What's Jeff Immelt going to do with the money?
General Electric Co shareholders are wondering what the company's chief executive plans to do with a cash windfall that could total tens of billions of dollars over several years as the company sells its remaining stake in NBC Universal and recoups more of the profits earned by finance unit GE Capital.
Last year GE Capital sent $6.4 billion back to the company's headquarters in Fairfield, Connecticut. Analysts estimate that the unit could generate a similar amount of cash this year.
But GE could get an even bigger infusion in mid-2014, when it is set to cash in on its option of selling the rest of its stake in NBC Universal to Comcast Corp. The stake is currently valued at roughly $17 billion, but the final price and timing of the deal could vary.
Immelt spoke with investors on Friday in a conference call after GE posted earnings that rose 7.5 percent from a year earlier, beating expectations.
During the call, the CEO of the largest U.S. conglomerate was cagey about his spending plans. He did not venture far beyond his often-repeated mantra that GE's priorities were balanced between raising its dividend, buying back shares and doing some small takeovers.
"This company is going to have a ton of cash over the next three years, right?" Immelt said. "I don't really want to make any other pronouncements other than disciplined and balanced capital allocation. We'll go over the other bridges as we get there but let's start with that."
GE shares were up 3 percent on a day that major U.S. stock indexes barely budged.
In January 2011, GE sold a majority stake in NBC to Comcast back. About that time, GE embarked on a $12 billion wave of acquisitions of smaller makers of energy equipment. That is a pattern that could repeat itself, suggested Jeff Sprague, analyst with Vertical Research Partners.
"They do need to redeploy that cash in a way that, at a minimum, preserves and ideally enhances the earnings profile," Sprague said. The company might consider deals to build up its newly created $7.4 billion Energy Management division, which makes equipment used to transmit electricity.
The company would do well to stick with Immelt's stated goal of aiming for targets worth about $1 billion to $3 billion, Sprague added.
"If they can keep it in that smaller range, smaller for them at least, you just lower risk," he said. "It's more digestible."
Immelt's plans for the money also include continuing to raise its dividend and buy back shares.
Investors suggested that Friday's better-than-expected fourth-quarter earnings report could prompt the company to again boost its dividend, which it raised by 12 percent in December.
"Are they going to be in a position in the second quarter, perhaps if they perform so strongly again, to raise their dividend?" asked Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York.
Chief Financial Officer Keith Sherin said the company did not plan to boost its payout quite so often.
"Our historical pattern was to do dividend increases at the end of the year by reviewing capital allocation plans with the board of directors and I would think that would continue to be our practice," he said in an interview.
The company's four increases from July 2010 through December 2011 were a special case, intended to make up for a sharp cut to the payout during the financial crisis.
Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati, suggested that GE should not try to reinvest all the money it gets when it sells the remainder of NBC to Comcast. Instead, he said the company should consider paying more out in dividends and buybacks.
"Let's benefit shareholders who've stayed the course over a long period of time," Sorrentino said. "Better to be lean and focused. Target new growth markets, but let's not continue to carry the size of the enterprise just because that's what we've always done."
The long languor of GE's shares stands as one of shareholders' main complaints about Immelt's tenure. While GE's 12 percent rise over the past year outpaced the 9 percent rise of the Dow Jones industrial average, it trades well below the $42 mark reached in 2007 before the financial crisis. The broader U.S. stock market also remains below its pre-crisis highs.
GE, the world's biggest maker of jet engines and electric turbines, reported that its order backlog -- a closely watched indicator of future sales -- hit a record high $210 billion in the fourth quarter, up from $203 billion in the third quarter.
"The backlog was a really good number. I didn't expect to see a $7 billion, 3.5 percent rise in the backlog," said Jack De Gan, chief investment officer at Harbor Advisory Corp, which holds GE shares. "Orders in the fourth quarter must have been really good for the industrial side."
Orders were up 2 percent, and would have been up 7 percent factoring out a sharp drop in demand for wind turbines related to the expected expiration of a tax credit, as well as exchange-rate fluctuations.
GE shares were up 3 percent to $21.94 in early Friday afternoon trading on the New York Stock Exchange. The Dow Jones industrial average and the S&P 500 were up slightly.
Fourth-quarter earnings rose to $4.01 billion, or 38 cents per share, from $3.73 billion, or 35 cents per share, a year earlier.
Factoring out one-time items, profit came to 44 cents per share, a penny ahead of analysts' estimates, according to Thomson Reuters I/B/E/S.
Revenue rose 3.6 percent to $39.33 billion from $37.97 billion a year earlier.
Solid demand in China and oil-producing countries helped GE to offset unsteady economies at home and in Europe, Immelt said.
"We saw real strength in the emerging markets and the developed regions stabilized," Immelt told investors.
GE kicks off a wave of earnings reports from the nation's largest manufacturers, with United Technologies Corp, 3M Co and Honeywell International Inc all due next week.
(Reporting by Scott Malone; Additional reporting by Ernest Scheyder in New York; Editing by Jeffrey Benkoe, Tim Dobbyn and David Gregorio)