By Ted Mann and Michael Calia
General Electric Co. Chief Executive Jeff Immelt's strategy to
improve industrial earnings while shrinking his financial operation
is gaining traction and yielding results.
On Friday, GE reported a 13% rise in profits and a 3% increase
in sales, on the strength of strong earnings from its jet engine
and oil and gas equipment businesses. The company also kicked off
its planned split-off of its $20 billion North American consumer
finance business through an initial public offering.
The IPO sets in motion GE's biggest move to slim down its giant
GE Capital business as Mr. Immelt weans the company off of
financial earnings, a step that could help boost its share price.
Mr. Immelt expects to reduce the share of profits from GE Capital
to 25% of the company's total by 2016 from over 40% currently.
To achieve that goal, he is shedding financial assets while
trying to spur growth and cut costs in core industrial businesses,
like power turbines and locomotives. GE's move to acquire the
energy assets of France's Alstom SA for $17 billion, earlier this
summer further adds to its industrial heft.
"We are boldly reshaping the company," Mr. Immelt said.
On Friday, GE also began marketing Synchrony Financial, the
rechristened consumer finance business, to investors. The company
is seeking to raise about $3.1 billion for the business by selling
a 15% stake. Synchrony offers retail financing and backs
store-branded credit cards at outlets including Wal-Mart, Lowe's
and J.C. Penney.
Synchrony set the expected price range of 125 million shares at
$23 to $26 each, with the goal of listing at the end of July.
The IPO appears set to be the biggest debut by a U.S. company
this year so far, topping the $2.6 billion offering by Ally
Financial in April. The stake GE retains in the business will be
worth about $17 billion, valuing Synchrony at around $20
billion.
Mr. Immelt said Friday that another key element of his plans was
on track: divesting $4 billion of non-core industrial businesses
over the course of 2014.
GE hasn't said which businesses it would cut loose, but people
familiar with the matter said this week that there is renewed
discussion of jettisoning its home appliance unit, which remains
profitable but at lower margins than some of GE's other operations.
GE Chief Financial Officer Jeff Bornstein declined to comment on
the matter.
Overall GE posted earnings of $3.55 billion and revenue improved
3.4% to $36.23 billion. Its industrial businesses posted a 9%
increase in profit during the latest period, along with wider
margins. GE Capital profits were down 5 percent.
"The environment continues to be generally positive," Mr. Immelt
said citing improved rail loadings, better demand for commercial
credit, and stronger sales of appliances.
GE shares, which are down 6% so far this year, fell 1%
Friday.
Overall equipment orders for the quarter fell in all the
industrial segments compared to one year earlier, except for the
transportation unit, which ticked up 40% on the strength of new
orders for locomotives.
A stagnant U.S. market is slowing performance in GE's healthcare
business, which reported flat revenues from a year earlier. CFO Mr.
Bornstein said a combination of uncertainty from the implementation
of the Affordable Care Act and "increased consumerism" from
patients was prompting U.S. hospitals and clinics to hold back from
making new orders of heavy medical equipment, like the scanners and
X-ray units GE makes.
Mr. Immelt was unfazed, and suggested it was one more reason to
embrace the conglomerate model that he has been trying to
bulwark.
"I think the good part about GE is we have other segments that
will be higher than our original expectations and so that in total
we still feel good about the overall framework" of industrial
profit growth, he said.
Write to Ted Mann at ted.mann@wsj.com
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