Thursday, October 23, 2003
Analysts say GE must come through with increased profits in 2004.
FAIRFIELD, Conn. (AP) -- General Electric Co., whose reputation for strong profits has dimmed lately, is trying to put a jolt into its businesses.
The conglomerate, whose holdings range from light bulbs and appliances to financial services and the NBC television network, announced two of its largest acquisitions ever this month. The deals are part of a broader, long-term strategy aimed at restoring double-digit profit growth by transforming GE's portfolio of businesses.
"We really are changing the characteristics of the company for the future," GE chief executive Jeffrey Immelt told analysts.
It takes time
But reshaping one of the world's most valuable companies takes time. Last week, GE reported an 11 percent drop in third-quarter profits and said its earnings for the rest of the year may come in lower than expected, generating some unrest.
"I think people are beginning to realize this is a multiyear transition. People kind of woke up to that," said Lawrence J. Horan, a GE analyst and research director for Parker/Hunter in Pittsburgh. "I think there's been some dissatisfaction because most of these things are long term."
Analyst Nicholas Heymann of Prudential Securities offered a generally upbeat report on the strategy. But he warned that "GE's stature with investors could quickly move from a 'show me' to a 'penalty box' stock" if the plan does not show results soon.
"In short, we believe 2004 is shaping up as a very critical payback year for the company after 2002 became the 'year of disappointment' and 2003 'the year of transition' for GE's business portfolio," Heymann wrote.
Iffy profits
The problem is this: GE's profits lately have not been lighting up the investment world. Some of GE's core businesses, such as power plant gas turbines, plastics and aircraft engines, have had to cope with sharp downturns in their industries and weaknesses in the economy.
GE is moving into what it considers high-growth areas as it reshapes its portfolio into a set of technologically advanced, services-oriented and capital efficient businesses.
With the latest acquisitions, the 111-year-old company is looking to strengthen two of its key businesses, media and medical equipment.
The companies
GE is buying Britain's Amersham PLC for $9.5 billion in a deal to broaden its capabilities in medical technology. And Vivendi Universal has agreed to merge the French company's Hollywood studio, cable TV networks and theme parks with NBC.
GE also has been exploring such areas as Hispanic television, wind power, water technology, oil and gas technology, and security and sensors. It has sold some insurance businesses and more divestitures and acquisitions are expected.