general electric (ge) john myers rob park matt richter tuesday, november 22, 2005
TRANSCRIPT
General Electric(GE)
John MyersRob Park
Matt Richter
Tuesday, November 22, 2005
Company Overview
• General Electric (GE) Company was founded as a creation of a merger between Edison General Electric Company and Thomson-Houston Electric Company in 1892.
• GE Company is a diversified industrial corporation engaged in the development, manufacturing, and marketing of various products for the generation, transmission, distribution, control, and utilization of electricity
• Operations are held in approximately 100 countries worldwide.
• Headquarters based in Fairfield, Connecticut.
GE’s Business Segments (past)
• Prior July 5th, 2005, GE’s businesses operated within 11 different segments:
• Advanced Materials, Commercial Finance, Consumer Finance, Consumer and Industrial, Energy, Equipment and Other Services, Healthcare, Infrastructure, Insurance, NBC Universal, and Transportation
GE Market-Focused Businesses
• As of July 5, 2005, GE reorganized its 11 business segments into 6 market-focused core businesses:
• GE Industrial: provides a broad range of products and services throughout the world, including: appliances and lighting, plastics and silicones products, and equipment services
• GE Infrastructure: one of the world’s leading providers of fundamental technologies to developing countries, including: energy, oil and gas, and water process technologies
• GE Commercial Finance: provides loans, operating leases, financing programs, commercial insurance, and an array of other products and services aimed at enabling businesses worldwide to grow
GE Market-Focused Businesses
• GE Consumer Finance: a leading provider, under the GE Money brand, of credit services to consumers, retailers and automotive dealers around the world
• GE Healthcare: is a leader in the development of a new paradigm of patient care dedicated to detecting disease earlier and helping physicians tailor treatment for individual patients.
• NBC Universal: is one of the world’s leading media and entertainment companies in the development, production and marketing of entertainment, news and information to a global audience
Segments
Total Segment Profits
22%
4%
14%
9%10%
32%
2%7%
Advanced Materials, Consumer & Industrial
Energy
Insurance
Transportation
Healthcare
NBC Universal
Commercial and Consumer Finance
Infrastructure
and Equipment & Other Services
Consolidated 3-Year Revenues
14%
17%
10%
8%6%
24%
2%
19%
Energy
Insurance
Transportation
Healthcare
NBC Universal
Commercial and Consumer Finance
Infrastructure
Advanced Materials, Consumer &
Industrial and Equipment & OtherServices
Segments• Three segments whose operations have a significant effect on consolidated results
and reflect their changing economic environments are Energy, Insurance and Transportation
– Energy segment is well positioned for its markets in 2005 and beyond
– Overall, Transportation reported segment profit that grew $0.6 billion in 2004
• Results at two major segments, Healthcare and NBC Universal, reflected continued investment and growth over the last three years
– Healthcare showed strong growth as 2004 revenues and segment profit both rose about 50% since 2002
– The combination of NBC and VUE in 2004, and successful acquisitions of Telemundo and Bravo in 2002, has created a diversified world-class media company
• Most other operations achieved operating results in line with expectations in the 2002 to 2004 economic environment
– Solid core growth, disciplined risk management and successful acquisitions have delivered strong results in commercial and consumer finance
– Infrastructure, with growth platforms such as security and water treatment, continued to grow significantly through acquisitions
Market Outlook• Market is increasing through Global growth
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
Europe Pacific Basin Americas Other Global Exports from the U.S.to external customers
Total
Consolidated Global Revenues (millions)
2002
2003
2004
Global Growth
• Global revenues rose 18% to $71.8 billion in 2004 • GE revenues in Europe rose 40% led by Healthcare and
NBC Universal reflecting the Amersham acquisition and the combination of NBC and VUE
• GE revenues in the Pacific Basin increased 13% led by Advanced Materials, Infrastructure and Energy.
• U.S. exports rose 35% on strong growth at Energy and Transportation
Ratios Comparison
General Electric 3M
Market Cap 382.50B 60.21B
Return on Equity (ROE) 17.62% 33.34%
Free Cash Flow $(44.63)B $3.76B
EPS 1.78 4.04
PE 20.34 19.63
Debt to Equity 3.187 .319
Operating Margin 14.81% 23.36%
***It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run.
Recent Headlines in 2005
• 6/27 - GE reorganizes business units – 11 units down to 6
• 7/8 - Growth and emerging markets conference– Int’l Operations generate half of GE revenue and
should grow 15% in 2005 and grow for 5+ years
• 10/14 - Reports 9% overall revenue growth– Consumer and Commercial Finance doing well
• 11/18 - Sells insurance business to Swiss Re, further divesting its insurance business
Charting the Headlines
6/27
7/8
10/14
11/18
What Bears Might Say…
• Accounting is not always conservative
• GE’s large size makes it difficult to increase revenue– Exposed to risk across many industries
• Goodwill too large of a percentage of assets due to many acquisitions
Bull’s Point of View• Best growth numbers in years this 1st Quarter
– Revenue 19% and Earnings 25%
• GE invest heavily in R&D = Comp. Adv– $12.5 Billion over last 5 years– Uses technologies across different units
• Selling off insurance business– Lost $700 Million over last 5 years
• GE does not over-invest– Dividend payout ratio ~50% over past 4 years
• Strong Management– Jeff Immelt’s Pay
Recommendation
• BUY– Currently $36.20– AAA Credit Rating
• Making a run– S&P 500 Up
• Morningstar– $38.00 Fair Value
DCF = $37.68
Questions????