Monday, February 14, 2011

Repost: "Grading Jeff Immelt" (GE)

Originally posted Fridat Feb. 11, 2011 at 5:43 p.m. EST.

Aw Jeez, I forgot to say "Happy Birthday Tom!".
It's Mr. Edison's 164th which is why Google's been using this graphic:

The stock hit another 52-week high today. We've been bullish for a while in spite of a deep disdain for Mr. Immelt and his ilk.

We have a few hundred posts on General Electric, most of them are not as charitable as this major piece from Fortune:
The GE chief executive has been at the helm for almost a decade now.  How has Obama's job-council czar done?

When the business world woke up on Jan. 21 and heard about the White House's overnight announcement -- that General Electric CEO Jeffrey Immelt would become chief of the Council on Jobs and Competitiveness -- the buzz quickly focused on just one question: Was he leaving GE? Was the long-standing speculation that he was seeking a way out -- a "graceful exit," as a blogger had put it -- proving true? No, was the answer. But the fact that everyone asked the same question that morning is a message, the world's grim verdict on Immelt's tenure so far: not good.

It's been almost 10 years since Immelt took the helm from the legendary Jack Welch, and this anniversary year invites particular scrutiny. GE (GE), like the economy, is just emerging from some hellacious years; in the depths of the financial crisis, the stock fell briefly to its lowest level since 1991. This year is also the midpoint of Immelt's presumed two-decade term as chief, an extraordinary stretch of runway; the average big-company CEO gets just 6.3 years, says Booz & Co. Like Welch, he got the job at age 45 so that, like Welch, he'd have 20 years to put his stamp on one of the world's most admired companies.
So how has he done?

Plenty have called for his head. A "disaster" is the description used by MarketWatch columnist Brett Arends, Seeking Alpha columnist Steven Towns, and many stock market bloggers. But no major shareholder has attacked Immelt publicly. No proxy advisory firm has told clients to vote against him as a director. The board is officially mum, but people close to the directors say he still has their confidence. Director A.G. Lafley, Procter & Gamble's (PG) former CEO, is showing his support in the sincerest way: SEC filings show that in January he bought 25,000 shares of GE. Still, Immelt's record isn't one that anybody, not even this board, would want. When he got the job on Sept. 7, 2001, GE stock was $40 a share. Almost 10 years later, it's around $20. The company's credit rating was AAA, the best, awarded to only a handful of enterprises; no more. It was the most valuable company on earth, commanding the highest market capitalization. Today it's about No. 8 (its rank varies day by day), just behind Royal Dutch Shell.

For years GE stood consistently at or near the top of Fortune's Most Admired Companies list. It's No. 16 in the latest ranking and hasn't been No. 1 since 2007. In Universum's ranking of the companies where business students most want to work, it's No. 27, down from No. 8 just three years ago. That loss of stature could hurt GE for years. "I had never realized what an advantage it is to be the most admired corporation in the world," says Nicholas Heymann, an analyst at Sterne Agee and a former GE employee who has covered the company for decades, "and to attract the best and brightest people in the world."

A record of decline, mistakes, and wealth destruction? Yes. A slam-dunk case for throwing the bum out? Not exactly. The difficulty in judging Immelt is that, observed today and gauged by the standards of normal companies, GE looks pretty good. To be among the 10 most valuable companies on earth, among the 20 most admired, and among the 30 most desired employers -- most companies would kill for that. Since bottoming on March 4, 2009, the stock has more than tripled. Last year the company earned $11.6 billion of profit, probably ranking in the top 25 globally. Immelt has made some smart divestitures, such as selling GE Plastics to Saudi Basic Industries for $11.6 billion in 2007. GE got out of subprime mortgages in 2007 (at a deep loss, but hanging on would have been far worse) and exited insurance before that sector cratered. Though the company's mammoth GE Capital unit suffered huge reversals in the financial crisis, it never lost a dime. GE didn't have a losing year or a losing quarter.

You could even argue that the stock's miserable run under Immelt isn't nearly as bad as it looks because the price was irrationally high when he got the job. At $40, it was still coming down off its bubble market peak of $60. Number crunching by the EVA Dimensions consulting firm shows that the $40 price meant that investors were expecting GE's economic profit (earnings after a capital charge) to increase by some $3 billion a year for 10 years and then hold at that level; the company's economic profit would now be about $40 billion a year and expected to stay there forever. Such an expectation was nuts. The highest economic profit ever achieved (excluding super-major oil companies, whose numbers were briefly skewed by oil price spikes) was Microsoft's (MSFT) $15 billion in 2007. At GE last year the figure was $3.9 billion. If the stock had been priced more sanely -- $20 would have been realistic, even without knowing that 9/11, a financial crisis, and a recession lay in the future -- and one then considers the dividends GE has paid to investors, Immelt's performance vs. the market looks respectable.

But still -- after 10 years it's tough to make excuses based on the hand you were dealt (and Immelt has never publicly done so). GE is not a normal company. It's one of the treasures of American industry, the company founded by Thomas Edison and a management academy whose former employees run top companies worldwide. Even if GE looks good by normal standards, it is much less than it was, and its decline is bad news for employees, suppliers, customers, and communities. So the question of how the company under Immelt got to its current state is big. And answering it is important.

Allocating capital
Welch used to say that GE's CEO has only two jobs: allocating capital -- deciding where and how much to invest -- and evaluating people. Ask a wide range of expert GE observers -- current and former managers, other top-tier CEOs, Wall Street analysts -- to identify Immelt's wrong turns, and they focus on exactly those two categories....MUCH MORE
HT: Deal Journal

I said it was a major piece.
Google tells us there have been 3100 posts on GE from our little blog but that can't be, I don't have carpal tunnel syndrome yet. Here are Google's results for General Electric.