GE's Transformation Seen Paying Off in 05
BOSTON (Reuters) - After three years of playing down expectations, General Electric Chief Executive Jeff Immelt has delivered on the most important promise of his tenure by telling analysts and investors exactly what they wanted to hear: GE is back.
Since taking over for Jack Welch as CEO just days before Sept. 11, 2001, Immelt has transformed the company with several high-profile acquisitions while navigating the industrial, financial and media giant through a sharp downturn in its mainstay energy and aerospace markets.
"He's (Immelt) really repositioned the company," said Steve Roukis, research director at Matrix Asset Advisors, which owns 1.4 million GE shares. "2005 and 2006 will be breakout years for GE."
Net profit may grow by as much as 17 percent next year with such growth sustainable for several years to come, Immelt said in presentation to analysts and investors earlier this month.
During three years of moderate growth, Immelt pledged the company would be back to its customary double-digit profit growth in 2005 with GE better positioned in high-growth markets such as health care, security and renewable energy.
Consider it a mission accomplished.
"We never abandoned who we've been or what we were in the past," Immelt said in his annual outlook meeting for analysts. "I can build on all the...things we've done for decades, but we can always evolve."
Evolution came in the form of pricey acquisitions of British bioscience firm Amersham Plc and Vivendi Universal Entertainment in 2004, while spinning off part of its insurance business.
Immelt also pushed the company deeper into consumer finance and infrastructure, which includes security systems and water purification. GE forecasts that these two businesses will grow three times faster than the U.S. gross domestic product.
"With the new technologies it developed, GE is gaining share in businesses you typically don't gain market share in, and that's what I think is very impressive," Roukis said.
In fact, GE said it's ready to grow at a faster rate in the next few years than it has during the past 10 years. GE can deliver revenue growth of 8 percent next year from its existing businesses versus an average 5 percent rise over the last 10 years, Immelt said.
That increase, which works out to nearly $5 billion of home-grown revenue in 2005, is vital for GE to keep boosting profits since belt tightening alone may prove difficult.
"It doesn't have much in the way of fat to trim anymore," said Tom Goetzinger, associate director of research at Morningstar. "GE definitely espoused a lot of confidence, and it's well deserved too."
Boosting the company's prospects are an improving global economy and a continued upturn in its mainstay cyclical industrial businesses, transportation and energy.
Analysts agree with the company's bullish outlook. According to Reuters Estimates, 16 of 19 analysts tracking GE now view the company as a "buy" or "outperform," compared with 10 of 19 a year ago.
"If I were to try to read, much less answer, all the attacks made on me, this shop might as well be closed for any other business. I do the very best I know how - the very best I can; and I mean to keep doing so until the end." ~ Abraham Lincoln
