GE Returning $26 Billion to Holders With Industrial `Pivot' Doneby
`We got a ton done this year,' Immelt says at outlook meeting
2016 forecast: rising sales, profit in era of slow growth
General Electric Co. will hand back $26 billion through dividends and stock repurchases in 2016 as the company rewards shareholders after tilting the business back toward manufacturing and away from finance.
“We got a ton done this year. Essentially we completed the portfolio pivot,” Chief Executive Officer Jeffrey Immelt said at GE’s annual outlook meeting in New York. “We’re returning a lot of cash to investors.”
Immelt’s shift in focus punctuates a corporate overhaul that includes GE’s largest-ever acquisition and the sale of the bulk of the company’s lending arm. With the proceeds from the internal realignment, GE will spend about $8 billion on dividends and $18 billion on buybacks, Immelt said in a presentation from NBC’s “Saturday Night Live” studio.
The CEO laid out a 2016 forecast of rising sales and profit in an environment of slow growth as GE looks to build upon the momentum of 2015. As GE shrinks itself, the tally of shareholder returns will drop from a payout of about $32 billion this year, GE said.
Operating earnings will be $1.45 to $1.55 a share, and organic revenue will rise as much as 4 percent, GE said. That compared with the $1.52 average of estimates compiled by Bloomberg. Profit this year will be $1.13 to $1.20 a share, GE said, repeating an earlier forecast.
GE is attempting to position itself as a “digital industrial” company by expanding a business providing data analytics capabilities for its heavy-duty equipment. Sales for GE Digital, a division started in September, will rise at least 10 percent from 2015’s $5 billion.
“There’s going to be opportunities for industrial companies to play here because the knowledge of the assets is more important than the knowledge of the systems,” Immelt said.
The stock gained 2.2 percent, the most since Oct. 22, to $30.98 at the close in New York, joining a rally that followed the Federal Reserve’s first interest-rate increase in almost a decade. The shares have surged 23 percent this quarter, outpacing the Standard & Poor’s 500 Index.
GE has reached agreements this year to sell $155 billion in lending assets under the plan announced in April to shed the bulk of GE Capital’s operations. It’s a sweeping transformation, largely ridding GE of a division that almost capsized the parent company during the 2008-09 financial crisis. GE also completed a split-off of Synchrony Financial, as its former North American credit-card business is now known.
The overhaul could position GE Capital to become the first company to drop its too-big-to-fail label. GE intends to apply to de-designate as a systemically important financial institution in the first quarter.
In manufacturing, GE will enter 2016 with a robust power-generation business after buying the energy assets of Alstom SA for $10.6 billion, its largest-ever acquisition. The deal closed last month, about a year and a half after it was first announced, following a protracted regulatory review.
GE said in a call earlier this month that it expects to generate $1.1 billion in cost savings next year through the Alstom tie-up, a figure that could rise to $3 billion in 2020.
“Power generation has become even more important to GE with the Alstom deal now closed,” Steven Winoker, an analyst with Sanford C Bernstein & Co., said Tuesday in a report. “While we recognize energy efficiency headwinds and competitive generation, we remain positive on the power generation space and on GE’s transformation with its recent acquisition of Alstom.”
Immelt said Wednesday that sales in GE Power & Water will rise by at least 10 percent, while growth in the aviation division and the health-care unit will be less than that figure.
“Our diversification gives you more consistent performance that ought to be valued in the cycle we’re in today,” said Immelt, who described the environment as one of slow growth and volatility.
Plummeting crude prices will continue to weigh on GE Oil & Gas, which could see organic revenue and profit down 10 percent to 15 percent next year, Immelt said. The strain may not prevent the company from further bulking up in the market: GE is in advanced talks to buy the drill-bits and drilling-services divisions of Halliburton Co., which is divesting assets to win antitrust approval for its takeover of Baker Hughes Inc., people familiar with the matter said this month. Halliburton and Baker Hughes said Tuesday that they agreed to extend the period to close the deal until April.
Immelt said GE would be opportunistic when considering oil deals.
Next year could at last bring the sale of the home-appliances unit. GE is poised to sell the business in early 2016, Immelt said, after pulling out of a $3.3 billion deal last week to sell it to Electrolux AB.