GE Finance

Archive for the ‘Ge Capital’ Category

Thirty years ago, of the thirty companies that made up the DJIA in 1979 only 10 of those companies still make up the Dow today. Some of the largest Corporations that make up the Dow today measured by market capitalization didn’t even exist thirty years ago, notably Microsoft Corporation and Intel.
On the fortunate side is opportunity. The bedfellows of opportunity are both innovation and project management. Quite possibly why they have the opportunity to work so well together is linked directly to the Corporate Culture, accountability and sound business decisions.

How do large companies grow and prosper and why do others stub their corporate toe? Let’s take a quick comparison look at General Electric, RCA and Eastman Kodak. General Electric joined the Dow in 1907. Today, along with appliances and consumer electronics, they are in consumer and corporate finance, health care, oil & gas, rail and security and aviation among others.

The subject of the General Electric entry into the aviation industry represents a great Business Case study. Leaving the issue of start-up capital aside, how would it ever be possible to compete much less become a world leader in the manufacture of jet aircraft engines? It was truly a monster of an undertaking. Was it realistic to even try to take market share from both Pratt & Whitney and Rolls Royce? The engines of Jet aircraft worldwide carried either the Pratt & Whitney eagle in flight logo or the Rolls Royce double R.

It would have been very interesting dialogue at the GE Board level when their Senior Management made their initial Business Case Board presentation. The answer came from in depth Market Research and innovation and the answer was also driven in part by their Corporate Culture and mission statement to “Harness the power of the imagination to make life better for our customers and consumers worldwide” a veritable green light.

General Electric thinking moved ‘outside the box’ and away from the actual unit cost associated with the manufacture of a traditional jet engine as a key driver. GE saw an opening. With GE innovation their focus shifted instead to the operating efficiencies side of the product itself; noise abatement, engine thrust and fuel consumption – a great success story.

The GE move into new businesses provided them with the financial flexibility to become less dependant on their original core businesses and a shift in corporate culture.

Not so successful was RCA Corporation, which was originally started by General Electric in 1919, then spun off. Over the next 50 years RCA initially grasped the market for broadcast and commercial radio point-to-point transmission through NBC Radio Networks till the monopoly was broken up by antitrust legislation. Like GE, RCA then moved further afield with successful innovations in key technological advancement areas. Fuelled by an almost endless list of electronics innovations RCA then became a Dow listing and subsequently grew into one of the largest companies in the world. 30 Rockefeller Plaza in New York, the Corporate Head Office of RCA became known as the RCA Building.

Broadcast radio and recorded music (RCA Victor and Nipper the Fox Terrier logo) were the lynchpins followed by RADAR, television, first black and white then color TV, then HD-TV to name a few. The old Indian Head TV test pattern was created by RCA. The RCA color-TV and RCA television cameras and were adopted as the standard in broadcast TV technology for American color TV transmitting and reception by the NTSC. In addition to broadcast television, the electron microscope, Radiotron vacuum tubes, LCD’s, VHS-VCR’s, HD-TV’s, satellite systems all found their genesis at RCA.

The story of the meteoric rise of RCA Corporation was also the story of David Sarnoff, his drive and leadership which permeated the entire fabric of RCA. Just at a time RCA thought they could do no wrong Sarnoff was succeeded by his son Robert the downward spiral began (early 1970′s). Robert Sarnoff took RCA in another direction. RCA then embarked on complete departure from their core competencies of electronics and communications with the acquisitions of Hertz (rental cars), Coronet (carpeting), Random House (publishing), Gibson (greeting cards) and Banquet (frozen foods), all of which created a serious drain on the availability of research capital and a very real distraction from their traditional businesses. With the distraction came mistakes, an open door to the competition and the ultimate slow road to self destruction. RCA was taken over in the late 80′s by GE, broken up and sold off in pieces. RCA exists today only as a trademark. RCA Victor Talking Machines and RCA antique radios remain as collector’s items. Nipper is no longer listening to ‘His Master’s Voice.’

Eastman Kodak was replaced on the Dow in late 2005. With a loose application of the GE model there is some general agreement that they were slow to react and diversify. For decades Eastman Kodak was the undisputed market share leader in all segments of the photography and photofinishing industry. The early warning signs were there however, even as far back as 1973 when Paul Simon, in his song ‘So Mama Don’t Take My Kodachrome Away’ maybe recognized the market dominance of Eastman Kodak and Kodachrome as the most famous and financially successful film of all time. What may have been overlooked however was Paul Simon’s not particularly subtle reference in the song to his Nikon camera.

Today there is no question that Eastman Kodak is a very different company than it was in those days. They no longer manufacture either film or cameras with the exception of the disposable camera. Through Unified Workflow Solutions in their Graphic Communications Group (GCG) they are into Graphic Design, Digital Imaging, digital photography and digital imaging solutions. Again, very different company with very different products but what was lacking in both RCA and Eastman Kodak was the drive and vision of a David Sarnoff.

What was very similar to all three were the marketplace dynamics. Quality produce solutions manufactured in South East Asia in countries like Japan, Hong Kong and China were flooding the market. Neither RCA nor Eastman Kodak had viable solutions. Forward thinking Strategic Planning driven by qualitative market research has been the enduring GE corporate culture of Business Process Re-Engineering for over eight decades. The ‘catch-up’ game is indeed a very difficult game to play. It boils down to a ‘proactive’ strategy versus a ‘reactive’ strategy’ and the difference between the two strategies has defined GE, RCA and Eastman Kodak.

Not so often do companies hold such a vast array of businesses. Whoever thought companies could have a manufacturing, financial, and television segment but not succeed is wrong. The conglomerate industry is diversified. Holding these companies through uncertain times illustrate strong investing knowledge. The current state of the economy is a bit instable, so owning a company like GE is a good investment. However, there are other companies in this industry. These companies not only have a strong business model, but they have excellent growth potential and solid valuation. One of these companies is 3M (MMM).

Before examining the financial statements of 3M, it is vital to understand the variety of activities this company performs. According to Reuters, 3M is a “diversified technology company with a global presence in various businesses, including industrial and transportation, healthcare, display and graphics, consumer and office, safety, security and protection services, and electro and communications.” The industrial and transportation business includes products such as food and beverage, personal care, and automobiles. More specific industrial products include polyester, foil, and tape. Specific transportation products are insulation components like catalytic converters. The health care segment produces supplies for medical, surgical, and dental use. The display and office business employs workers to produce stationary products, supply products, and home-improvement products. Office products like Post-it Memo Pads are also produced in this section. 3M also controls a safety segment and an electro and communications section, where the latter creates products including telecommunication fiber-optic products.

The main idea to take from the different business of 3M is the hedging strategy. Instead of focusing on only one industry, 3M can have a section of its business prosper, while another section’s growth slows. It is true that 3M may not experience any incredible share price appreciation because of its strategy, but 3M will not experience any dramatic share price fallout either. As evidence, since 1999, 3M has only had one distinct negative share price calendar year (2005), and that year only yielded a loss of 6%. Each year during this timeline before and after 2005, 3M has been flat or shown share price appreciation. In 2006 the share price rose about 5%, and so far in 2007 the share price is up over 30%. Throughout this period, the US economy has been through exuberant growth to panicked recession. However, because of 3M’s strategy and investor’s trust in such a well-respected brand, 3M has managed to avoid so terrible economic periods.

While, 3M’s business model is great, there are many other corporations in this industry that have similar strategies. What differentiates 3M however is its fundamentals. Over the last fiscal year, according to Reuters, 3M saw revenue at $22.9 billion dollars. This is an outstanding number. What is more outstanding is relative sales growth. 3M’s recent sales figure was 7.86% higher than it was the previous fiscal year. Not only is this increase higher than its five year average, but it is also higher than the five year average of the conglomerate industry. Considering the size of sales volume, this is a great sign of growth. What is even more outstanding is earnings growth. 3M has been efficient with its costs and saw an increase in profits of over 32.76% last fiscal year. This number is higher than the company’s five year average at 23.13% and also higher than the industry’s average at 13.87%. Comparing this figure to industry competitors, United Technologies only saw a 13.72% increase during the same time period, Emerson Electric saw a 20.26% increase, and GE only had profits grow by 12.16%. Clearly 3M is growing and using good internal controls to reduce cost.

Another way of illustrating 3M’s strong growth is through its margins. Gross margins for 3M at 47.94% are quite high compared to the industry’s average at 39.01%. 3M’s gross margins are also higher than United Technologies’ 26.78% figure, Emerson’s 35.70% number, and GE’s 42.83% margin. In addition, 3M’s operating margins at 28.04% are also above the industry average at 15.24%, not to mention above the rest of the industry’s respective figures. The more important margin, net profit margin, is also in favor of 3M. The past fiscal year illustrated this figure at 18.61%. The number is quite high compared to the company’s five year average at 14.70%. In addition, 3M’s number beats the industry average of 11.81%, United Technologies’ figure at 8.10%, Emerson’s margin at 9.29%, and GE’s number at 12.88%. 3M is working very efficiently compared to its industry peers. It can use the extra cents it makes for every dollar to help the company and investors. Capital spending over the past five years for 3M is growing at 3.57%. This number is higher than the industry average of 0.98% and higher than most of the aforementioned companies. Higher capital spending now means even more efficiency in the future for 3M. Lower costs mean wider margins and a greater ability for 3M to buy back shares from investors or increase its dividend.

While 3M’s growth looks excellent, some investors may question the company’s valuation. According to Reuters, the conglomerate industry has an earnings multiple of 19.92. Fortunately, for investors wanting to buy shares of this company, the forward P/E ratio for 3M is 18.99. This number is very similar to GE, Emerson, and United Technologies. In addition, 3M’s forward price to sales ration of 2.82 is also similar to the mentioned companies. This indicator illustrates that not only is 3M growing quite strongly, but 3M is also undervalued compared to its growth across this industry. High growth and low valuation typically create a strong recipe for success. 3M’s PEG ratio of 1.67 is near or below most of the industry competitors which again illustrates low valuation given growth.

In terms of other 3M strengths, this company is solvent with a 1.28 current ratio. The company is owned by more than 67% institutional investors. This indicates that the smartest investors like this company and want to take the risk to own it. The company’s ROE of 39.97% is excellent. This number is above its five year average of 33.31% and also above the industry average of 20.97%. This number obliterates GE, United Technologies, and Emerson’s figures. And if higher margins continue to be present for 3M, future buybacks will lead to even increased returns. 3M’s ROA of 19.82% and ROI of 27.80% are also quite strong. 3M is also very efficient when it comes to turnover. Receiver turnover at 6.99 beats the industry average of 4.27 which means consumers pay their discounts or credit on average every 50 days. Asset turnover at 1.07 is also stronger than the industry average of 0.53, which means 3M’s asset moves usually mean larger sales. Overall, there are plenty of advantages to owning 3M and its fundamentals.

Therefore, now would be an excellent time to think about purchasing 3M shares. The dividend yield for this company at 2.04% is very reasonable. In addition, technical indicators illustrate appreciating 50 day SMA and EMA indicators coupled with an up trending Parabolic SAR. The recent cross over of SMA and EMA a few weeks back indicates that 3M is ready to rise and should enjoy higher share price appreciation until the lines converge. Therefore, given the fundamental, technical, and strategy analysis, there are plenty of reasons for investors to purchase shares of 3M as a part of a diversified portfolio.

Healthcare executive leadership has gone global. As a result, a growing number of opportunities are becoming available for individuals whose career planning efforts have prepared them for the extraordinary challenges and the long-term rewards that an international assignment offers. However, the expectations are high when it comes to making Healthcare executive leadership placements into a foreign market, and a prospective executive must be fully prepared to meet those challenges head-on.

“Well done is better than well said!” is a quote from the New England Patriots’ Tom Brady (and Ben Franklin) and it summarizes the mindset of global investors and global operators as they recruit individuals to lead foreign or multinational business entities. In other words, a successful track record delivering superior financial and operational results will help your achieve your international leadership goals far better than merely words and potential. This is why personal global career planning pays off in the long-run.

We recently helped sponsor the “2007 Strategic Investing in Healthcare Forum.” This was an invitation only, one-day conference that brought together members of the Harvard Business School and the Argyle Executive Forum, plus 150 senior operating executives from public and private Healthcare firms, select private equity and hedge funds, prominent research fellows, and key senior advisors. And, as a result of these discussions, I now find myself thinking about ways that up-and-coming Healthcare executives can best prepare themselves to achieve their global career planning ambitions.

I should mention that over the course of this one day event, Healthcare leaders shared their focus and innovative approaches towards booming global markets, the financially-stretched domestic market, and the global demographic trends that will either clobber economies or empower businesses to solve complex issues. Speakers for the event included representatives from Apax Partners, GE Healthcare, GE Healthcare Financial Services, Bain Capital, Welsh, Carson, Anderson & Stowe, The Blackstone Group, CCMP Capital Advisors, Merrill Lynch, GTCR Golder Rauner, Ropes & Gray LLP, Bank of America, and Epstein Becker & Green, P.C.

All of the speakers were extremely candid and informative. However, here are just two examples of the broad array of globally-focused topics that were discussed:

Buddy Gumina, a Partner at US Healthcare – Apax, discussed coverage, consumerism and convergence as it relates to managed care, healthcare services, provider transparency, interactive technology, preventative medicine and outsourced pharma. Apax has a thirty year track-record as a global private equity firm with a strong healthcare presence.

Joe Hogan, President and CEO of GE Healthcare, stated that the company’s basis for growth and the focus of its global-leading $17 billion business is to continue to drive innovation and world-class dominance across IT and diagnostics. The breadth of opportunities for GE Healthcare is tremendous as a result of the exploding second and third world markets where infrastructure and utilization are the focus for the design and development of full-scale digital hospitals.

Other speakers focused on the current strategies that healthcare investors and operators are pursuing as providers, payers, investors, patients and technology converge. And, through this convergence, I am fortunate to play an active role in finding the outstanding Healthcare executive leadership talent that international Healthcare organizations will require to achieve their aggressive business goals.

As a result of my ongoing involvement in the Healthcare leadership arena, I have three career planning suggestions that aspiring international executives would be wise to adopt as they strive to develop the knowledge and skills to lead a global Healthcare business.

Use Coaches and Mentors. Tiger Woods has used multiple coaches over the years to help improve his game. Similarly, you need to identify two or three senior individuals who are interested in taking an active role in your executive leadership development. Whether as coaches or mentors, these individuals can provide you with invaluable insight and global career planning guidance. In addition, you can select your own informal mentors by watching Healthcare executive leaders who are currently successful in the roles you are striving to achieve. Study their successes and their mistakes. In completing more than 225 Healthcare retained searches, those who have achieved the greatest corporate success have aggressively pursued mentoring relationships throughout their career. Be Seen and Be Known. Financial investors and operators who are deploying tens and hundreds of millions of dollars in new capital are consistently looking to hedge their bets through the recruitment of experienced, well-referenced and well-known executives. Show a keen interest in your industry, in your businesses fundamentals, and in your opportunities and obstacles in order to deliver stellar results and develop relationships with influencers. Through your efforts and success you will find interest from those within your industry to invite you to speak, present or join an industry panel on key issues and trends. The value of your business success can lead you to exceptional personal contacts, which in turn can significantly improve future business opportunities. Your business acumen and success can take you to the door of a global Healthcare executive leadership opportunity. Having strong industry relationships can be what actually opens that door and allows you to enter. Do your Best Work Today. Without a doubt, ambition is required for the level of success you desire. However, focusing too early on your next opportunity can cause you to lose sight of your current business goals and responsibilities. This can negatively impact your trajectory. Outstanding performance is recognized and should always be your primary objective.

Establishing yourself as the winning executive for a global Healthcare executive leadership opportunity requires strong foundational skills, a successful track-record, solid relationships, keen industry insights, and much more. Global career planning presents new opportunities. Therefore, keep pushing yourself forward in your professional growth and remember, “Well done is better than well said.”