GE Warns Political Uncertainty Could Hit Capital Spending

Monday, 11 Mar 2013 04:25 PM

 

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Political uncertainty in the United States could prompt Corporate America to throttle back on capital spending, the chief executive of General Electric Co. warned in his annual letter to shareholders.

"The U.S. faces more major 'political storms' this year: the fiscal situation, repeated debt-limit controversy and tax reform. We fear that this uncertainty will impact capital investment," CEO Jeff Immelt said.

U.S. President Barack Obama, a Democrat, and the Republican-controlled House of Representatives have been fighting for more than two years over ways to reduce the nation's long-term debt, and a series of standoffs has spooked some business leaders despite the strong run of the U.S. stock market.

The uncertainty caused by those standoffs has prompted companies to hold off on major capital spending, said Immelt, head of the largest U.S. conglomerate.

"The U.S. is improving, driven mainly by housing and the consumer, but capital investment remains sluggish," he wrote. "As a result, the U.S. continued its weakest recovery since the 1930s."

That leaves GE more confident in its growth in big developing markets, including China, Africa and the Middle East, he said.

IMMELT PAY RISES

The company said in a filing with the U.S. Securities and Exchange Commission that Immelt's total compensation last year rose almost 20 percent, boosted by a $12.1 million payout from a long-term bonus plan that is paid on a three-year internval.

Immelt's total compensation reported to the SEC of $25.8 million also included a $3.3 million base salary, a $4.5 million bonus, a $5.4 million rise in the value of his pension and other deferred compensation, and $574,507 in other compensation, which included personal use of corporate aircraft.

The increase, the company's compensation committee noted, reflected Immelt's "outstanding leadership."

FOCUS ON DIVIDEND, BUYBACKS

GE, the world's largest maker of jet engines and electric turbines, regards boosting its dividend as a "clear priority" over the next few years and plans to make "significant progress" toward its goal of buying back shares to reduce its share count to 10 billion, the level before the company sold additional shares during the financial crisis, Immelt said.

GE currently has 10.4 billion shares outstanding, according to Thomson Reuters data.

"GE will generate $100 billion for allocation over the next few years, including cash from existing operations, dividends from GE Capital and dispositions," Immelt said. That money will be devoted to buybacks, dividend hikes and some acquisitions, he said.

GE also on Monday said that former U.S. Securities and Exchange Commission head Mary Schapiro would stand for election to GE's board of directors at the company's annual meeting in New Orleans next month.

Schapiro stepped down as SEC chairman in December.

Three directors will not seek re-election to the board: Former Procter & Gamble Co CEO A.G. Lafley, Penske Automotive Group CEO Roger Penske and former senator Sam Nunn.

DANGERS OF SIZE

During Immelt's nearly 12 years at the helm of GE, the Fairfield, Connecticut-based company has sold off operations including insurance and plastics. It plans to sell its remaining stake in the NBC Universal media business to Comcast Corp this month.

In the letter, Immelt mused that even for a company like GE that benefits from scale, size holds risks.

"Size can breed a perversion of bureaucracy, a sense of entitlement and a distance from reality," he said.

The company's shares have risen 25 percent over the past year, sharply outpacing the 14 percent rise in the Dow Jones industrial average and returning to levels not seen since the financial crisis.

But on Monday they fell less than 1 percent to $23.60 as one analyst cut his rating on the shares to "neutral" from "buy," saying they appeared to be close to their fair value.

"At this point, we think a lot of the good news is priced into the stock and we see more potential for outperformance elsewhere in our sector," Nomura Equity Research analyst Shannon O'Callaghan wrote in his downgrade note.

© 2014 Thomson/Reuters. All rights reserved.

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