After two rocky years and a severe global financial crisis, General Electric Co
The world's largest maker of jet engines and electricity-producing turbines expects its results to improve after the first quarter of 2010, CFO Keith Sherin told an investor conference on Tuesday.
GE shares rose almost 5 percent to their highest level since December 2008, extending their gains after the U.S. Federal Reserve said the job market was looking stronger and renewed its pledge to keep interest rates near zero for an extended period of time.
We have very good visibility around our cash flow. ... If you think about 2011 for us, we believe we're going to have earnings growth, Sherin said. We plan to resume growing the dividend again in 2011.
GE has stopped giving investors per-share earnings targets, but has said it expects 2010 profit to be roughly flat with last year's performance.
The Fairfield, Connecticut-based company cut its quarterly dividend by 68 percent in February 2009 to protect its financial flexibility.
Analysts, on average, look for 2010 profit of 99 cents per share, including items, with 2011 profit forecast at $1.24 per share, according to Thomson Reuters I/B/E/S.
Some analysts have become more bullish on GE's 2011 prospects in recent days.
We now see the potential for a beat in 2011, JP Morgan analyst Stephen Tusa wrote in a note to clients issued before Sherin's talk.
He expects GE annual profit to about double to $2 per share by 2013.
GE shares were up 4.7 percent at $18.10 on the New York Stock Exchange late Tuesday afternoon.
A lot of it has to do with the stronger signs of the broader economy improving, said Daniel Holland, equity analyst at Morningstar in Chicago. Keith Sherin's comments earlier today that the dividend might be coming back up in 2011 also give you a little more confidence.
Options trading was brisk as about 301,000 calls and 124,000 puts crossed the tape in the final hour of trading, three times the normal level, according to option analytics firm Trade Alert.
Expectations of an increased dividend in 2011 has pushed GE shares higher today, said Jud Pyle, chief investment strategist at Options News Network, a division of option market making firm PEAK6 Investments in Chicago.
Over the long term, the company aims to cut back its GE Capital finance arm to generate 30 percent to 40 percent of overall corporate profit, down from more than half before the recession, Sherin said.
It expects mid-market lending and leasing to account for 40 percent to 50 percent of its GE Capital operations and for the financial units attached to GE's industrial businesses to represent about 20 percent of the operation. The smaller slices of the pie will be consumer finance, representing 15 percent to 20 percent of the whole, and real estate, representing about 15 percent, Sherin said.
Having survived a credit crunch that led to the collapse of Lehman Brothers and Bear Stearns and sent rival commercial lender CIT Group Inc
The financial crisis had a lot of competitive impacts and one of them was a lot of the competitors that we used to go head to head with are no longer participating in the marketplace, he said.
For instance, when the time came last year to renew GE's private-label credit-card contracts with retailers Wal-Mart Stores Inc
As a result, that business segment has become more profitable for GE Capital.
The returns are far better than they were before, he added.
(Reporting by Scott Malone; Additional reporting by Doris Frankel in Chicago; Editing by Gerald E. McCormick, Derek Caney, Andre Grenon and Richard Chang)