LONGBOAT KEY, Fla. - General Electric Co.'s chief executive, Jeffrey Immelt, said yesterday that he sees signs of a recovery at some of the company's more economically sensitive businesses such as plastics and the NBC television network.
The company's shares rose 7.2 percent on the news, gaining $2.20 to $32.85, in their biggest one-day gain since September. The world's largest company by market value still expects a profit, excluding some costs, of $1.65 to $1.67 a share this year and at least a 10 percent increase next year, Immelt said at a conference in Florida that was broadcast on the Internet.
Demand and prices at other businesses, including electrical equipment and trailer and railcar rentals, remain "tough," Immelt said.
Since Immelt succeeded Jack Welch in September, GE shares have dropped about 17 percent, trailing benchmark indexes, on concern about declining sales, slowing profit growth and the transparency of the company's accounting. "They gave a little more insight in how they expect to meet their earnings expectations," said Mark Demos, an analyst with Fifth Third Investment Advisors, which owns GE shares and manages about $34 billion in assets.
The company's net income fell in the first quarter for the first time in more than seven years because of a decline in the value of some of its acquisitions. Sales were little changed at $30.5 billion after declining the final nine months of last year. The slump came as the U.S. economy expanded at a 5.8 percent rate in the quarter.
GE's rise led the benchmark Standard & Poor's 500 Index higher. The index climbed 39.35, or 3.8 percent, to 1088.84. It was the biggest gain for the stock since Sept. 24, after the terrorist attacks of Sept. 11.
"When we look at the economy, on our early cycle indicators - plastics and NBC - you see strong signs of recovery," Immelt said. "The physical volume of plastics business grew 18 percent in first quarter and grew 40 percent in April."
The company has been preparing for a slowdown at other businesses. GE will cut costs in its power-systems unit, its largest industrial business, as turbine shipments slow and service revenue rises next year, Immelt said. Profit will decline at that unit in 2003 and 2004 and begin to rise again in 2005.
General Electric Power Systems will ship 260 turbines this year and 150 turbines in 2003, less than Immelt forecast in December. About 50 units will be shipped in 2004 and at least that many each year after, he said. Profit forecasts, which include cancellations from companies such as Calpine Corp., allow for 40 more terminations, he said.
The company expects to receive about $550 million from cancellation fees this year and to let utilities move shipments from this year to next, he said. Service contracts with profit margins of more than 30 percent will help increase sales by about $1 billion a year, Immelt said.
GE, which came under criticism from some bondholders as issuing too much in commercial paper, or short- term corporate IOUs, has been shifting to long-term debt. The company has issued $32 billion in long-term debt since January, decreasing its commercial paper by $21 billion to about 40 percent of its total debt.
The company intends to eventually have commercial paper make up 25 percent to 35 percent of total debt.
GE also expects an extension of bank lines backing such short-term IOUs to be extended to $50 billion soon, Immelt said. Cost for the shifts and lines will be about $100 million, he said.