility, our environment continues to improve and get better. We had strong top line performance, and the leading indicators are getting better. We had industrial revenue growth of 8%, 5% industrial organic revenue growth, 12% international growth, with Brazil up, Australia, China and India. Infrastructure orders were up in the quarter, and had real strength in both equipment and services.

Earnings growth continues, operating EPS was up 65%. GE Capital had a really good quarter as did Healthcare, Transportation and Aviation. Energy Infrastructure had lower first half but we expect growth to resume in the second half.

A solid execution, the GE balance sheet continues to be very strong, and the GE Capital portfolio transformation is ahead of plan. And $82 billion of cash on the company's balance sheet. And we're executing a capital allocation plan kind of in line with what we've talked about with investors in the past.

We announced our third dividend increase this morning, we're up 50% since the second quarter of 2010. We bought back $2.3 billion of stocks since we restarted our buyback, and we've either closed or announced substantial transactions really in our Energy business, one small one in our Healthcare business, so we continue to execute on our capital allocation plan.

From an order standpoint, we have strong orders in the quarter, up 13% overall and 10% organically. Our strength was across the board, and backlog grew to a record of $177 billion. It's worth pointing out some of the positive trends in energy. We had strength in both equipment and services, pricing appears to be stabilizing and most importantly, large gas turbine quote activity is increasing. So we did see solid orders growth in the first quarter.

From an execution and operations standpoint, like I said in December, we're investing more in research and development, about 12% more in the first quarter of '11. This is producing more new products, and that's helping to drive our orders growth.

From a margin standpoint, we're down year-over-year. This is primarily in our Energy business due to 2 primary factors: Wind turbine pricing and acquisition revenues at lower margins. Overall, material deflation continued, and we should see deflation for the year. And through the year, our margins will strengthen quarter-by-quarter. So that's really the story from an execution and operations standpoint.

From a cash standpoint, we remain on track for $12 billion to $13 billion of CFOA for the year. For the quarter, our results are impacted by the NBCU transaction and working capital growth to support equipment sales through the year.

Overall, GE's balance sheet remains very strong, with $82 billion of consolidated cash, and $15.5 billion of cash at the parent. So a story of strong cash flow, liquidity and just strength in the balance sheet. I think that the things we've talked about with investors in the past, that all remains intact in the first quarter and we're really happy about that.

From a capital allocation standpoint, we really are seeing balanced and disciplined capital allocation, and that remains an important part of our overall strategy.

As we said last year, we wanted to redeploy capital from NBC Universal to fast growth in our Energy investments. And with Converteam and Dresser and Wood Group, Wellstream and Lineage, our major transactions are done for 2011. Meanwhile, we continue to emphasize growing the dividend as reflected by today's increase, our third in the past 9 months. We're focused on reducing our share count in 2011, and retiring the preferred equity by October of this year.

And finally, GE Capital has very strong Tier 1 ratios, and we really have done, I think, an outstanding job. Mike Neal and the team have strengthened GE Capital coming out of the financial crisis. So we feel good about our capital allocation plan. I think in the quarter, we've executed on the things we said we were going to do for our investors, and this positions us, I think, for good long-term growth and as the year goes on and into 2012.

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