UPDATE: GE Says Operating Margin To Grow 30 To 50 Basis Points In 2012
May 23 2012 - 1:44PM
Dow Jones News
General Electric Co. (GE) Chief Executive Jeff Immelt said
Wednesday that the conglomerate's industrial profit margin may not
grow as much as expected this year, although he vowed that the
difference will be made up in 2013.
He blamed the issue solely on anticipated higher shipments this
year of low-margin wind turbines, which have suffered from pricing
pressure.
"The split between '12 and '13 [on improvement in profit margin]
is going to be specifically a function of wind turbines," said
Immelt, speaking during an Electrical Products Group conference in
Florida.
GE has repeatedly forecast a 50-basis-point improvement in
full-year profit margin this year, to 15.4%. Immelt backed off the
goal during his presentation Wednesday, saying he now thinks the
figure could grow only 30 basis points.
But he forecast 2013 margin improvement of 50 to 70 basis
points, noting that the result still could be two-year margin
improvement of 100 basis points, to 15.9%.
"On balance, the [combined] 100 basis points we feel good
about," Immelt said. "I actually feel pretty good about our ability
to execute on margins going forward [and] we look forward to
proving that to you."
GE shares were off 1.8%, at $18.83 in recent trading.
The Fairfield, Conn., conglomerate's industrial profit margin is
a closely watched barometer for investors and analysts, because the
company has been counting on its industrial businesses to drive
results as it shrinks its GE Capital finance arm.
GE's industrial margin slipped to 13.8% in the first quarter,
from 14.3% in the year-ago period, although GE executives
previously have said they expected the bulk of this year's margin
growth to come in the second half.
Immelt was upbeat overall during Wednesday's presentation,
saying the economy in Europe "continues to be slow" but calling
business in the U.S. slightly better than expected and emerging
markets solid.
He also said GE will have $100 billion in cash to allocate from
2012 through 2016, buoyed by the company's announcement last week
that GE Capital will restart a dividend to its parent for the first
time since the payments were suspended during the financial
crisis.
Under the plan, GE Capital will pay a quarterly dividend of $475
million to GE, as well as a $4.5 billion special dividend this
year.
Immelt reiterated Wednesday the company's plan to use the cash
from the finance unit to buy back shares. He also said GE will use
a portion of its cash trove for dividends to common shareholders,
and he reiterated that the conglomerate's acquisition strategy for
the time being will focus on "bolt-on" deals ranging from $1
billion to $3 billion.
Meanwhile, Immelt said GE has a plan to cut about $2 billion in
costs over the next two years. He said it plans to achieve the goal
through its restructuring in Europe, as well as other efforts to
consolidate and share certain back-office business functions.
-By Bob Sechler, Dow Jones Newswires; 512-258-1690;
bob.sechler@dowjones.com
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