General Electric Co Earnings Call Nuggets: Value Gap and Corporate Second Quarter
General Electric Co (NYSE:GE) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Scott Davis – Barclays Capital: Jeff, when you think about last quarter and the disappointing margins you put up, your confidence in the 70 basis points for the year seemed to be somewhat wavering and maybe it seemed like your each call. I mean putting up the 50 basis points this quarter, does that indicate to you an increased confidence that you’re going to see this back half of the year margin ramp particularly given what you saw on value gap?
Jeffrey R. Immelt – Chairman and CEO: Scott, it really does. Again, I think the teams have been executing well. I would decompose a little bit the way we talk about margins. The value gap is on track to be significantly positive this year. Our SG&A – our simplification efforts I think are just gaining momentum. So that looks good. R&D, I think levelizes for the year, mix levelizes for the year. The Power & Water units are in backlog. So, Scott, I think as we execute that ramp, we feel pretty confident in the 70 basis points for the year. We still have a slight hedge in the numbers and I just think we’re building momentum.
Scott Davis – Barclays Capital: I know it’s hard when you look at backlog in orders just given the timing to figure out exactly when the revenues are going to pull through, but when you really look at the order growth and the fact that you’re getting, I mean you are down including wind but excluding wind up 5%, you said. But you say it in the slides not counting on environment improving, but the order book does imply that the back half of the year is going to have some unit volume tailwind. Am I reading that correctly?
Jeffrey R. Immelt – Chairman and CEO: Yes. It definitely does. Just given the way the wind – Scott, like you know, just looking at the wind profile, if you look at Power & Water, it’s going to strengthen in the second half. The other businesses I’d say are already demonstrating some nice momentum. So things like Aviation spares which were a drag last year have turned into a tailwind this year. Oil & Gas, I’d say four or five segments double-digit orders growth, even M&CS I’d say better quarter. So if you just pick through one-by-one, you’re going to get some gathering momentum I think in the second half of the year.
Scott Davis – Barclays Capital: Just a clarification, the loss in Brazil, I assume that’s the EBX, Eike Batista, investment?
Jeffrey R. Immelt – Chairman and CEO: Yes, that’s right.
Corporate Second Quarter
John Inch – Deutsche Bank: I have a couple of clarifications. So just want to confirm were there any gains that you would consider one-time within the Industrial segments that might have helped to the 50 basis points of margins this quarter?
Keith S. Sherin – Vice Chairman GE and Chairman and CEO GE Capital: We had a small disposition in aviation, but it was immaterial, John. In total across the industrial segments the impact of gains was zero.
John Inch – Deutsche Bank: Then the rise Keith or Jeff in the year-over-year corporate, you did call right the asset impairment of $0.01, but was there any industrial reclassification in the way you look at the businesses that might have again – sorry to be nitpicky, but may have helped the margins and then in turn that flowed through the corporate line or I mean why again was the corporate up as much as it was?
Jeffrey S. Bornstein – SVP and CFO: There was no reclassification, but I can take you through corporate. If you look at the corporate second quarter number, it’s a $1.883 billion. Remember you’ve got to take out the non-operating pension which on a pre- tax basis is 661. So we’re the $1.2 billion in the quarter. There is really three things. We have $280 million of pre- tax restructuring in corporate, which is the $0.02, and again that for the year will be against the NBCU gain. We have the impairment of $108 million in the corporate line and then the third thing, it’s not really related to corporate, but it just flows in that line is that GE Capital preferred dividend of $135 million. So, if you take the second quarter and you get to a run rate, you’re basically at the run rate we need to be, about $3 billion for the year.
John Inch – Deutsche Bank: Keith, can I ask you about WMC in Japan? We’re still taking charges for it. And just remind us, if I’m not mistaken, wasn’t there a statute of limitations in New York that prospectively kind of makes the run rate on WMC hopefully or you tell me sort of much lower on kind of going forward? And then, maybe this is for Jeff. Is there not an opportunity to pay off these Japan liabilities sometime early next year? I’m just wondering what – I realize it’s still early, but Jeff what your thoughts are toward perhaps pursuing that kind of attack?
Jeffrey S. Bornstein – SVP and CFO: I think I can start with both of those for you, John. On WMC, yes the statute limitations runs six years from the date of the securitization and we basically have completed all the securitizations that came out of WMC of going through that six year period now. I think that’s why you see a slowing of the additional pending claims. So we need to resolve these. We’re in negotiation and discussion on the claims and we’re going to work our way through as you go through the second half of the year and we’ll continue to update you. From a Japan perspective, there is a contractual discussion point in the first quarter with Shinsei. We will have a discussion with them and whether we can reach agreement or not remains to be seen, but there is an opening there in the first quarter that we’ll be pursuing and negotiating with them.