Less than two weeks after General Electric Co. shocked investors by reporting a 6 percent loss in first-quarter profits, CEO Jeff Immelt told shareholders at the company’s annual meeting that he expects “even more difficult times ahead” for the economy.
Immelt told more than 1,000 shareholders at the company’s annual meeting in Erie, Pa. that he was disappointed that GE will fail to deliver on a promised 10 percent earnings for 2008, and said the company would “learn from our successes and failures to get better.”
He pledged that the company would increase its planned cost cutting from $2 billion to $3 billion.
“We are in the toughest economy since 2001 and the worst housing crisis since the Depression,” Immelt said. “Banks have written off more than $250 billion. … Days of easy credit have turned into months of no credit at all. While I am confident about the economy long term, we could see even more difficult times ahead.”
Free Fall
GE’s first-quarter earnings report triggered a plunge that wiped out more than $46 billion of its market capitalization and saw the company’s stock fall nearly 13 percent. Immelt said at the time the main reason for the sharp downturn at GE was because capital markets locked up in March.
The report was more surprising because Immelt promised investors in March that the company would reach 10 percent earnings in 2008. After this month’s drop in earnings, GE dropped its projected earnings to be 5 percent or less.
“This has triggered a tough reaction and it should,” Immelt said. “I can assure you that we look in the mirror and ask ourselves some very tough questions.”
Immelt said last week that financial service earnings may decline between 5 percent and 10 percent in 2008, but he said it’s superior to the performance of GE’s financial peers.
GE executives are making changes in the company’s operations and planning, including more frequent business forecasting, with Immelt reviewing businesses weekly, he said.
“This will ensure that there are no time gaps between how we describe the company and what we deliver,” he said.
Changes Underway
“And we have had detailed discussions with all leaders in the company to describe what happened in the quarter and make sure it doesn’t happen again,” he said.
Earlier, Immelt told reporters that capital markets have improved since mid-March. He credited action by the Federal Reserve, which has auctioned billions to provide relief to stressed credit markets.
“It provides a little more certainty,” he said.
Immelt also defended the company’s performance and brushed aside questions he would approve further spinoffs from the industrial and commercial conglomerate.
“I would ask people to keep something in mind,” he told reporters at the shareholder meeting. “In the last five or six years I’ve sold 50 or $60 billion of business. I’ve acquired 70 or $80 billion of business. This has probably been the most active portfolio change in the history of the company and it would be hard to find another industrial company that’s done anything close to what we’ve done.”
Under Immelt, GE sold off the company’s plastics and insurance businesses and has been increasing its market share in emerging markets, such as Asia and Latin America.
Immelt said he accepts criticism from analysts who said the quarterly results damaged his credibility. Until the earnings report, GE had a strong record of meeting its earnings targets.
“I just think it is what it is, right?” he said. “My track record over a long period in this company has been good. I expect it to be good in the future. You don’t do a job like this if you can’t take a punch.”
