GE GE Aerospace

By Ted Mann 

The political world may be roiling with revolt against the forces of globalization, but General Electric Co. says it isn't giving up.

In his annual letter to investors, released Monday, Chief Executive Jeff Immelt said the conglomerate's transformation over the past decade has enabled it to profit from increasingly important international markets for its jet engines and power turbines -- while withstanding a growing political movement against the economic effects of free trade.

"Are we witnessing the end of globalization? I don't think so," Mr. Immelt writes. "It is the end of the 'global elite,' those who see the world only from financial centers or a website."

By contrast, in Mr. Immelt's telling, GE is expanding its footprint in foreign markets for its industrial goods, but not simply seeking out "wage arbitrage" from shifting factories overseas in search of cheaper labor.

"In this period of nationalization, GE's competitive advantage will grow. We don't need trade deals, because we have a superior global footprint," he writes. "We see many giving up on globalization; that means more for us."

Mr. Immelt also revealed that the continuing pain from low oil prices -- long a drain on the company's oil and gas unit -- have pinched executives' pockets as well. The compensation plan for executives only paid out 80% of its target amounts in 2016, Mr. Immelt wrote, adding that it will motivate executives to do better in 2017.

"Normally, we expect our diversified model to shrug off headwinds in one market and continue to achieve our goals," he said. "In 2016, we simply couldn't outrun pressure in the resource markets."

GE's global and U.S. workforce shrunk during 2016, according to securities filings. GE employed 104,000 people at 184 American facilities at the end of last year, compared with 125,000 at 206 American factories at the end of 2015.

The company had 30 more factories outside the U.S., which it said was the result of acquiring the energy business of France's Alstom SA. GE said its decline in American head count was primarily due to the sale of its home appliances unit and finance businesses, as well as job cuts in its oil and gas and locomotive units.

Mr. Immelt's annual missive is an occasion for study by GE investors, one in which he has in recent years extolled efforts to transform GE by weaning it off profits from financial services, and in seeking out new foreign markets for its industrial goods.

One conspicuous absence this year: a promise of $2 in earnings per share in 2018, a longtime goal of management that has become increasingly unlikely to be achieved in the view of some Wall Street analysts.

Jeffrey Bornstein, GE's finance chief, noted in an investor conference last week that a change in accounting standards would create a headwind for GE's per-share earnings in 2018. The response, from analysts at Bernstein Research: "Time for expectations to reset if they haven't already."

Mr. Immelt said GE can manage its way through a challenging environment in part by continuing to pare away excess cost. The company has also snapped up suppliers, including firms that make 3-D printing machines for airplane parts. The result, in Mr. Immelt's telling, is a more vertically integrated industrial giant that will own more of the profits from its massive machines when they are sold.

The letter comes at a sensitive time for corporate executives unnerved by the rhetoric of President Donald Trump, especially his willingness to attack companies that have shifted jobs outside the U.S., or even simply expanded existing facilities in other countries.

Mr. Immelt has so far shown a knack for avoiding Mr. Trump's Twitter ire while maneuvering close enough to influence the administration on areas of GE's interest, like corporate tax reform. Mr. Immelt made his first visit to the Trump White House last week, where he and the president shared an anecdote for the cameras about Mr. Trump hitting a hole in one.

Other industrial executives haven't been as lucky. United Technologies Corp., parent of Carrier Corp., told investors earlier this month that it was planning a six-month pause in facility restructuring, as it awaits the outcome of the Trump administration's planned tax overhaul.

"Over the past generation, the U.S. has done very little to help our manufacturers or workers," Mr. Immelt writes, arguing that current tax policies favor imports, regulations have expanded and infrastructure is subpar. "We are hopeful the new administration will 'level the playing field' for U.S. companies."

Write to Ted Mann at ted.mann@wsj.com

(END) Dow Jones Newswires

February 27, 2017 07:14 ET (12:14 GMT)

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