Insourcing Pays Off - GE Sees Appliance Market Share Gains
Jul 30, 2012
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General Electric Company had second quarter 2012 operating earnings of $4.0 billion, up 7% from the second quarter of 2011. GAAP earnings from continuing operations were $3.7 billion, up 2%. Revenues were $36.5 billion for the quarter, up 2%.

GE Home & Business Solutions business group includes the GE Appliances business as well as its consumer electronics, lighting, and intelligent platforms product segments. In the second quarter of 2012, Home & Business Solutions had revenues of $2204 million, up 2% from $2153 million in 2Q 2011.

In the first half of 2012, Home & Business had revenues of $4295 million, up 4% from $4142 million in the first half of 2011.

GE Vice Chairman and CFO Keith Sherin, speaking at an earnings conference call, pointed out that, while Home & Business Solutions overall had a tough quarter, "We did see some positive signs in appliances. Revenues of $2.2 billion were up 2% as appliances revenues were up 10%, partially offset by lighting revenue which was down 8%."

At the earning conference call, Chairman and CEO Jeff Immelt characterized the second quarter 2012 business market for GE overall as challenging, but called the United States "stable." He added, "The appliance market grew by 1%. With housing starts up more than 30%, that bodes well for the future."

Immelt added, "Our investment growth continues to pay off." Among the evidence in the appliance product segment: "Our Mission 1 refrigerator sold out, and we have two more appliance products launching in third quarter."

GE's Mission 1 process combines lean manufacturing and advanced product design techniques, which the corporation is leveraging to insource appliances that have traditionally been made outside the United States.

Utilizing this process, GE has committed to investing about $1 billion n new manufacturing in the United States in a four-year period ending in 2014.

Perhaps the most high-profile results of those investments were new GE appliance manufacturing lines opening in its Appliance Park manufacturing campus in Louisville, KY. There were no new manufacturing plants put in place in Appliance Park for 50 years - until two new plants began operations in the first half of 2012.

One of those plants makes a new-generation French door bottom-freezer refrigerator. GE announced several weeks ago that it planned to add a second manufacturing shift to the new plant as the new fridge demand exceeded original expectations.

"We are doubling the production rate," Sherin said.

"If you look at appliances, retail sales were up 11%. Contract sales were up 22%," Sherin said. "Appliances saw 5 points of price increase in the quarter. And at the same time, we increased share again, reflecting the benefit of the investments we have been making in new products over the last 18 months."

Offsetting the strength of GE Home & Business Solutions' appliance business was the lighting business, Sherin added. "Segment profit of $91 million was driven by appliances, and the benefits of higher pricing were more than offset by inflation and lower lighting volume."

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