By Ted Mann
General Electric Co. warned Tuesday its profits next year could
be hurt by the plunge in oil prices, a new hurdle for CEO Jeff
Immelt in his efforts to wring more growth out of the
conglomerate's industrial operations.
Mr. Immelt forecast that next year the company would be able to
achieve a long promised goal of reducing the share of GE's earnings
from its finance operation to about a third from nearly half,
helped by the planned spinoff of its consumer finance operation in
2015. That is welcome news for investors who believe the industrial
operations are less risky and more valuable, but it puts pressure
on the CEO to deliver strong results from that side of the
company.
Briefing analysts and investors in the NBC soundstage that hosts
Saturday Night Live, Mr. Immelt returned repeatedly to his theme
that GE is in the midst of a historic "pivot" back to its
industrial roots and away from financial operations. The plunge in
oil prices deprives Mr. Immelt of one of his main industrial growth
drivers--the company's $17 billion oil and gas operation.
Now GE will have to rely on sales of locomotives, gas turbines,
jet engines and medical imaging devices to generate gains.
Mr. Immelt often invoked his $17 billion agreement to buy the
energy assets of Alstom SA, which he said will provide decades
worth of future earnings from maintaining an installed base of
power-generating equipment.
"Alstom is really the priority here, guys," Mr. Immelt said,
adding that the company will focus in 2015 and 2016 on completing
that purchase and integrating the two vast power companies.
In a sign that GE has returned to a more predictable trajectory,
GE put out annual earnings per share guidance for next year, the
first time it has issued such forecasts since the financial
crisis.
The company said it expects industrial earnings next year of
between $1.10 and $1.20 a share while earnings from its GE Capital
finance unit will be about 60 cents a share, for a total of $1.70
to $1.80 a share. Analysts have forecast that GE earnings will rise
7% to $1.79 a share for 2015.
To adjust to the changing landscape in the energy industry, Mr.
Immelt said the company is cutting costs at its oil and gas unit
and expects flat to negative operating earnings from the business
next year. Revenue from its drilling and surface division is
forecast to fall 10% in 2015.
The company remains confident that its order backlog in other
areas, like equipment for subsea oil production, would translate
into future sales. "People don't stop projects that are like this,"
Mr. Immelt said.
Offering a note of reassurance that GE remains committed to oil
and gas, Mr. Immelt rattled off previous international crises that
have shaken its industrial units, like the effects of the SARS
outbreak on aviation or the bursting of the bubble in power
generation equipment in the early 2000s.
"Unfortunately, I've been doing this so long, I could almost
sing a song about the crises I've seen," he said.
Write to Ted Mann at ted.mann@wsj.com
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