Immelt softened his comments, and even came close to repudiating them. It has almost certain that he now agrees with his own PR people who said that he did not really mean what he said about China. They tried to change public perceptions about the remarks within hours after they were made.It is a shame that Immelt has tried to cover his tracks and now says that his comments were taken out of context. He has quickly moved on to GE’s launch of a $200 million clean energy fund to help the growth of green initiatives. It is part of GE’s odd “ecomagination” that goes with its “healthomagination”. They are screens for GE’s plans to make money on the greening of the world, and in the growth in  healthcare spending. Immelt hid behind his green program to shift the focus away from his China rant.

Immelt knows full well that his  China comments were right. China forces US companies to conform to Chinese standards for internet freedom, the distribution of media content, the sale of IT products to the government or offering new technology for the country’s aging wireless infrastructure.

No multinational CEO, in the privacy of their offices and out of earshot of the press,  would  say that China is a level playing field. China keeps American companies at bay with both arcane regulations and a yuan that still helps its exports advantages unnaturally.

There is a growing concern about China’s unfair way of treating America’s big companies. But, there are no set of sanctions to bring China to some level of fair trade. The rhetoric does not bother the Chinese nor should it. America is too busy being fair to be smart. Immelt, like most other CEOs and politicians, is too cautious for his own good.

Douglas A. McIntyre

Immelt vented about frustrations that are probably common among American businesses. He said that China had become hostile to the interests of large multinational companies, to some extent because they have become competitive to firms based on the mainland. He said multinational firms will have to consider moving enterprises out of China to other more friendly nations. He warned that the world’s largest manufacturing company was contemplating better prospects elsewhere in resource-rich countries and that those nations did not want to be “colonised” by Chinese investors, according to The Globe and MailImmelt went on to list several ways in which Obama had failed the business community and America has a whole. Business did not like the U.S. president, and the president did not like business, he said, making a point of praising Angela Merkel, Germany’s chancellor, for her defense of German industry. “We [the U.S.] are a pathetic exporter… we have to become an industrial powerhouse again but you don’t do this when government and entrepreneurs are not in synch.”

Toyota (NYSE: TM) and Honda (NYSE: HMC) might both agree with Immelt’s sentiments. Both are fighting work stoppages at their Chinese plants. But the problem spreads well beyond that. China’s reluctance to revalue the yuan and the theft of intellectual property from firms based in the US and Europe have siphoned off revenue from many large companies.

It is not clear where Immelt thinks American businesses might move, but nations like Vietnam and Mexico are considered more “business friendly”.

Immelt’s attack on the sitting President were even more enthusiastic. Immelt essentially accused Obama of being hostile not only to American companies, but of also being a poor leader during a troubled period in American history.

GE quickly distances itself from Immelt’s views, probably understanding the importance of its relationship with the Chinese government and the Obama administration. According to The Wall Street Journal, GE said that blunt language reportedly used by Immelt to describe China and the Obama administration doesn’t reflect the company’s views.

Immelt may be angry, but GE is not willing to face the risk that his rants might hurt its interests.

Douglas A. McIntyre

Reuters:   Automakers had a setback in June, an indication that the industry is facing slow growth.

Reuters:   The House passed a bill to extend jobless benefits, but the Senate may reject it.

Reuters:   Walt Disney (NYSE: DIS) bought Apple Inc. (NASDAQ: AAPL) iPhone game maker Tabulous.Reuters:   Google Inc. (NASDAQ: GOOG) bought online travel software company ITA Software for $700 million.

Reuters:   Dell Inc. (NASDAQ: DELL) bought Scalent.

Reuters:   Ed Whitacre of GM said 2010 would be a good year for the company’s IPO

WSJ:   Habitat for Humanity became one of the ten largest homebuilders in the US.

WSJ:   France and Germany are at odds over how Europe should be rebuilt

WSJ:   Mortgage bonds backed by the US government have become more attractive.

WSJ:   There is confusion about how the new financial reform bill will treat derivatives.

WSJ:   Deepwater drilling off Cuba threatens Florida beaches.

WSJ:   Healthcare companies are facing huge changes in how they do business.

WSJ:   Goldman Sachs Group (NYSE: GS) is defending its actions on trades with American International Group (NYSE: AIG) during the financial crisis.

WSJ:   Apple Inc (NASDAQ: AAPL) is still allowing Google ads on its iPhone and iPad.

WSJ:   GE (NYSE: GE) said that CEO Jeff Immelt’s attacks on China and President Obama do not reflect the firm’s views.

WSJ:   Blockbuster will be delisted from the NYSE.

WSJ:   As factory activity rebounds many workers do not have the necessary skills.

FT:   Fears are growing over slow economic demand.

FT:   Apple is pushing its on-demand movies business segment of its iTunes store.

Bloomberg:   Portable missile defend plans may cost $43 billion.

Bloomberg:   Carl Icahn says he owns 38% of Lions Gate.

Douglas A. McIntyre

The second issue is that GE will benefit from the  government stimulus package and the Treasury financial bailout package due out tomorrow.  These are known by most, but this stock unfairly punished given its current situation.

We saw a 13.6% move in December 2008.  And from the low to high, not counting the closes, there was a larger move than that in a two-day period.  But today’s 13.87% gain to $12.64 may be the largest one-day gain in many many years.  The gain in December was a 30-year record.  Today’s gain was larger.  CNBC went all the way back to 1962 and had not found a day where GE had risen this much.  Most traders and investors were not trading and investing back in the 1970′s, let alone the 1950′s.

We feel that GE will cut that dividend with a 95% certainty after Q2.  It has a “AAA” debt rating to try to maintain.  But here is our other call… If you buy GE you have to understand that the ratings agencies have already announced actions.  They haven’t formally downgraded the debt rating, but if you live by reading between the lines it doesn’t take a rocket scientist to guess what the next most likely move is more likely to be a few months out.

Shares closed up 13.87% at $12.64 on more than 230 million shares.  Its 52-week trading range is $10.66 to $38.52.  Today’s move added roughly about $14 billion in market cap.

Jon C. Ogg
February 9, 2009

Specifically, I asked Mr. Sherin about several key growth aspects for the company that have a secular or long-term growth model in infrastructure, Ecomagination, GE Oil & Gas, Medical, Airlines and transports, Finance, media, and more.  We also were able to discuss many of the divestiture plans.

First and foremost, we asked about a takeaway for the remainder of 2008 and into 2009.  To this Mr. Sherin seems more than confident about the global opportunities for the company as a whole.  He does expect some of the macroeconomic problems of today to continue and some parts may even get worse than today. But with a $55 Billion backlog in major equipment he feels the company should have a cushion and also addressed how the company has taken many steps to insulate itself against those possibilities.  On a specific basis, Mr. Sherin noted, "There is no Armageddon scenario" in regard to my bringing up the challenges in the economy.

One key issue I wanted to address was the company’s internal growth expectations for its return on capital in each of its units.  Last summer Mr. Sherin mentioned the 20% hurdle as a general goal inside the company for each of its unit combined.  I asked specifically about this to see if this has come down because of the current environment and specifically asked if a range of 12% to 16% might be more realistic.  Sherin said that despite macro-issues, the 20% does remain as the company’s goal.  I would stress that this does not translate to 20% EPS growth as a forecast because this is a different metric.  But the company is still maintaining this as a long-term internal target.  Furthermore, Mr. Sherin said that in evaluating outside opportunities there has to be a minimum of 15% in return on capital for them to be considered.

As far as individual sectors inside the company, GE continues to see strength in the financial sector and Sherin noted, "We feel very good about our financial services business model."  In response to many of the concerns around many major financials and GE in particular over recent weeks, Mr. Sherin noted specifically, "We do not have a burning platform in our financial services."  The company has unloaded mortgage operations before the mess started and you probably saw it has unloaded its Japanese lending last week.

GE ENERGY is an area that the company sees as a huge opportunity for many many years ahead.   GE was never mentioned by anyone anywhere just a few years ago in the oil and gas sector, but this is becoming a larger and larger operation via acquisitions and organic growth.  Mr. Sherin noted that he would like to see this area “double or more” over the next five years.  As far as his belief in this sector, he even went as far as saying analogously that he thinks engineering in energy related fields was where he’s told his kids to focus on for an education for the next generational opportunity ahead.  While he did not offer any specific long-term growth targets for the Ecomagination unit as a whole, Mr. Sherin specifically addressed the wind and solar opportunities there as being incredible for GE and he further went into outlining some of the growth areas there.  More specifically, and something we haven’t heard much of before, Sherin discussed how GE wants to become a major player in the batteries for alternative and renewable energy sector.

GE’s focus on healthcare is an area that the company noted last summer at a luncheon as an arena that the company would like to grow in, and Mr. Sherin noted that the company does have a “green-light” to expand in this sector as opportunities arise.  While GE did have to pull the plug on the old Abbott diagnostics business acquisition, the desire to continue growth in the sector from last summer is not one that has seemed to change at all.  The diagnostics area is a potential and Mr. Sherin also noted areas such as Healthcare IT for electronic medical records.  He further went on to discuss in life sciences the proof of therapy for genetics and identified how the company wants to play its part in the personalized medicine trends that are coming in the near future.  Unfortunately there are too many companies in each of the sectors for us to be able to guess an exact company name that could be the next GE takeover candidates in 2008 or beyond. 

Another sector we wanted to address and discuss was the current situation in the airline industry since GE has taken an active lender status here and also has a massive business in the jet engines and servicing the engines for airlines.  More specifically when I brought up our own fears about the chances of major legacy air carriers having to file bankruptcy in late 2008 or into Q2/Q3 2009 Mr. Sherin was more than prepared to address this as to GE’s stance.  He noted first and foremost, “We’ve been through airline bankruptcies before” and further stated “Our collateral position (in the airline sector) has improved since after 9/11.”  He explained that GE isn’t in the same boat as equity investors and they are much higher in the creditor line if this was to occur.

Lastly we discussed NBC-Universal and the role of media inside GE.  Sherin maintained the same tone that Jeff Immelt has stated and that NBC’s chief Jeff Zucker has taken that this remains an integral part of GE.  When asked what the internal valuation is regarding the unit, Sherin gave a figure of $40 Billion as the total value of the media unit.  If the company is going to change that stance of GE being NBC-Universal’s parent as many want to see changed, well let’s just say that the company does not want to fuel any hopes of a change there at all.

While shares are down in this Monday’s trading, we would note that despite the sell-off we saw in recent months GE was one of the few gainers during a very weak stock market. 

We gave our own 2008 fair value stock assessment on GE based upon guidance after its last big post-earnings drop.  General Electric has also been reviewed for our next SPECIAL SITUATION newsletter with scenarios that could help GE’s stock be able to surpass that level under the right scenarios even in a market-neutral environment.

Many of the issues around GE as an investment today are really going to depend upon your time frame.  The company does have a united message and does have the goal of streamlining operations.  The company also has a solid backlog and there is a definite break between how Wall Street is viewing some of the company’s exposure to macro-aspects versus the company’s comfort level on how it evaluates the current environment and its opportunities that arise.  Whether this happens in 2008 or in 2009 there is one thing for sure: the GE of tomorrow is going to look very different from your parent’s version of GE in the past.

Jon C. Ogg
July 14, 2008

Jeff Immelt, CEO & Chairman of GE, has purchased roughly 83,000 shares today in the open market broken down in 11 separate transactions dated today for what appears to be slightly more than $3.3 million.   This was in various transaction between $40.03 and $40.13 and this takes Immelt’s direct share beneficial ownership to 1,071,653.

General Electric is such a large and vast company that actions of a single person alone might not move the meter.  But a $3.3 million vote of confidence from the likes of Jeff Immelt is hard not to pay attention to.

Jon C. Ogg
October 22, 2007

There were some concerns on the street up until yesterday that the company might have some weakness in its consumer exposure in appliances and finance, but CFO Keith Sherin addressed analysts yesterday and maintained prior earnings guidance in his "pretty good economy" explanation.  That has acted as the catalyst along with a FOMC decision to cut Fed Funds and the Discount rate by 50 basis points. 

GE remains one of the few AAA rated debt rating companies out there.  Analysts still have an average price target of $44.00.  Just this morning, Goldman Sachs noted that the company is well positioned to benefit from leadership in infrastructure, across energy, aviation, transportation, oil & gas, water, and financial services.  Goldman Sachs also noted that the exit from Japanese consumer finance is not surprising.  Goldman Sachs does note that it expects investors will be challenged to understand all the accounting nuances "impacting an array of offsetting gains and charges across Q3 reported earnings versus continuing operations."  Goldman Sachs remains with targets for earnings of $2.21 in 2007 and $2.45 in 2008.

Regardless of outside analyst calls, GE is a company that is just hard not to be impressed with.  After a semi-private luncheon with CFO Keith Sherin in July, it was hard to not be impressed with Sherin’s stance that "GE is a growth company" on numerous occasions.  I would have classified it as more of a cyclical or income play because of the conglomerate nature.  But Sherin stated that the company seeks a 20% return on capital across the spectrum and they review all segments with that target in mind.  If that isn’t attainable, then a divestiture of an underperforming operation becomes much more likely.   If you look at what the conglomerate is doing in oil and gas now, you’ll think they plan to get quite large there.  Anyone hearing the entire presentation from management will dismiss any of those old break-up calls.

Any time these giant stock hit new highs, it is never out of the norm to see some profit taking.  With a now $429 Billion market cap, it takes quite a bit of cash inflows to move the stock up.  Nonetheless, it would appear that the floor is now much higher than just a month ago.  It is also worth noting that stocks that exceed old highs tend to do that for more than just one day.

Jon C. Ogg
September 19, 2007

Jon C. Ogg produces the 24/7 Wall St., LLC Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Back then it showed projections of $0.54 to $0.56 EPS on total revenues of approximately $42 Billion, with net earnings of $5.5 to $5.7 Billion.  There appears to be no change to its Q3 reported earnings and total year guidance.  This new slide shows the same $0.54 to $0.56 EPS guidance, up 15% to 19%.  It is also offering $2.18 to $2.23 for Fiscal 2007.  We backed out the charges for restructuring and divested operations. 

As far as how this compares to estimates, these numbers are mostly in-line.  First Call has $0.55 EPS and $42.69 Billion in revenues.  As far as total fiscal 2007, First Call lists $2.21 as the EPS target and an implied $171.75 Billion revenues.

This should come as a relief at a time when investors are trimming risk and when companies are facing a rougher time.  After speaking with several investors and several counterparts out there, we all had a feeling that maybe GE’s infrastructure business might not be quite to offset some of that weakness tied to housing in its appliances and in financing out there.  If the overall economy isn’t going to deteriorate much further, that worry appears to be alleviated. 

If GE shares can hold this 1.3% gain at $40.70, this will be within a hair of its $40.82 highest close of the last 52-weeks. The intraday high this year is $40.98.  If this tone remains in individual unit presentations, then it would seem likely that analysts will reaffirm or maintain their ratings and that average $44.00 price target.

This morning CFO Keith Sherin appears to have cut off these fears atthe pass.  He did note that the company is watching the impact ofhousing, but countered that by noting the broad industrial economy isstill in good shape.  As a repricing of risk has taken place, GE is oneof the few remaining Triple-A rated companies by ratings agencies.Later on there is a signal that while the Global consumer is doingwell, tougher US consumer would drive expectations of higherdelinquencies and losses.  Restructuring actions in the third quarterare estimated at $1.7 to $1.9 Billion.

Perhaps the saving graceboils down to the global nature of the company.  It shows the GE Moneyunit with 30% of its earnings coming from high value US consumer,another 30% from Latin America, Asia, and Eastern Europe, and then 40%from developed markets of Europe, Australia, and New Zealand.

The projections for percentage of profits is as follows:

Unit……….% of Profit…Stronger business position (2008 outlook)

Infrastructure 37%…Great position in robust global market…"early innings"

Com’l Finance 20%…Leading global commercial finance

GE Money      13%…Great global position & record; reduced risk & improved strategic position

Healthcare    11%…Strong global position; OEC hipping in Q4-07; DRA still tough but better comps

NBCU            11%…Strong Cable & Film; network turnaround progressing

Industrial    8%….Plastics complete; building high-tech & brand position

If you wish to review the whole presentation summary in detail you can on their site here.

Jon C. Ogg
September 18, 2007 

If you follow "Legal Proceedings" then this is not really anything GE investors should worry about.  Based upon what I was able to garner from a recent luncheon with GE’s CFO Keith Sherin companies this spread out and anywhere close to this large will have reviews in some form or another in one unit or another for the end of days.  That is the price in a post-Enron financial world.  If you want a prediction right here and right now you heard it from me: this isn’t the last restatement or accounting change you’ll ever see, and this isn’t likely a systematic problem spread across General Electric.  Take a look at some of at the copied verbatim for exact wording out of the 10-Q:

In connection with the SEC’s investigation, the Audit Committee of our Board of Directors, with the assistance of independent counsel, undertook a review of the Rail transactions. Based on this review and as further described below, we have determined that revenues had been inappropriately accelerated so that they were recognized in the fourth quarter of each of the years 2000 through 2003 rather than in the first quarter of the following year. Our management and Audit Committee determined that the effects of the Rail transactions are not material to our financial statements under applicable SEC guidance and accounting literature. If the transactions had been recorded in the appropriate quarters, the effects on GE’s consolidated revenues, earnings before income taxes and accounting changes and net earnings would have been less than 0.2% in each year.

In the Rail transactions, we transferred locomotive titles but not sufficient substantive risks and rewards of ownership to financial intermediaries. One quarter after title transfer, we delivered those locomotives to the ultimate railroad customers. Our Audit Committee has determined that, in connection with the Rail transactions, several individuals in our Rail business and in our capital markets group engaged in intentional misconduct that misled those responsible for accounting oversight and further that the transactions were also not adequately examined by those responsible for accounting oversight.

Ultimately you will have to decide on your own how material this is.  Back in February we noted how the "Material Weakness" section in the Annual Report was not all that material for a company this large and with this many units.  If this was very material, then there be changes to internal controls and procedures in the filing and those were deemed effective. I won’t bother trying to explain all of the changes going on in accounting, but in the luncheon I attended in New York City with GE’s CFO Keith Sherin this week one of the points that the CFO discussed was the ongoing accounting reviews and changes.  He specifically noted some derivative restatements and said that FAS-133 reviews were ongoing.  My own impression is that this is being mandated not just at GE but is much more systemic with conglomerates and SEC reviews in general, particularly as Mr. Sherin noted that FAS-133 needs some simplifications and some more common sense rubbed over it. 

Mr. Sherin gave a broad overview of the company, and my own personalysis interpretations will tell you in as close to matter of fact as an outsider can that this is not an issue keeping anyone up at night other than the actual motions and time involved.  There are many more positive engines (no pun intended) right now that are acting as drivers for the company.  Keith Sherin used the term "growth company" more than once, and with a broad 20% target for return on capital each year you can see why. 

Unfortunately the stock market has the sniffles, that turned into a full blown cold Thursday, and if Friday’s end of day trading was any indication then the doctor is worried the market may have to go to the doctor if the patient doesn’t improve this weekend.  Hopefully the market will have a bit more stabilized trading next week, because we have a series of segments we’ll be running on General Electric with both sides of the coin on each.  But after being able to give this a couple days of segmenting analysis the company sure seems like it has a hell of a lot more going for it in the near future compared to accounting worries that can be blown way out of proportion if they are ‘spun’ with a crafty pen.  There is always some pause that has to be given now any time there is any word of accounting restatements, but remember that the media can sell you more newspapers and keep you watching longer if they can convince you a scandal is looming. 

You should be worried much more about the good old stock market in general dragging GE than this issue, or at least that is the opinion of yours truly.  This stock was holding its own quite well and managing to hold $40.00 until the market cracked and if you look at and compare the intraday charts on GE versus the DJIA and the S&P 500 this week then you can see that the DJIA and S&P 500 are pulling GE down rather than GE acting as a catalyst hurting the markets.  Anyhow, it is always safe to assume there can be more disclosures such as this, but so far GE still looks like it wants to act as a leader when the market goes up rather than a drag.  Stay tuned next week as we roll out some of these feature stories on various aspects of the company with analysis on each.

Jon C. Ogg
July 27, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.