One on One With General Electric CEO, Jeff Immelt
Wednesday, September 06, 2006
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SUSIE GHARIB: General Electric CEO Jeff Immelt is about to celebrate his five-year anniversary as head of the world`s largest industrial conglomerate. Is his strategy for GE working? A short while ago I sat down with Immelt at the GE building in Rockefeller Center and he talked about his big wins and disappointments over the past five years.
JEFFREY IMMELT, CEO, GENERAL ELECTRIC: If you look back over the last five years, we made big investments in new technologies, things like molecular medicine, renewable energy, embedded technologies, things like that. So the company`s pipeline of technology has never been stronger. Our revenues outside the United States have virtually doubled in the last five years and we`ve got world-class positions in what I view to be the most important places of the next five or 10 years, places like China,India, Eastern Europe, Latin America, places like that.
GHARIB: Any disappointments?
IMMELT: Yeah, our whole experience in insurance has been a tough road over the last five years. We`ve exited the primary life business. We`ve exited the reinsurance business. The combination of hurricanes, adverse development, that`s been a challenge and you know, when I took over, that was one of our biggest businesses that essentially the company has now exited completely.
GHARIB: Jeff, as you know, GE stock is lower today than it was when you first took over. Are you disappointed that the market doesn`t recognize all the good things that you`ve done and the changes that you`ve made?
IMMELT: Sure. The P/E ratio of the company when I took over was 40 and today it`s 17. It`s not because our performance has been bad. When I took over, the company made $10 or $11 billion. This year we`ll make $21 billion. So it`s not like we`ve gone backwards in any way. Our revenue is higher. Our earnings were higher. Our cash flow is stronger. Our returns were improving. So you have to trust that ultimately these get viewed positively by investors.
GHARIB: Is the problem maybe that GE is just too big?
IMMELT: I really don`t think so. You know, in other words, I don`t think we have any right to exist because we`re big. But I`d say if we`re using our size to through the cycles outperform the S&P 500, we have a reason for being. So if our long term earnings growth is 14, 15 percent and the long-term earnings growth of the S&P 500 is 8 to 10 percent, there`s a reason for GE to exist. But the faith I have is that ultimately good performance, strong fundamentals get reflected in the stock prices.
GHARIB: Well, as you look at GE`s engines of growth, the one that just doesn`t seem to fit in right now is NBC Universal. It`s struggling. Wall Street would love to see you spin it off. Would you sell NBC?
IMMELT: It`s trendy today to say the business is doing poorly, just dump it. If I thought the business model was flawed or if I felt like somebody could grow it faster then we could, I`d sell it. I`m here to increase value to investors but I don`t feel that way. Every now and then, we have a business that it falls off and it doesn`t do exactly what we want it to do. You don`t run from those; you fix them. And that`s what we`re doing right now with NBC.
GHARIB: You recently revised GE`s growth projections. Now you`reforecasting revenue growth of 8 percent. Why the change?
IMMELT: What we`ve said is we want to grow two to three times GDP top line. And we just think that being a consistent visible valuable growth company investors believe that we can get operating profit margin and return expansion along with that. We just think it`s the right initiative for this era. But if you look at the last six quarters we`ve done, on average, 8 percent organic growth and our expectation is we`re going to do that for the next several quarter as well.
GHARIB: The beige book survey today that the Federal Reserve released showed that the economy is slowing in most parts of the country. Based on what you`re seeing in GE`s many businesses, what kind of shape is the economy in?
IMMELT: I think overall it`s in pretty good shape. I mean, you know, the fact is that interest rates work. But I think if you step back and say delinquency is low, consumer health fairly high, global growth pretty good, you know, if the Fed can ease this economy down to 2.5, 3 percent GDP growth, that`s pretty good.
GHARIB: So from your perspective, do you think the Federal Reserve needs to raise interest rates one more time or two or is it done?
IMMELT: Beyond may pay grade.
GHARIB: Jeff you sound so upbeat, but I`m just wondering,, is there anything on your worry list? What keeps you up at night?
IMMELT: If something happened to the U.S. consumer, let`s say there was a tipping point at $90 oil and interest rates at 6.5 percent or something happened. That`s going to hurt GE. It`s going to hurt everybody. So I think the U.S. consumer continues to be one of the key things that I watch and you can`t take it for granted.
Susan: Now that you`ve gotten through your fifth anniversary as CEO, what will GE look like in the next five years? What`s going to be different?
IMMELT: If I had to pick one thing, just one, it would be dramatically even more global than we are today. I think you`re going to see today 50 percent of our revenues outside the United States. Five or 10 years from now, it`s going to be 60 or 65 percent of our revenues could be outside the United States because we have exactly the right products, exactly the right technologies that the developing world needs and our growth is going to be explosive in these regions. GHARIB: Jeff, thank you so much. I appreciate your time.
IMMELT: Good seeing you again, Susie.
