GE’s Upbeat Outlook Boosts Stocks Overall

General Electric Co. Chairman Jack Welch gave Wall Street an upbeat outlook for the giant conglomerate and said most of its businesses will grow 15% to 20% in 1999, sparking a rally in its stock that helped drive the market overall higher Tuesday.

GE’s positive outlook provided a much-needed psychological boost for Wall Street because it came amid recent warnings from Caterpillar Inc., Coca-Cola Co., Eastman Chemical Co. and about 300 other companies that their earnings won’t meet expectations near term.

The Dow Jones industrial average, which includes GE, rose 127.70 points, or 1.5%, to 8,823.30. GE shares soared $6.31 to close at $93.13 on the New York Stock Exchange.

Welch, who spoke to analysts at a dinner Monday night, also estimated that GE’s NBC television network was worth $20 billion, up sharply from just a few years ago.

Welch said he was comfortable with Wall Street’s 1999 earnings forecasts of $3.13 to $3.22 a share for GE, but did not give a precise forecast. The company earned $8.2 billion, or $2.46 a share, in 1997 and is expected to earn $2.80 a share this year.

At the low end of 1999 estimates, GE’s earnings would rise about 12% next year; at the high end, 15%.

Welch also said that while GE has no plans to take NBC public as a separate company, it may sell or spin off some of its Internet assets.

“GE is not swapping, spinning off or selling NBC,” said Nicholas Heymann, an analyst at Prudential Securities who was at the dinner. “NBC is at the heart and soul of what GE does. What it will do is take its Internet assets, put them into a separate subsidiary of NBC and take that public in the first quarter of next year, if the market holds.”

That would give the company an Internet stock it could use to snap up companies in an industry poised for consolidation, Heymann said.

Welch said NBC’s value had jumped to $20 billion from $5 billion several years ago, according to analysts who were at the meeting.

GE as a whole is often viewed as a microcosm of the U.S. economy, with its involvement in both manufacturing and services.

The company is one of the world’s top three jet engine makers, the No. 1 maker of magnetic resonance image machines and the No. 1 provider of power generation equipment and related services.

GE also owns GE Capital Services Corp., the world’s largest non-bank finance company.

Welch said most of GE’s businesses will grow about 15% to 20% in 1999. About 30% of the company’s units--including plastics, lighting, appliances and others tied closely to the economy--might grow less than 10%, company executives said.

GE has kept profit growing handsomely in the 1990s with tight cost controls, productivity programs and by selling more service contracts for products ranging from refrigerators to jet engines, analysts said.

“GE appears to possess numerous resources to continue to meet or beat [earnings] expectations while enabling further improvement in financial performance,” Heymann said.

Analysts said GE had plans to bolster the slower-growth units, which include NBC.

“This management team has profit improvement plans in place and the unique ability to execute them in a difficult environment,” Michael Regan, an analyst at Credit Suisse First Boston, said in a research note Tuesday.

Welch indicated that GE’s profit margins should continue to expand in coming years, said Jeffrey Sprague, an analyst at Salomon Smith Barney. He also said Welch reiterated an earlier forecast that sales should hit about $122 billion in 2000, up from $91 billion last year, with three-quarters of that from service businesses considered less prone to any economic downturn.

“Welch pointed to the broad diversity of the company and the fact that 90% of his earnings come from the top 20 businesses and all but two of these [appliances and industrial] have world-leading positions,” Sprague said.

Several analysts said GE could boost its dividend after its upcoming board meeting, and that it also might expand its share buyback program. Sprague wrote that he expected GE to raise its annual dividend 13% to $1.36 a share.

The company increased its quarterly dividend to 30 cents from 26 cents in December 1997.

The meeting was the company’s first with analysts since Welch, who has led GE since 1981 and is scheduled to retire in 2000, shook up his management team last week. The company replaced GE Capital Chairman Gary Wendt with Dennis Dammerman, chief financial officer of GE. Keith Sherin succeeded Dammerman as CFO.

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Juggernaut

General Electric stock has been a strong performer in the 1990s; it has surged 32% this year alone. Monthly closes and latest on the New York Stock Exchange:

Tuesday:

$93.13

Source: Bloomberg News