by Marc Bastow | May 25, 2012 6:45 am
Remember when General Electric (NYSE:GE) brought good things to both life and investors?
And then it didn’t.
GE is perhaps the quintessential U.S. diversified technology and financial services corporation. The company makes and services products across the spectrum: aircraft engines, power generation equipment, household appliances and medical imaging gear, just to list a few.
The company operates in more than 100 countries, and its segments include Energy, Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions. Oh, and General Electric is in the finance business, too.
And therein lies a tale of slow and steady redemption for long-term investors.
Back in 2008-09, GE’s Capital Division got caught up in all the rest of the world’s economic problems, and it came crashing down on the rest of the company.
GE Capital at its finest was an income machine for parent GE, sending streams of dividends up to the parent while generating tons of money from services and products as wide and varied as franchise finance to mortgage financing.
Problem is, the portfolio, which grew to nearly 50% of the company balance sheet, found itself stuck in an unenviable position when the credit crunch arrived: an inability to match fund long- and short-term obligations and pricing for transactions, and an out-of-whack balance sheet. GE Capital lost $32 billion, and the net endgame was a bit of a mess as the credit contagion spread throughout the company.
GE put its appliances group in Louisville up for sale, laid off thousands across the board — in particular at GE Credit (full disclosure: I was one of those thousands) — and spun its wheels trying to find a corporate balance. More importantly, in 2008, GE Capital stopped the dividend flow, the stock sank to around $10 per share, and the company found itself under scrutiny of the feds, who wanted to watch every move it made, particularly when it came to discussion of a resumption of the dividend.
My, how times have changed.
CEO Jeff Immelt survived the turmoil, and slowly but steadily turned around the ship. General Electric exited slow-growth businesses and expanded into growing industries like life sciences (GE is certifiably crazy about “green” initiatives in every aspect of the business), aviation and energy. The company doubled spending on R&D, and in 2011 it received more clean-energy patents than any other U.S. company.
And of course, GE cleaned up nicely when it came to restructuring the capital corporation, streamlining operations, ditching underperforming or underpriced sectors, and weeding out (some might say cherry picking) customers or sectors viewed as non-essential.
The net result of all General Electric’s efforts is a company that might not be hitting it out of the park in every at-bat, but is reaching the fences more often.
Call it warning-track power.
First-quarter earnings for 2012 came in above last year’s results and above analyst estimates, with all segments posting growth in earnings and revenues. The industrial sector — a barometer for Wall Street — came in with pressured margins (13.8% vs 14.3%) primarily because of higher-than-anticipated shipments of wind turbines, which are under pricing pressures. However, Immelt expects a full-year margin closer to 15%.
But the big news is that GE Capital is back: The company announced a resumption of the upstream dividend after approval from the Fed. GE Capital will pay a quarterly dividend of $475 million to GE, as well as a “special” $4.5 billion dividend in 2012. According to GE, all of the cash will go toward stock buybacks, the net effect of which will be to add about 3 cents per share to earnings.
All in all, life is getting back to normal (or at least what passes for normal today) at GE. Shares are back up around the $19 range and yield a generous 3.5%. Better yet, as the economy continues on its sloooooooow crawl back, GE is nicely positioned to take advantage of the growth in a number of ways.
Just like back in the old days, it appears GE again is bringing good things to life, and I, for one, am in it for the long haul.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long GE.
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