General Electric’s (GE) CEO Jeff Immelt on Q2 2014 Results – Earnings Call Transcript

We saw a solid economic growth across most of our segments. Some economic indicators are really quite strong like rail loadings, revenue passenger miles, demand for commercial credit and appliance market strengthened during the quarter. Global markets were also generally positive.

GE ended the quarter with a record backlog of $246 billion. A particular highlight was the payback of our investments in technology. We recorded $36 billion of wins at the Farnborough Airshow, transportation is prospering because of our commitments to push ahead with the Tier 4 locomotives, healthcare is gaining share behind several big product launches, in oil and gas the same broad interest to new subsea innovations.

There are still a few tough markets like U.S. healthcare and mining but the economic trend is positive. At the half execution is in line with our key goals, industrial segment growth is up 10% with 6% organic revenue growth and margin expansion of 30 basis points.

We’re on track for $7 billion of capital earnings with the $3 billion dividend, capital allocation remains balanced and discipline, we’ve returned $5.9 billion to investors through dividends and buyback, we’re improving the GE portfolio as well. The Alstom acquisition will generate attractive growth and returns while helping GE to accelerate our achievement of 75% industrial earnings.

Retail finance remains on track for an IPO by the end of July. The GE team is executing both operationally and strategically. Orders grew by 4% with slightly positive pricing, backlog is at a record high as I said of $246 billion, up $23 billion from last year. This was the strongest service performance in several years with growth of 14%, aviation spares grew by 16% and power gen services grew by 13%. Most of our service businesses are expanding.

Transportation orders were up close to 40% overall and we positioned the business to succeed in the future. We experienced some equipment order push outs particularly in wind and oil and gas and subsea however our rolling four quarter equipment growth is up 7% and growth markets remain a highlight with 14% order expansion and growth in six of nine regions.

Our orders and backlog give us confidence in the second half and 2015. Our operating execution was good, we have 7% revenue growth in the quarter with 20 basis points of margin expansion. We are gaining share. Farnborough made a statement about GE’s position in aviation with $36 billion in wins. We won nearly 90% of all next gen narrow body announcements. As was reported earlier in the week, GE remained substantially ahead on the Tier 4 locomotive. We have 264 Tier 4 locos in backlog for 2015 and ‘16 with more on the way and this was zero in the first quarter, so our momentum is growing.

We have nine high efficiency large block H turbines in backlog with many more in the pipeline. In oil and gas, we sold the first 20k-psi drilling system to Maersk. We have $55 million backlog for the industry leading Revolution CT scanner. For the quarter, equipment revenue grew by 8% and service revenue grew by 5% and six of nine growth regions expanded in the quarter. In addition, a few of our adjacencies are performing quite well. Life Sciences had order growth of 10% while Water grew by 11% and we now expect $1.3 billion of productivity revenue for ’14, slightly ahead of our operating plan.

Simplification and value gap continue to drive margins; we are reducing the structural cost of GE. For the year simplification, value gap and R&D efficiency should continue to be positive. In addition, we saw nice margin turnaround in energy management and appliances and lighting while transportation and health care are growing margins despite tough markets. We will continue to be negatively impacted by equipment mix for the year but we are on track for solid margin improvement in 2014 overall with expansion in most of our businesses. And in the quarter, six of our seven industrial segments had earnings growth. So, really a good execution quarter.

Our capital allocation is in line with plan. Total CFOA is $3.4 billion, down 9% year-to-date, industrial CFOA is above last year’s total but below if you add back the impact of the NBCU taxes last year. CFOA is impacted by timing and long cycle orders in wind, driven by the lack of PTC clarity and in oil and gas. Additionally, we have more inventory for second half shipments, given the substantially higher organic revenue growth we expect in 2014 versus 2013.

We’ll see strong improvement in working capital in the third quarter and second half. As previously communicated, we expect the capital dividend to be about $3 billion in 2014. We ended the quarter with $87 billion of cash and we expect CFOA for 2014 to be in the $14 billion to $17 billion range as outlined in our 2014 framework. We have a similar first half, second half profile that we had in ‘13.

Capital allocation continues to be disciplined and balanced. We have raised the dividend by 16% for ’14; we have filed the red herring for RFS today, targeting a late July IPO. And this should raise roughly $3.1 billion at the midpoint price for 15% of the company. And we are targeting $4 billion of dispositions for the year.

In an important move for GE the Alstom deal is announced and signed targeting a 2015 close. This is an exciting opportunity for GE and our investors. By 2016, we expect this will add $0.06 to $0.09 per share and allow the company to have 75% of our earnings from industrial. The synergies and returns are excellent. And Steve Bolze is here this morning to give you an update on Alstom. So let me turn it over to Steve.

Steve Bolze – VP, Power and Water

Thanks Jeff. We’ve had a lot going on with respect to the Alstom transaction. And I wanted to update you on the deal, our revised structure and our execution plans.

As you recall from our initial announcement on April 30th, the acquisition of Alstom’s power and grid businesses would represent a largest single acquisition in GE’s history. At the time we said it was subject to several reviews including our discussions with the French government. Those discussions have led now to our revised offer. We are happy with the outcome and have the unanimous recommendation of the Alstom Board and the endorsement of the French government.

A key point that I would like to stress is the deal economics remain the same and the price did not go up. Our deal is $13.5 billion of enterprise value at 7.9 times EBITDA and Alstom still retains its transport business. We have however revised the initial deal structure in payment terms. We will be selling our signaling business to Alstom transport and creating three joint ventures. GE will have operational control in these joint ventures and Alstom will be investing about $3.5 billion for its stakes. I will give further details on the ventures in a moment.

Although the structure has been modified our strategic rationale has not changed. The power sector is core to GE’s future and it has excellent long-term growth prospects. Alstom Power and Grid are businesses we know and like and are being acquired at a good time in the cycle. What we like the most about Alstom is it complements us in technology, geography and they have great talent. It brings us broader scope and power, a larger installed base for services growth and larger presence in emerging markets.

Together with GE this creates opportunities to improve our combined performance and it’s in our sweet spot. Also we continue to see good cost synergy opportunities and our plans remain intact. Overall, this is an attractive investment in a core business which expands our competitive capabilities and is accretive to GE earnings in year one with high teens IRR.

On the next page I want to ground you on the new deal structure. First, the changes do not impact the core businesses, which are Alstom’s thermal assets. We will still own close to 100% of Alstom’s gas and steam equipment and service businesses. About 86% of our synergies are in these businesses. With respect to the joint ventures Alstom will be the investor but GE will have operational control and we still have clear visibility to the remaining synergies.

The first JV is renewables. It’s made up of Alstom’s offshore wind and leading hydro business as well as some of thier new renewable technologies. GE and Alstom will each own 50% of this joint venture, onshore wind from Alstom will go directly into GE at 100%.

The second JV is the combination of GE’s digital energy business and Alstom’s grid business. GE and Alstom will each own 50% of the joint venture. And the third joint venture is global nuclear and French steam. We knew all along that with the majority of electricity generation in France being from nuclear power there would be nuclear sovereignty issues. This venture includes Alstom’s production and servicing equipment for conventional island of nuclear power plants and development in sales of related new equipment globally.

It also includes Alstom’s steam turbine equipment and servicing applications for France. In this joint venture, GE will own 80% of the economics and Alstom 20%. But Alstom will still have 50% of the voting interests. The sovereignty issues are address through a preferred share held by the French State with certain governance rights.

In each JV, GE has control, will appoint the CEO and expects to consolidate. Alstom will have standard minority governance rights and will have put options with the minimum four value at the fine time. These joint ventures will not impact or ability to achieve our synergies.

On top of these ventures one additional transaction that we agreed to sell our signaling business, a part of GE transportation. It’s a good deal for both parties. We got a good price rate, a market multiple and it is a business that will do better as part of a larger signaling business that Alstom has. In addition to that, we will enter into a collaboration agreement for both services and commercial activities that should make both GE and Alstom’s transportation businesses more successful. As for our presence in France and Europe, after Alstom’s businesses join the GE family we expect to have over 100,000 employees in Europe. We have agreed to add 1,000 new jobs in France have factored this commitment into our financial plans.

In addition we have committed to keeping grid, hydro offshore wind and stream turbine headquarters in France. In summary the dealer returns remain unchanged, there will be 3.5 billion less cash invested upfront and a $0.01 to $0.02 reduction in EPS accretion.

So now let’s look at our plans for execution. We still see 300 million in year one synergies growing to 1.2 billion in year five. We expect to realize 80% of the 1.2 billion in synergies by the third year. There are four main categories for synergies the first is optimizing the manufacturing and services footprints. The combined businesses have 16 major manufacturing sites and many more feeder sites. And about 70 service sites across the globe.

We estimate roughly 400 million of our savings here over the period. Second, leveraging the combined sourcing by to increase, productivity we have approximately 5 billion in common spend that we believe we can realize about 5% savings on. This is very consistent with our experience when we bought EGT from Alstom in 1999. The third area is combining our R&D efforts across the product lines, then lastly by consolidating supporting functions across SG&A we see the ability to get about 10% synergy here across the combined businesses.

We expect to spend approximately 900 million over the first five years to realize the 1.2 billion of cost savings. Beyond the $1.2 billion, we have assumed some modest revenue synergies, but see the potential for more upside. The teams have started to work to develop these additional growth opportunities. The current plan should drive $0.06 to $09 of EPS accretion in 2016, assuming a mid 2015 close.

We have now kicked off for integration planning with Alstom, so we can hit the ground running when the approval process is complete. This will be a broad GE effort spanning many parts of the company. We have appointed Mark Hutchinson, our overall GE integration leader. Mark is a GE officer with broad global experience and was most recently our CEO of China. We have formed a joint GE Alstom steering committee and had our first meeting last week in Paris.

From here, the process for closing will include works council consultations, Alstom shareholder approval and customary regulatory reviews driving an expected closing in mid 2015.

Overall, we are excited about the acquisition. We are confident in our ability to execute and we have a proven and experienced integration team now in place to ensure success.

With that, I want to hand it over to Jeff Bornstein.

Jeff Bornstein – SVP and CFO

Thanks Steve. I’ll start with the second quarter summary here. We had revenues of $36.2 billion, up 3% from the second quarter of 2013. Industrial sales of $26.2 billion were up 7% and GE Capital revenues of $10.2 billion were down 6%. Operating earnings of $3.9 billion were up 7% and operating earnings per share of $0.39 were up 8%.

Continuing the EPS of $0.35 includes the impact of non-operating pension and net EPS includes the impact of discontinued operations. We had $41 million charge in the quarter in discops, primarily $30 million from WMC. WMC pending claims were down $700 million in the quarter and litigation claims were $1.3 billion higher. Reserves of $550 million are essentially flat versus the prior quarter with the slightly higher coverage of potential losses.

As Jeff said, CFOA year-to-date was $3.4 billion. We added industrial CFOA of $2 billion and received $1.4 billion of dividends from GE Capital. Industrial CFOA was up 12% reported and down 41% excluding the impact of 2013 MBCU tax payments. This is driven by timing of orders and inventory build and was still on track for the $14 billion to $17 billion CFOA range that we guided for the year. The GE tax rate for the quarter was 19%, up from 17% last year bringing the year-to-date rate to 21%. As previously communicated, we expect the full year industrial rate to be above 20%. The GE Capital tax rate of a negative 13% was principally driven by the announced consumer Nordics disposition. The tax benefits from this transaction are anticipated to be higher than what we had planned for and with that we now expect a low single-digit tax rate for the full year.

We recorded roughly $260 million of tax benefits in the second quarter to bring the year-to-date rate in line with the expected lower full year rate. On the right side, you can see the segment results. Strong top-line growth of the industrial segment’s revenues up 7% and operating profit growth up 9%. GE Capital earnings were down 5% in the quarter on lower assets. Per our previous communication, the GE Capital results now include the impact of preferred stock dividends. For the quarter that was approximately a $160 million versus a $135 million in 2Q, ‘13.

I’ll cover the dynamics of each of the segments on the following pages. First, I’ll cover other items for the quarter. We had $0.03 of restructuring and other charges at corporate, about $0.02 of that related to ongoing industrial restructuring and other items as we continue to invest in simplification to improve the industrial cost structure. The spend was broad-based with projects in every business in corporate. We were executing on approximately 145 projects that average a year and half payback.

We also had a $0.01 one-time charge related to the write-off of an asset in our consolidated nuclear joint venture. We took 51% of the impact related to that write-off and our partners took the remainder. Offsetting the restructuring, we booked a gain related to the disposition of Wayne fuel dispensers business in oil and gas. We recorded a pre-tax gain at corporate of $90 million related to that transaction. The net impact of these two items was a $0.02 charge.

So to give some context, the gain came in about a $100 million lower than expected. Our restructuring spend of $300 million pre-tax also came in about a $100 million lower than planned. This was due to lower spend of about $70 million needed to execute the existing projects and some delays attributable to works councils for roughly $35 million.

In addition to the ongoing restructuring spend we had the one-time charge related to the nuclear asset write-off. So restructuring and other charges net gains of $0.02, ended up being a higher expense that we planned in the quarter. Now I’ll take you through the segment starting with Power and Water.

Orders of $6.3 billion were up 6%, equipment orders were down 1% with distributive power down 32%, thermal down 9% and renewables up 60%. The decrease in distributive power was attributable to the timing of orders in the emerging markets that we expect to close in the second half. Thermal orders were lower on gas turbine orders, 10 versus 24 a year ago, partially offset by more BOP orders for balance plan.

First half gas turbine orders were 41 versus 32 a year ago. No change to our framework for a 125 gas turbine orders for the year. In the second quarter, we booked our first [H] gas turbine order for cogen application in Russia but we expect to ship that unit in 2015. Service orders were up 12% driven by PGS up 13% and strong demand for upgrades and parts. We expect a reasonably strong transactional outage season in the second half of the year. We booked 19 AGPs in the quarter versus 12 a year ago. Revenue in the quarter was higher by 10% to 6.3 billion, growth was driven by equipment up 20% and services up 2%. Equipment revenue was driven by thermal up 38% on two more gas turbines versus last year and higher BOP up 38%.

Wind equipment revenues were up 30% with 159 more wind turbines year-over-year. Thermal and wind growth was partly offset by lower distributed power growth which shipped 41 units this year versus 55 a year ago.

Our profit of 1.1 billion was up 4% driven by volume and simplification benefits offset by negative mix principally higher BOP and wind shipments. Product line mix was 2.4 points of a margin drag in the quarter. SG&A was down 7% in the quarter. Our outlook for the business for the total year has not changed. At the moment we are likely to be stronger on AGPs than we planned but may see some distributed power volume push. Gas and wind turbines remain within the framework we have shared with you.

Now for oil and gas orders were up 5% in the quarter to 5.3 billion equipment orders were down 9% versus a very strong second quarter in ‘13 when equipment was up 42%. Turbomachinery was down 42% versus up 74% last year. Subsea was down 44% versus up 30% a year ago. Downstream technology up 85% on strong petrochemical demand and drilling and service up 55% were strong in the quarter.

Drilling received a large order for our new 20,000 PSI drilling system, the first in the industry for Maersk and BP. The 20,000 PSI capability makes ultradeep offshore drilling possible in areas unavailable today. So, we’re quite excited about the progress there.

Service orders are strong up 23% with Turbomachinery higher by 49% on increased upgrades insulations and transactional services. Downstream technology was up 35% and MNC was up 1%. MNC was up 19% excluding the impact of the [Wayne and Santis] dispositions.

Revenues of $4.8 billion were up 20% by equipment strength up 29% with subsea up 51% and Turbomachinery up 15%. Service revenues were higher by 11% versus the second quarter of last year.

Operating profit was up 25% on higher volume positive value gap and strong productivity offset partially by negative mix from subsea growth. Margin rates in the quarter improved 50 basis points.

On the next page Aviation. Demand for travel continued its strong growth, year-to-date May. Revenue passenger kilometers globally were up 6.2% with strength across all regions. Freight grew 4.4% May year-to-day. Orders in aviation were up 1% with equipment down 8% driven as we expected by commercial engine is down 27%, our lowest CFM orders in a non-repeated the FedEx CF6 order from last year. This was partially offset by stronger international military orders.

Service orders were 13% higher with spare parts orders — the spare parts orders rate up 16% to $28.4 million a day.

As Jeff mentioned at the Farnborough Airshow, we won 312 LEAP engines on the Boeing bags. We also won 520 LEAP engines on the Airbus A320neo versus a 100 to the competition. For the A320neo program to-date we’ve won 54% of the engines. And in 2015 year-to-day the LEAP is on 67% of the engines on the A320neo. Overall since the launch, the LEAP engine has won 77% of all narrow body competitions. Operationally in the quarter revenues were higher by 15%, equipment revenues were also up 15% driven by commercial engines up 14% and military engines up 3%. We shipped 75 GEnx engines versus 33 a year ago in the quarter. Services revenue was up 15% with strength in commercial services partly offset by military services.

Operating profit in the quarter was 12% driven by higher volume positive value gap offset by negative mix associated with the GEnx shipments and higher R&D spend in the quarter. Operating profit margins of 19.7% was down 40 basis points in the quarter. Through the half margins are up 20 basis points. Overall Dave George and the aviation team continues to execute and win and we expect the technology investments we’ve made and continue to make will sustain the momentum.

Next healthcare. Healthcare in the second quarter was again soft in the U.S. as we expected. In-patient volumes were weak which in conjunction with increased consumer resume and the changes in the Healthcare Law appear to be causing hospitals and the clinics continue to be cautious on the new investments.

Orders for the business of $4.8 billion were flat with emerging markets up 7% led by Latin America up 12% and China up 12%, offset by the U.S. down 2%. Equipment orders were flat with HCS down 4% offset partially by life sciences up 23%, up 5% organically. Service orders were up 1%. Backlog of $16.6 billion was 6% higher than a year ago. Revenues were flat with developed markets down 2% and emerging markets up 7% with strength in China, Latin America and the Middle East.

Operating profit was up 1% with strong cars productivity offset by negative value gap and FX. SG&A ex acquisitions was down 8% in the second quarter. Our profit margins improved 10 basis points, up 60 basis points organically.

For the second half, we expect the market dynamics to be similar to the first half with weakness in the U.S., but continued growth in life sciences and the growth regions. The business will continue to deliver on remaking the cost structure. And we expect that healthcare will grow earnings single-digits for the year.

Next, talk about transportation, the transportation team continues to execute well in a pretty tough environment. Domestic activity continues to improve though, carloads in the U.S. were up 4% for the first half driven by intermodal, petroleum and a very strong grain shipments and even coal saw 30 basis points of growth as post winter stockpiles a replenished.

Higher volume in conjunction with the first quarter whether effect have impacted velocity on the lines. As a result, part locos are at their lowest levels since 2007, 2008. We have seen increased orders activity in locos. At the beginning of the year, we communicated that we expected to ship about 600 units in ’14. We now expect that that shipment number to be closer to 750 plus.

Balancing that, mining volume for both units and parts are week. We guided an expectation of being down almost 50% in 2014 versus ’13 and now expect mining to be slightly weaker than that. Orders for the quarter were up 35% with equipment growth of 40% and service growth of 32%. Equipment strength was driven by North American locomotives including our first order for 39 Tier 4 locos for delivery in 2015.

Service orders were driven by locomotive parts and $125 million signaling went in Singapore. Backlog of 15.9 billion grew 13% from the second quarter of last year driven by equipment up 51%. Revenues in the quarter were down 18%, equipment was down driven by mining down 43% and lower loco and kit deliveries. Service revenue was down on weak mining parts partially offset by core services and loco parts. Our profit down 14% was driven by lower volume partially offset by positive value gap and cost out. SG&A was down 14% in the quarter. Operating margins improved 110 basis points on strong cost management.

Our total year expectations for transportation remain intact with better locomotive demand and deliveries offsetting slightly worse mining experience and the 50% down we expected. We feel good about our momentum on locomotives and are experiencing high utilization of our plants in 2014. Based on the first of market Tier 4 solution and improved rail volumes, we are optimistic that customers will continue to place orders in and for 2015.

Now energy management, the business took a couple of steps forward in the quarter but still remains very much a work in progress. Orders were down 14% in the quarter partly driven by no repeat of the big ComEd meter order last year in digital energy. As a result digital energy orders were down 32% but up 26% excluding the ComEd order. Industrial solution was down 8% on slow demand in North America and the exit as part of restructuring of seven subscale international platforms.

Power conversion saw a number of marine orders push into second half. Backlog continues to grow up 12% year-over-year. Revenue in the quarter was down 6%. Our profit more than doubled from last year to $69 million and margin rates improved to [$110] basis points. The team is doing a great job executing the restructuring strategies including reducing rooftops by 40%, simplifying their product structures and realigning their SG&A functions. Restructuring benefits are delivering productivity that more than offsets the negative volume.

We expect energy management to continue its improvement trajectory. Appliances core industry was up 5% the second quarter with contract up 8% and retail up 4%. Housing starts rebounded up 9%, helping volumes in the quarter and single family starts grew 5%, multifamily starts grew 18% in the quarter.

Revenue in the quarter was flat with appliances flat and lighting down 1% Appliance revenue was down 1 point on volume, but up 1 point on price. We read a number of promotional events that drove improvement during the quarter with revenue down 5% in April, up 1% in May and up 5% in June. So the trajectory is correct.

Lighting revenue was down 1% with strong LED growth of 50% offset by 9% down on traditional products as retails continue to bleed off incandescent inventories. Op profit of $102 million was up 23% on positive value gap and productivity. SG&A in the quarter was down 4% and op profit rate improved 90 basis points in the quarter.

Next is GE Capital. Revenue of $10.2 billion was down 6%, primarily from lower assets and lower gains. Assets were down 2% or $10 billion year-over-year. GE Capital’s net income of $1.7 billion which includes $161 million of preferred dividend payment was down 5% on a comparable basis, as impact from lower earning assets and gains more than offset lower losses marks and impairments and higher tax benefits.

E&I of $371 billion was down $19 billion or 5% from last year and down $2 billion sequentially. Non-core E&I was down 15% to $51 billion versus last year. Net interest margins in the quarter of 5% were essentially flat. GE Capital’s liquidity and capital levels continue to be strong. We ended the quarter with $76 billion of cash and Tier 1 common ratio on a Basel 1 basis improved 28 basis points sequentially and 51 basis points year-over-year to 11.7%.

On the right side of the page, asset quality trends continue to be stable, the only exception being the seasonality we expect in UK mortgage but delinquencies in UK mortgage portfolio are actually down a 160 basis points year-over-year.

Now to walk through each of the segments. In CLL, commercial lending and leasing business ended the quarter with $174 billion of assets, flat to last year. On book core volume was $11 billion, down 3%, driven by the Americas which was down 4%. But we do see pockets of strength in the U.S., largely in equipment financing with our transportation business up 25%, vendor equipment leasing up 7% and our fleet business up 6%. Volume in CLL international was up 3%. The team is staying disciplined on pricing and risk hurdles and the new business returns were about 1.8%, roughly in line with the first quarter.

Earnings of $541 million were down 34%, driven by lower tax benefits from the non-repeat of last year’s fleet candidate disposition and tax benefits we had in Europe as well as lower assets. These were partially offset by improvement in losses marks and impairments.

The consumer segment ended the quarter with a $135 billion of assets, flat to last year. Earnings of $472 million were down 43%, driven by lower international assets which were down 12%, year-over-year including the impacts of the Swiss IPO and BAY Thailand sale. In the current quarter, we also recorded roughly $85 million of after tax loss provisions as a result of recent legislation on consumer pricing in Hungary.

North American retail finance earned $512 million in the quarter, down 9% driven by continued investment in its standalone capabilities partially offset by 9% growth in its earning assets. Real-estate assets of $37 billion were down 11% versus prior year and down $1 billion sequentially. The equity book is down 26% from a year ago to 13 billion. Net income of 289 million was down 34% primarily from lower level of tax benefits and gains. In the current quarter, we saw 52 properties for the book value were above $420 million for $137 million in gain that’s down $65 million from last year.

The verticals GECAS earned 343 million up 13% is lower impairments and higher gains offset the impact of lower assets which were down 9%. New volume was 1.5 billion, up [17%] with attractive returns of above 3% ROI’s and we ended the quarter with zero aircraft on the ground.

Energy finance had a good quarter with earnings up 27% to $76 million driven by core income and lower level of loss and impairments. As I mentioned earlier, the tax rate at GE Capital is negative for the quarter and that was driven by the plan order transaction with 260 million of tax-to-up being both for the GE Capital Corporate. Excluding the tax-to-up the GE Capital tax rate would have been in the low-single-digits for the quarter.

As you look forward in the third quarter, we expect GE Capital to be about, be around about 1.6 billion in earnings. Overall Keith and the team continue to execute the portfolio strategy and deliver solid operating results. The Nordics dispositions which we expect to complete in the third quarter and the IPO of retail finance which I’ll cover on the next page, are major steps from further reducing GE Capital’s consumer footprint and focusing on the commercial core.

So we’re announcing today that we’re targeting the IPO of our North American retail finance business for the end of July we will be putting out a prospectus of a red hearing later this morning. We’re limited to what we can say during the IPO process but we’re pleased to be at the final stages of the IPO. We’re targeting a 15% offering for about 3.1 billion at the mid-point of the price range. There is a potential additional 2.25% for the Green Shoe. As we said in the past the capital raise will remain within Synchrony to enhance its standalone capital and liquidity levels. There will be 1.5 billion of funded transitional financing from GE Capital. This is down from our previous estimate of about 3 billion.

The team has been doing a lot of work to strengthen their standalone capabilities on capital liquidity and governance. You may have seen that S&P and Fitch publish their investment grade ratings earlier this week for Synchrony. We are targeting the split off in late 2015 subject to regulatory reviews and approvals. Assuming a $3 billion IPO from 15% we would retain an approximately $70 billion position in Synchrony.

There are a lot of variables and the GE share count reduction will be dependent on the price of GE and Synchrony shares at the time of the split. We are still targeting 9.5 billion or less shares with this transaction. The process in on track and we’ll update you along the way.

With that I will pass it back to Jeff.

Jeff Immelt – Chairman and CEO

We have no change for the operating frame work for 2014, we expect double digit industrial operating profit growth behind solid organic growth and margin expansion. GE Capital earnings were on track for $7 billion excluding the impact of the preferred dividend. We will hit our simplification goals including a $500 million reduction in corporate expense we plan for restructuring to exceed gains which is a drag on 2014 — benefit 2015 and beyond. Our CFOA and revenue remain on track. In fact I would say organic growth in probably closer to the high end of the range. We continue to move the company forward strategically. Our long-term investments in technology are really paying off with solid share gains and with the retail finance IPO and Alstom acquisition we are broadly reshaping the company.

I am proud of the GE team’s ability to execute so well strategic and operationally on so many fronts and we’re well-positioned for the future.

So Matt, now back to you and let’s take some questions.

Matt Cribbins – VP, Investor Communications

Thanks. Christine, let’s open it up for questions.

Question-and-Answer Session

 

Read the Full Transcript here

 

 

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