General Electric Company (GE)

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General Electric (GE)

Q4 2011 Earnings Call

January 20, 2012 8:30 am ET

Executives

Trevor A. Schauenberg - Vice President of Corporate Investor Communications

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

Keith S. Sherin - Vice Chairman and Chief Financial Officer

Analysts

Nigel Coe - Morgan Stanley, Research Division

Scott R. Davis - Barclays Capital, Research Division

C. Stephen Tusa - JP Morgan Chase & Co, Research Division

John G. Inch - BofA Merrill Lynch, Research Division

Brian K. Langenberg - Langenberg & Company, LLC

Jason Feldman - UBS Investment Bank, Research Division

Julian Mitchell - Crédit Suisse AG, Research Division

Christopher Glynn - Oppenheimer & Co. Inc., 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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the General Electric Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] My name is Chanel, and I will be your conference coordinator 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 A. Schauenberg

Thank you, Chanel. Good morning and welcome, everyone. We're pleased to host today's fourth quarter 2011 earnings webcast. Regarding materials for this webcast, we issued a press release earlier this morning, and the presentation slides are available. Slides are also available for download and printing on our website at www.ge.com/investor.

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.

Jeffrey R. Immelt

Great, Trevor. Good morning. Thanks. Look, GE finished the year with real strength. We had the best order results in history. Many of our key end-use markets are showing momentum like Commercial Real Estate and Aviation. The emerging markets continue to be very strong. There are a few challenged markets like Europe and Appliances but on balance, we have a positive outlook.

Company operations were strong. EPS grew by 11%. Organic growth was 5%. CFOA and liquidity were very strong. GE Capital exceeded all of their performance goals and ended with a very strong Tier 1 common ratio. We're executing a balanced capital allocation plan. We increased the dividend again in fourth quarter. Overall, the dividend grew by 21% in 2011. Our buyback for the year was 5.4 billion, including both common shares and the Berkshire preferred.

Finally, we ended 2011 with confidence that we could deliver on our 2012 double-digit of earnings framework. So overall, a good quarter. Orders grew by 15%, which was up 9% organically. We had fairly broad-based strength. Of particular note, Energy orders were up 23%. Thermal orders were up 88% and we had orders for 50 heavy-duty gas turbines in the quarter. Orders in the emerging markets grew by 26%. We end the year with $200 billion of backlog and had an equipment book-to-bill ratio of 1.23 for the quarter. So these numbers certainly support a 5% to 10% organic growth goal for 2012.

Our investments in growth are paying off. First, on the global front, we had a 25% expansion in our Industrial growth market revenue. Our expansion was broad-based with most businesses and most regions experiencing strong growth. Services grew by 14% and expanded margins. We had strong growth across all businesses and we ended the year with $147 billion of service backlog.

We increased R&D by 16% in 2011, resulting in multiple new product launches. In Healthcare, we launched leadership products in MR, ultrasound and interventional. Energy is growing in both the heavy-duty gas turbine market with the Flex 50 and 60, but also in the distributed energy products with solar and waste heat recovery. Aviation has positioned the LEAP-X to win and had the H80 turboprop launched to penetrate new segments. Rail is picking up global orders. We're launching a full range of Appliance products in the next 6 quarters. So overall, our organic growth should continue.

And we made progress on margins in the quarter. We're up 250 basis points versus third quarter '11. Most of our negative rate versus fourth quarter 2010 is explained by acquisitions and R&D investment. Looking forward, we still feel good about a 50 basis point improvement in 2012. We have good productivity programs in place. We're making structural improvements and our global and R&D investments are on a run rate. We see energy pricing stabilizing as we move through 2012 and into 2013, and so margins are an important focus for our leadership team and we think we'll make progress in 2012.

In cash, we had very good, very strong cash performance. CFOA was $5.5 billion in the fourth quarter. That's a record quarter. This led to total CFOA of $12.1 billion for the year. Our working capital performance was very strong in the fourth quarter. Consolidated cash was $85 billion at year end. Our capital allocation plan was in line with expectations. We grew the dividend twice in 2011. We completed nearly $12 billion of acquisitions and bought back $5.4 billion of stock, including the Berkshire preferred. So overall, cash and capital allocation were either equal to or better than planned and we feel good about that performance.

We continue to strengthen GE Capital liquidity. We're prepared for 2012 maturities by having a substantial amount of cash on hand. We've already issued $5 billion of long-term debt. So we're off to a good start. Our Tier 1 common ratio was 11.4% for GECC and 9.9% for GECS. On a Basel III basis, we compare favorably to the banks.

We ended 2011 with $445 billion of ending net investment, ahead of our plan. As a result, we're resetting our ending net investment goal for 2012 to between $425 billion and $440 billion. We will continue to grow in high return segments. Our expectations for GE Capital earnings are unchanged for 2012. At the same time, we expect to have lower debt issuances for the year. So looking forward, we've achieved a focused, high margin, safe GE Capital, a Financial Service business that can grow and win in this marketplace.

And with that, I'll turn it over to Keith to go through operations.

Keith S. Sherin

Thanks, Jeff, and good morning, everyone. I'm going to start with the fourth quarter summary. We had continuing operations revenues in the quarter of $38 billion. They were down 8%. Industrial sales of $26.7 billion were reported down 7%. However, if you look at the notes at the bottom of the page, excluding the impact of not having the NBC revenues last year, GE's Industrial sales were up 11%. Financial Services revenues of 11.6% were down 9%. That was driven by our lower assets year-over-year mostly. Operating earnings of $4.1 billion were up 6% and operating earnings per share of $0.39 were up 11%, reflecting the benefit of retiring the preferred shares.

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