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General Electric Company (GE)

Q3 2012 Earnings Call

October 19, 2012 8:30 AM ET


Trevor Schauenberg – VP, Investor Communications

Jeff Immelt – Chairman and CEO

Keith Sherin – Vice Chairman and CFO


Scott Davis – Barclays

Steve Tusa – JP Morgan

Nigel Coe – Morgan Stanley

Steven Winoker – Sanford Bernstein

Andrew Obin – Bank of America Merrill Lynch

Deane Dray – Citi Research

John Inch – Deutsche Bank

Shannon O’Callaghan – Nomura

Jeff Sprague – Vertical Research Partners

Julian Mitchell – Credit Suisse

Jason Feldman – UBS

Brian Langenberg – Langenberg Investments



Good day, ladies and gentlemen, and welcome to the General Electric Third Quarter 2012 Earnings Conference Call. At this time all participants are in a listen only mode. My name is Chanelle 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 Schauenberg

Thank you, Chanelle. Good morning, and welcome, everyone. We are pleased to host today’s third quarter 2012 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 on our website at

As always, elements of the 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 over to our Chairman and CEO, Jeff Immelt.

Jeff Immelt

Great. Trevor, thanks. Good morning, everybody. Look, we had a good third quarter in a challenging environment. Europe is tough; Asian resource risk countries are okay and U.S. had packets of growth but still some uncertainty.

Revenue growth was good in the environment with organic growth up 8% in the quarter and 10% year-to-date. We finished the quarter were $203 billion of backlog. Earnings were solid growing at 13%. Both industrial and capital had double-digit earnings growth in the quarter. Every industrial business had positive earnings growth for the first time since the third quarter of ‘05.And our simplification efforts are yielding results with corporate costs ahead of plan.

Margins grew by 70 basis points consistent with our expectations. CFOA is up 63% year-to-date and we’ve repurchased $3 billion of stock. Importantly in this environment we remain on track for our 2012 framework.

For orders, orders were 21.5 billion, just in context for orders, factoring in some of the big items. They were up 4% ex-wind and excluding the impact of foreign exchange. Orders pricing was positive for the quarter and year-to-date. The down cycle and wind is as expected and gas turbine orders were fairly strong. We saw about $1 billion of orders push out from third quarter to fourth quarter and our backlog position is strong as we enter the fourth quarter and facing into 2013.

Our key growth engines remain on track. In fact every industrial business had positive organic growth in the quarter. Growth markets expanded by 9% including in China, up 23%, Africa up 22% and Latin America up 21%, we expect six of nine growth regions to have double-digit order growth at ‘12.

We had the highest services backlog in our history with expanding margins. And we’ve launched successful products including the Flex 60, new subsea technology and new appliances. And our new aircraft engines are winning high market share. With our investments in place we should be able to sustain a solid growth rate into the future.

Our margins are a good story growing 70 basis points to 14.4%. We had expansion in every business, including Energy if you exclude the impact of our Wind business. The fundamentals remain strong as we finish the year. Our value gap will be positive in both 2012 and 2013. We remain on track for $2 billion-plus and structural cost-out to simplification efforts. We were able to do significant restructuring in the quarter. We’re on track for 100 basis points of improvement in 2012 and 2013 in line with our plans.

Cash is a decent story with year-to-date total of $10.7 billion, up 63%. The dividend from capital is a positive story for investors. Our industrial CFOA has been pressured by an unusual equipment build, which should have positive growth in the fourth quarter. We’re executing our capital allocation plans. Year-to-date, we’ve paid out $5.4 billion in dividends and bought back $3 billion of GE stock. Our balance sheet is very strong and we end the quarter with $85 billion of consolidated cash.

Now over to Keith to review operations.

Keith Sherin

Thanks, Jeff. I’m going to start with the third quarter summary. We had continuing operations revenues of $36.3 billion. That was reported up 3% ex-FX. Revenues were up 6%. Industrial sales of $24.7 billion are up 7%, 10% ex-FX. GE Capital revenues of $11.4 billion were down 5% as we continue to reduce our assets. And our operating earnings of $3.8 billion were up 10%.

Operating earnings per share of $.36 were up 13%, and you can see the 13% excludes the impact of last year’s third quarter preferred stock redemption commitment, which you’ll remember was an 8% reduction in equity, obviously not having a repeat of that results in the huge fees here. So operating EPS is up 50%, continuing and net EPS are 43% and 50%. Continuing EPS includes the impact of non-operating pension and net EPS includes the impact of discontinued operations, which I’ll cover on the next page.

As Jeff said, year-to-date cash of $10.7 billion was up 63% including the dividends from GE capital. And for taxes, the GE rate, 21% is consistent with the low 20s rate we forecast in the first two quarters, and the year-to-date rate is 22%. The 4% GE Capital rate’s consistent with the mid single-digit rate that we forecasted at the end of the second quarter and we continue to expect to finish the year with a mid-single digit GE Capital tax rate.

On the right side, you can see the segment results with total Industrial segment profit up 11%, and it’s great to have all five industrial segments delivering positive earnings growth. GE Capital also had another strong quarter with earnings up 11% so overall, a strong segment growth quarters. I’m going to cover each of these segments in more detail in a minute.

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