- Profit growth in Entertainment was driven by positive pricing and lower costs so making sure that the firm is making margin on what it puts on the air.
- News remains number one across the board with Today, Meet the Press and Nightly though there are continued softness in the local media that was down about $40 million.
- In Film, segment profit was up 40% and Mamma Mia, which has grossed over $500 million worldwide is on track to be the best performing Universal Studios movie ever.
Strategic Insights:
- GE continued to execute despite the environment and was able to complete several transactions in the quarter including the sale of GE Money in Japan.
- It continues to work on the swap of Santander and is running PLCC to hold but will continue to evaluate options.
- The firm announced a partnership with Mubadala and closed the Weather Channel investment.
GE has diversified globally over the last few years and today 55% of its revenue comes outside the United States.
- It has divested Mortgage Services, FGIC, the bond insurance business, primary insurance, mortgage insurance, re-insurance, mortgage distribution and the Japan consumer finance business.
- It is on that pathway to reduce leverage to 6:1 by then end of 2009 and the CP to 10% to 15% of debt will occur by the end of 2008.
- Collections are outpacing origination right now and the firm has grown the retail deposits up to $43 billion which is another important funding source.
Portfolio Quality:
- The firm had $413 billion of Commercial assets and $209 billion of Consumer assets, and on the Commercial is very diversified.
- Risk management policies outline delegations of authority and concentration limits for every asset class and every investment made.
- It has a broad spread of risk, 72% of the Commercial exposures are $100 million each, and 60% are under $50 million.
Largest exposures are to the airlines and railroads and a couple power plants and all of them are senior and secured and collateralized by the assets, with no exposures to any SIVs and CDOs.
- GE tightened underwriting and collections early in the cycle and mortgage reserves are up 20% since the end of last year though delinquencies are up.
- The Commercial delinquencies, i.e. the 30 day past due amounts on receivables are up to 1.61%.
- There has been some softness in the mid-market European lending and leasing business about six basis points of the delinquencies from that.
Fiscal 2008 Outlook:
- Technology Infrastructure up 5% to 10% driven by strength in Aviation and Transportation.
- Healthcare is forecast to continue to be challenging and NBC Universal up 0% to 5%.
- The total earnings outlook including dilution of $1.92 to $2.07 a share is expected.
Key questions and answers from the third quarter earnings call conducted by General Electric Co. (GE) on October 10, 2008.
Bob Cornell (Barclays Capital):
Comment on the outlook for the Finance business?
Keith Sherin: We are going to have an environment here where we are going to be very disciplined on origination. We are going to be shrinking the book a little bit and remixing from some of the higher leverage products to lower leverage products so you’re going to see some impact of that.
We are going to get a benefit from the new volume that we are putting on with higher pricing. We’re going to get a benefit from lower costs. We are going to be under pressure from higher loss reserves.
We are not counting on any gains in the Real Estate business in 2009 and those are basically the four or five factors that we are going to have to think about; losses, impairments year over year, less gains, higher margins from the new originations, lower costs, and what kind of volume are we going to see in total.
Scott Davis (Morgan Stanley):
Is there anything you can do to take advantage of this cycle?
Keith Sherin: When you look at the originations budget that we have where we are doing over $20 billion a quarter in Commercial Finance we ought to use that in the most effective way possible.
Clearly we did that earlier in the year with the Citi Capital acquisition and the Merrill Capital acquisitions those have been performing really well for us. We got great earnings out of them so far.
We do have capital, we are planning on originating, we are planning on continuing to invest in our Commercial Finance businesses and we have got to see what opportunities are available.
The couple places that we have kept off would be global mortgages on the consumer side and then commercial real estate globally we just basically have said there are still a lot of great business to be done there but we have capped off on the size and so we are going to bring that down over time.
