GE Stops Giving Quarterly Earnings Guidance

Posted by: Jena McGregor on December 16, 2008

The company most associated with meeting its quarterly numbers is no longer going to be forecasting them.

At General Electric’s annual investor outlook meeting, held in the same studio where GE unit NBC films the show Saturday Night Live, CEO Jeffrey Immelt provided only a “framework” for 2009. The company expects to earn $5 billion in its GE Capital unit and says its industrial group will see growth that’s between flat and 5%. No earnings-per-share forecasts or quarterly guidance were offered, nor will be.

Whether the move was prompted by the uncertainty in the economy or, as cynics are sure to note, the fact that Immelt missed or revised his numbers twice this year, at least some analysts applauded it. “It makes perfect sense” given the size of the company, said Credit Suisse analyst Nicole Parent.

The shift away from earnings guidance wasn’t the only change Immelt announced in today’s meeting. Uncertainty is also prompting GE to shorten its long-term incentive plan for paying executives from three to two years. And the conglomerate has now settled on running, rather than selling, its consumer & industrial unit, the iconic business that makes GE-branded refrigerators, washing machines and light bulbs. GE had announced it would sell or spin off the unit, which has been a drag on earnings, earlier this year.

The meeting highlighted a CEO still adjusting to communicating about the new normal—a recession which Immelt has called not just a cycle, but a “reset.” Ever the salesman, the marketing veteran started to call a certain segment of the company “great” before stopping himself and apologizing to the investor relations representative in the room. Like “a drug addict trying to get off” a habit, he joked, he stopped to temper his statement. “Learning how to say words like ‘framework’ is going to be difficult,” Immelt said. He even started today’s meeting by referencing the first quarter, in which GE missed its earnings guidance after Immelt had affirmed the numbers just weeks before. “I’m not going to start out today saying ‘It’s in the bag,’” he said, as the investors in the audience chuckled.

Still, Immelt did reaffirm GE’s 2008 guidance, along with the company’s commitment to its 2009 dividend and to doing what’s needed to maintain its AAA credit rating. And he spent much of the meeting laying out the tough environment the company faces. NBC Universal, in a post-Olympics, recessionary advertising year, is expected to be flat to down. GE’s health care business, Immelt said, is facing a “very tough” 2009. And while energy and infrastructure are in stronger positions, particularly with the stimulus projects being discussed by President-Elect Obama, its backlog of orders could still be vulnerable in a recession. “2009,” said Immelt, referencing its ongoing working servicing its installed equipment, “is a year when investors are going to be really happy we’re in the services business.”

Reader Comments

billrothschild

December 16, 2008 6:50 PM

Jeff: is slowly learning to adapt to reality. This is good news since his GO BIG/GO GLOBAL strategy is not working and it needs to be refined. The "guidance approach" was never a good idea since it made CEO's focus on the short range and not look longer range. Again Immelt's move is positive and again HE IS ADAPTING... I only wish that he would stop being a "dreamer" and believe that he is right and the world is wrong... his article in the Economist on globalization is another illustration that he is a missionary...and even missionaries must be willing to accept reality and admit when they are wrong.

Bill Rothschild, author of the ONLY comprehensive, objective assessment of GE's past successes and failures...now in six languages...THE SECRET TO GE's SUCCESS.

Brian G.

December 16, 2008 9:44 PM

I do respect Immelt for trying to do the right things. It is better to say nothing than to lie. BTW, why is GE still hanging on all these non-productive Master Black-Belts, a poor concept from Welch.

Leo Saldanha

December 16, 2008 9:58 PM

goood!!!

Midwest

December 16, 2008 10:54 PM

Finally, a large and still respected corporation is telling financial analysts "No more" to the demands for ridiculous earnings and quarterly guidance projections. I sincerely hope that other corporations take Immelt's lead and put their collective feet down and say "Enough" and end these foolish requirements. Immelt may have missed his numbers but who hasn't? The few that are still winning are very, very few and the cold hard reality has now set in at the corner offices. This is a global reset and it's time to get used to less revenue and less profit for at least 2-4 years. The smarter companies are going to hunker down and position themselves for the turnaround not just the coming squeeze. GE is making a smart move by no longer being beholden to analysts and fickle fund managers. All American corporations would be smart if they did the same thing.

Bill

December 17, 2008 1:56 AM

Jeff,

Why the reduction in the long-term incentive bonus plan from 3 years to 2 years. You went the wrong way - It should be 5 years. Anything less is short-term thinking. If you really want to create a visionary leader; s/he must have the opportunity to fail and succeed in one operational component; before moving on to the next assignment. By the way - quarterly quidance should be completely made irrelevant - It focus' the leader's goals to the short term and negatively impacts long-term viability. The accounting can be too easily fudged. It's almost impossible to fudge 5 years worth of operational data. Kudos for retaining the company's legacy industrial units - Making things that people want to buy (and built in the U.S.) will make the company more valuable rather than less. By the way, Six Sigma and Kaizen are even more relevant in today's environment - It focus' one's mind on how your product and service are made; how else are you going to increase productivity???

Anil Sood

December 17, 2008 4:14 AM

I totally support Jeffrey' current move on (not) forecasting. I am however sure that like most moves, it is not a permanent move and GE will return to forecasting when environment and global economy is less volatile.

Ask anyone this year whose job involves forecasting, almost all of them have been wide off in this Annus Horribilis.

Just 5 months ago, Glodman (and many others) predicted oil at $200. Now their oil price forecast is $25.

I will urge BW to analyse quite a few forecasts made in 2008.

Chee Lan Chai Pati

December 17, 2008 4:48 AM

I am still waiting when the big cat will start laying off, I don't think they can become profitable just like that they have to control cost and the esiest way out for them is to make the work force leaner by laying off.

Mihai Streinu

December 17, 2008 5:05 AM

You'd be amazed how powerful Six Sigma and trained black belts are, when used correctly (i.e. starting with really listening to customers). I have worked for GE and I am now working for another famed global MNC in the technology sector. The difference is amazing; the team I'm with is struggling with things which would be a piece of cake for a trained black belt and a Six Sigma-aware team.

Jena McGregor

December 17, 2008 9:56 AM

As the BusinessWeek reporter who covers GE, I agree completely that stopping quarterly earnings forecasts is a great move for Immelt, even if it is coming on the heels of a historic miss earlier this year. GE offered an interesting statistic in its presentation yesterday: Some 80% of companies in the S&P 500 revised quarterly earnings downward this year.

It's fascinating to think what the move will do to GE's culture. Clearly, the company is still setting aggressive internal targets, and promises transparency on its numbers at the segment level. But I think anything that removes the extraordinary focus on short-term quarterly earnings is a good thing for companies. It may lead to more volatility in the stock, but that's not where a CEO's focus should be anyways.

Anil Sood

December 18, 2008 1:41 AM

Jena, Thanks for joining in discussion.

It is noted that 80% of S&P 500 companies revised earnings downward this year.

You may agree that of the remaining 20%, only few would be able to beat their forecast or even last year' performance.

For the sake of everyone, Let us hope tough times end sooner than later.

Current period is already defined by some as - The toughest of our lifetime.

I sincerely hope it does not get any more worse from here on and starts improving.

Let us all do our best for this even if it means - Hope against Hope.

Post a comment

 

About

How can you manage smarter? Bloomberg Businessweek contributors synthesize insights from the brightest business thinkers, critique the latest management trends, and comment on leaders in the news.

BW Mall - Sponsored Links

Buy a link now!