One on One with GE CEO Jeffrey Immelt
Wednesday, February 06, 2008
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SUSIE GHARIB: Many executives find it hard to be upbeat these days with all the concerns about the wobbly U.S. economy. But the chairman and CEO of General Electric Jeffrey Immelt is pretty cheery. He expects GE revenues to grow as much as 15 percent this year and earnings to increase by 10 percent. A short while ago I sat down with Immelt and he told me why he won't change his forecast even if the U.S. economy slips into recession.
JEFFREY IMMELT, CEO, GENERAL ELECTRIC: The company today is much more globally diverse and the businesses we're in have more tailwind, you know the, the big infrastructure businesses, health care, even commercial finance, are more insulated against just the U.S. consumer. What I would say, Susie, for your viewers, is it's as confusing at times as I can remember in my 25 years with the company. Clearly there are places that are really slow. But even when I look at some of the leading indicators I look at that, you know, that maybe forecast a recession -- like even NBC -- they're still pretty robust.
GHARIB: But, Jeff, how bad do things have to get in the U.S. economy before it even starts impacting your big global projects?
IMMELT: I think you've got to see something really catastrophic because I wouldn't say that the economies have decoupled. And while people talk about the U.S., you know, it's just not as highly leveraged as it's been in the past. So I just think things have to get much worse than we see today for the rest of the world to really fall into a broad slowdown.
GHARIB: We're seeing a lot of economic reports that are showing strains on the consumer. What are your internal data points telling you about where the consumer is?
IMMELT: You definitely are seeing delinquencies. You definitely seeing a consumer that is more tapped out than they were clearly a year ago, but basically, unemployment is still relatively low. A lot of the export industries are still doing well. So there are certain signs that are not terrible about the U.S. consumer. But, really, we're-- we're going into a period where with housing prices being down and things like that, there is going to be stress on the U.S. consumer. You just need to plan for it.
GHARIB: GE had a tough experience with this whole sub-prime mortgage market. What are the lessons you learned from that?
IMMELT: Financial services are easy to grow. It's also easy to lose money and it's all about risk management. Risk management inside the company is always valued-- is always valuable. There are always the people that ought to be in the front seat of the business. We do that universally well. I think in this area we didn't do as well as we needed to.
GHARIB: You said that you want to sell GE's consumer finance unit. How difficult is it going to be to find a buyer?
IMMELT: My view is that it's never easy to sell a business when the markets are as choppy as they are right now. But it is also a time when most companies look to be consolidators. So I think there's going to be a lot of business development activity, M&A activity around financial services in the next six, 12, 18 months. We're going to be a buyer in some areas. We're going to be a seller in some areas. It is never going to be easy, but there's going to be buyers out there for us, and at the same time we can redeploy the capital into good returning areas really at the same time.
GHARIB: Why where do you want to invest the money?
IMMELT: I love to continue to grow outside the United States. I love continue to invest in our health care and infrastructure businesses and I would say in commercial finance -- our basic lending and leasing businesses which are really where GE Capital grew up from. There's just great values out there.
GHARIB: Is this a good time to be making acquisitions, 2008?
IMMELT: In the last three or four years, tons of easy money. Being a triple A rated, globally positioned company like GE, you get undervalued to a certain extent. At a time like this, triple A really pays off, our strong cash flow and risk management, things like that really pay off. So I don't root for a recession. I don't root for tough times. But I think choppy times are times when companies with scale like GE tend to do a little bit better.
GHARIB: Wall Street would like to see you sell your NBC TV units. You keep saying no. So NBC prime-time is in last place. The writers' strike, I'm sure, has not helped. What is it going to take to turn things around at NBC?
IMMELT: I like the elements of the business today. I think the industry is profitable. It's more global than it has been before. In 2008 we've got the Olympics and the elections, both of which are good for NBC Universal. So I think we're in a good cycle right now. It's a good fit inside the company and I'm convinced that the company is in better shape with NBC than without NBC particularly in the cycle we're in today.
GHARIB: How much will broadcasting the Olympics in Beijing this summer boost profits at NBC?
IMMELT: I would say that the summer Olympics will make at NBC $50, $100 million, something like that, just on the network and in the system profit, it's probably two or three times that. So it's a great - it's a great global franchise for GE and for NBC.
GHARIB: Looking a little bit at China, there's a point at which the easy-- making easy money is over and the competitors really start to come in. Are you seeing that pressure yet?
IMMELT: I kind of agree with your thesis, basically which says the early - the last four or five years I think were all easy revenue growth in China. There's going to be a lot of growth out there, but it's only going to be for people that are willing to do the hard work of localizing, of being more indigenous in the economy there. And that's what GE's always done.
GHARIB: Jeff, from everything you're saying you sound so upbeat in saying that all of GE's businesses keep getting better. But the markets aren't responding to that. Why is it?
IMMELT: You know, I think big companies have been unloved the last four or five years. It's not just GE. You're going to get, you know, peaks and valleys with the stock. But the underlying strength in the company is very strong. We're back down to trading at a P/E ratio that's closer to our historic P/E ratio. I think there's only upside for investors in terms of where we sit today, particularly who the company is the cycle we're in, this is a good time for GE.
GHARIB: Jeff, thank you so much, as always, such a great pleasure to see you.
IMMELT: Thanks, Susie. Good seeing you, thanks.
