GE Says It Will Hang On to Consumer Products Unit
Nov 25, 2003
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Louisville, KY, U.S.-based GE Consumer Products will be a part of General Electric Co. (GE) for at least another 2 years, generating cash to help faster-growing businesses like NBC/Universal, said Jeffery Immelt, GE chairman and CEO.
For the past 2 years, Mr. Immelt has been skewing the company toward fast-growing businesses, leading many industry watchers to speculate that the Louisville division would go on the auction block.
But Consumer Products is highly profitable, and Mr. Immelt said that those profits will help finance expansions in GE's other businesses.
"If you look at this company today, 85 percent of it is in what I call engines for growth…. The other 15 percent is fuel for growth," Mr. Immelt said. "The combination of this fuel for growth and these engines for growth is pretty…appealing."
Mr. Immelt's comments came during a Nov. 24 conference call in which he told investors that GE should return to double-digit profit growth in 2005 after a lackluster 2004. The outlook for 2005 and beyond helped GE stock gain U.S. $1.03, or 4 percent, to $29.47 on heavy volume yesterday.
A key message in Mr. Immelt's presentation was that he is basically done adjusting GE's stable of businesses.
"What you see today is basically the steady state of the company for at least the next 24 months," he said. "You're really seeing the GE we're going to be taking forward from here."
Mr. Immelt's vision of a two-tiered GE -- with slow-growing, but profitable businesses funding high-growth opportunities -- represents a step back from his earlier statements that he would consider selling any business that did not return the growth rates he wanted.
That is good news for the Consumer Products division, which expects to see sales fall slightly this year and remain flat in 2004 and 2005. For the Consumer Products unit, this means 15-percent operating profit increases for the next 2 years.
For Consumer Products, 2004 "will be another grind-it-out year. This basically is almost exactly what it looks like this year," Mr. Immelt said of the flat sales projections coupled with double-digit earnings growth expectations.
But achieving those numbers could be harder next year. The Consumer Products division has been turning in strong profit increases so far this year, thanks primarily to cost cuts stemming from last year's merger of GE's appliance and lighting divisions. That merger created GE Consumer Products.
In September, Consumer Products Chief Executive Jim Campbell said the vast majority of the cost cuts from the merger had been made. To achieve 15-percent earnings growth in 2004 and 2005, Consumer Products Spokeswoman Kim Freeman said the division will continue selling more premium appliances and fewer entry-level offerings.
While GE is looking to the Consumer Products unit to generate cash, the strategy doesn't necessarily mean it will strangle the division's R&D efforts.
"New products are the things that keep the appliance business alive," said Larry Horan, an analyst with Parker/Hunter in Pittsburgh. "If you cut back on investments there, your customers go right over to Maytag and Whirlpool."
Last year, GE pledged to invest $750 million over 5 years to develop new appliances.
"What investors want to see now is some progress in integrating the various parts of GE and restoring the growth rate we're used to seeing," said Steve O'Neil, an analyst with Louisville's Hilliard Lyons. "That's going to take a lot of work. The pieces are in place, more or less, but there's a lot that needs to be done over the next few years. (Reuters)
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