CNBC/Dow Jones - Business Video

CNBC/Dow Jones - Business Video

SHOW: CNBC/DOW JONES BUSINESS VIDEO

October 11, 2002 Friday

Transcript # 101100cb.y53

TYPE: INTERVIEW
SECTION: Business
LENGTH: 2106 words
HEADLINE: GE - Chmn. & CEO Interview
GUESTS: Jeffrey Immelt
BYLINE: Ron Insana
BODY: RON INSANA, CNBC ANCHOR: CNBC's parent company, General Electric, today reported third-quarter earnings, which met Wall Street expectations coming in at 41 cents a share, that matches the estimate up from 33 cents in the year ago period. The stock has rallied in the last couple of quarters. This is what GE's earnings look like over the last several quarters, as you can see, down sequentially from the second quarter, but up from the first. General Electric shares rallied rather sharply today, but they have hit multi-year lows in recent sessions. GE chairman & CEO, Jeff Immelt, joins us now to talk about today's earnings report, and the current issues facing the company, and the company's stock.
Jeff, pleasure to have you, thanks for joining us tonight.
JEFFREY IMMELT, CHMN. & CEO, GENERAL ELECTRIC: Ron, how are you? INSANA: Doing fine, thank you. This quarter looks all right. GE said today that it would meet fourth quarter estimates, those numbers for the remainder of the year. Tell us how that gets accomplished.
IMMELT: Ron, we are not counting on an economy that's much different than the one we see today. You know, we've got the long-cycle businesses pretty well outlined by now. And we understand the backlogs and where we stand. All we are counting on is a continuation of the short cycle businesses the way they stand today, and if we execute on that, we'll hit our fourth quarter objectives. GE Capital will have a good fourth quarter. And you add it all up, and I think we'll be on track for the year. But we are not counting on any kind of economic rebound from where we are right now.
INSANA: So how do you get the numbers then? Is it more cost-cutting in the future for the company?
IMMELT: We have been taking costs out all year. I think the pricing in the short cycle businesses has basically stabilized, and we've run into more favorable comparisons to what we had in the fourth quarter last year. We have got good asset growth in GE Capital. And GE Medical has a very strong order rate in the third quarter. So we have got a lot of things that are pretty good, giving us some good momentum going into the fourth quarter, and that's what we get paid to do. We get paid to execute.
INSANA: All right, let me ask you about 2003 execution, Jeff, because this is where analysts over the last several weeks have raised their biggest concerns. Can GE meet profit targets in 2003, and can the company produce double-digit earning growth for the year? Most say it's 7 to 8 percent, not 10 to 12 percent. What do you say?
IMMELT: You know, I have outlined today, and I have consistently outlined the five factors that I think are going to define the company next year. The first one is a soft landing in Power Systems. This is a business that we really understand completely, we have been tracking over the past couple of years. Earnings will be down there next year, but we are still going to have a great business with a huge installed base, and well-positioned for future growth. The second thing is what the short cycle businesses do. Again, I think just based on the economy we see today, we'll get good growth out of those businesses. The next is the other long cycle businesses, like Engines and Medical. And we are expecting decent growth there.
INSANA: Jeff, from what I have heard from analysts, their biggest concern is about Power Systems, and the variability with which turbines might be delivered next year. Some say you have an industry that that unit is servicing, that in many cases faces bankruptcy on a company-by-company basis. Can GE deliver the 150 turbines that the Street expects? and if not, what does that mean to earnings?
IMMELT: We said, Ron, today, that we see 125 units of shipments next year. That's how we are going to build our plan. We have got orders for about 200. And we expect that there is going to be some cancellations, but we have a broad variety of different customers next year. No one real big concentration. And our credibility should be very high in Power Systems based on what we have delivered so far.
INSANA: Now one analyst said to me earlier in the week that if it were a hundred turbines delivered, rather than 125, GE's earnings would be flat for the year. Do you foresee any circumstances under which that might happen?
IMMELT: Look, I think we have stretched the companies in a number of ways. We are going to have positive earnings growth in '03. And again, I think we have got very good credibility in the Power Systems segment based on what we have done. But we have got other businesses that are going to be growing next year and the company is going to have a good, solid '03.
INSANA: You know, we talked earlier in the year about the pension issue and whether or not GE can get the same types of rates of return from the pension going forward that it has gotten in the past, you had told me previously that the growth rate assumptions were lowered to 8 1/2 percent this year from 9 percent or better last year. Do you have to lower those again going into 2003 because of the performance of the financial markets?
IMMELT: We are going to review a number of different things on the pension growth rate between now and the end of the year, Ron. Clearly, current year performance is going to be one of the factors discount rate. We are already in the most conservative 10 percent of all companies as we stand today. And that's the valuation we are going to do between now and the end of the year, like we always do. It's a non-cash earning. It's something that we review once or twice a year, and we'll do that probably in December.
INSANA: We spoke on this program the other night with Nick Heymann (ph) of Prudential Securities, and he suggested that GE from 2003 and beyond is likely to be a different company than we know right now, that there might be a lot of asset divestitures, and a change in the portfolio mix of businesses, suggesting again that Lighting may one day go on the block. Are you going to have to something dramatic in that regard, next year, again, to get investors interested in the stock again?
IMMELT: You know, Ron, about 75 percent of the company is exactly the way I want it today. Probably another 15 percent is in transition, and probably this 10 percent that's under review, I think there will be divestitures. There'll be businesses we grow in. I plan to grow our medical business. We plan to grow some of our technology-based businesses like security and infrastructure. This is going to be a different looking place. But the advantage I have is I don't have really any burning platforms, and I have very strong cash flow. And it gives me flexibility from a standpoint of what we do with the company.
INSANA: All right, now let's talk about NBC, which provided some of the growth - talking to my book here a little bit, but it did provide the growth in the third quarter, and it appears on track for the remainder of the year. In fact, into next year, to deliver good advertising numbers anyway. What else does NBC have to do to continue contributing to GE's bottom line?
IMMELT: You know, Ron, the business is performing very well right now. I like our strategic position. Eighteen months ago we were crazy because we weren't an entertainment conglomerate. Now we are geniuses because we're focused. I want to continue to grow NBC. We're going to be a net acquirer in the short-term. And I think what NBC has to do is continue to deliver good programming. That's how you grow earnings in this business.
INSANA: Now the company announced that it was in talks to acquire Bravo, one of the entertainment units of Cablevision, for just over a billion dollars. And one, is that likely to close and, two, do you see other entertainment acquisitions down the road?
IMMELT: You know, I never want to comment on a specific situation. But I think we will be a net acquirer in this space.
INSANA: What about MSNBC? GE has a long stated policy of having businesses that are number one or two in its portfolio. And by measured ratings, MSNBC is third in a field of three. Do you feel that you need to do anything there, either change it or close it down?
IMMELT: We want to be number one. I think it's an interesting space for us. We are not going to close it down. And we are going to continue to invest in MSNBC until we are number one. And the team started on a good turnaround plan. But I want it to be number one.
INSANA: Now Jeff, with respect to all of GE next year, what do you think the major theme for the company will be that you will be communicating with analysts and investors?
IMMELT: You know, Ron, what I told investors is, first of all, we are going to reenergize, revitalize a great set of businesses. So you are going to continue to see additions and deletions. We have got a very strong growth agenda. I'm focused on technology. We're focused on services. We're focused on globalization. I just got back from China. Our businesses are growing 30 percent there. We are going to continue to drive great efficiency and cash generation. We think that's a real pillar of a strong company. And we just have the best people in town. So you add those four things up, and this is a company that, through the cycles, is going to be a steady, reliable growth company that will be able to outperform the S&P 500 during the cycles.
INSANA: Jeff, let me get you to address some of the broad issues that face all CEOs. And I'm not talking about corporate governance here. It seems like some of those issues have since been resolved. But with respect to geopolitical concerns, last night Congress, as you know, gave the president permission to go after Iraq if he deems it necessary. How much of an issue is that on your radar screen, and even more broadly, with respect to security and geopolitical tensions, what is on your radar screen right now that has you most concerned?
IMMELT: You know, Ron, again, I think if you look at Iraq, it's difficult to predict what the outcome might be there. All you have to guide us is what happened in '91. And in '91 when we went to Iraq, and the short-term oil prices went up, in the long-term they came back down, the consumer stopped spending for a while, but then they came back. And so, Iraq is just not something we can plan for. In terms of global security, we'll spend more on security right now than we have in the past, but we have also got - we built about a billion-dollar security business that's going to be growing 20 percent a year. So we have been able to play into that. Again, I think the most - outside of Iraq, the most compelling global theme is just the economic slowdown, and where you are going to have to go in the world to get good growth in the near future.
INSANA: Jeff, a final question. And this is something we haven't had a chance to talk about in the last couple of months, but obviously, the situation involving Jack Welch, the former CEO of GE, got a lot of press attention, at one point. Obviously, he turned back some of the retirement perks that he was given, or negotiated from the company. What do you make of this whole affair? I mean, it got a lot of press attention. It was the type of thing that put GE back in the spotlight for, I'm sure what you would consider, some of the wrong reasons. How do you think it has resolved itself now?
IMMELT: You know, I think what Jack did in 1996, what the board did in '96, was perfectly appropriate for that time. It's a different day today in 2002. Jack is a smart enough guy to realize that. And I think he made the right decision and it's behind us. I think if you look at the bigger picture, this guy was one of the great leaders of the last century. He was a fabulous CEO. And anybody that says otherwise just doesn't understand the true quality of the man. So it's just a different day today, Ron. I understand it, Jack understands it. There are going to be new terms, there's gong to be new ways boards have to work. I'm fully accepting of it, and really I welcome it. The higher the bar gets, the better off GE is. A quality company.
INSANA: Do you feel the negative press adversely affected the stock?
IMMELT: You know, I really don't. I mean, I think investors are pro-Jack Welch. They know what he did for the company. They know the value he created. And I just think it's all about performance with integrity today, Ron. And that's what this company is going to deliver.
INSANA: All right. Jeff, always a pleasure to have you with us. Thanks for joining us tonight.
IMMELT: Thanks, Ron.
INSANA: Jeffrey Immelt, chairman and CEO of General Electric.
GENERAL ELECTRIC PENSION TRUST(96%);POWER SYSTEMS TECHNOLOGY INC(67%);
LOAD-DATE:October 16, 2002