Interview: G.E.
>> tomorrow is earnings day for general electric. they may post the biggest profit gain in six quarters. investor also pay close attention to what chief executive jeff immelt has to say about growth. he has made more than $60 billion in acquisitions. is he targeting annual revenue growth, he says, of 8% excluding the acquisitions. let’s look at what is anticipated. we bring in brian langenberg joining me from our chicago bureau. let’s kick off with your forecast. what do you expect to hear tomorrow morning on the profit and revenue front?
>> great. we are looking for good news. we expect 11% increase in revenues overall. the bulk being core revenue excluding deals in currency. we are looking for 25% to 28% profit growth. we see earnings coming in at 44 cents versus 38.
>> where is the greatest trend coming from for the company?
>> right. well, if you think about this looking across the portfolio, the biggest incremental contribution, i expect five cents a share pretax from the finance business, mostly in commercial and a rebound in insurance. on the industrial side, year on year gains can be expected from energy and transportation. no signs of weakness. we expect every segment up year over year.
>> what about the plastics group which is closely watched a, because of the impact of oil and b, seen as a parallel to the economy?
>> sure. in terms of its impact on general electric, it’s relatively small. a couple of things. first, the plain old bricks and mortar industrial economy in the u.s., we don’t think the second quarter is particularly strong. one other company preannounced in april and they were not particularly great. people have to remember two things. number one, april and may of last year were very strong months. number two, capital spending cycle is going to be a little lumpy. they don’t go for six quarters. they go for several years. we’ll be bullish. we don’t expect too much out of the segment in the second quarter.
>> it―doesn’t seem like a sign of concern for you.
>> i expect it to be up year over year. not as much as if oil prices were not where they are. we think it is priced in to the industrial sector. we also think it is priced in to general electric which pulled back in recent weeks.
>> what about areas of weakness? any areas that g.e. will come out with saying didn’t do as well as we anticipated or we’re see ago problem?
>> they’re not going to tell us there’s a problem. b, we don’t anticipate problems. with a company the size of general electric, you know, from quarter to quarter, there will be some lumpyness in the results versus what we’ll expect in the individual segment basis. we’re highly confident they’ll come through overall very strong in terms of their operating profits.
>> it seems like when we look segment by segment and overall, you are positive about the company. are there areas that are concerning you right now?
>> no. this is the largest stock in the index. earnings are accelerating at a time when cyclical investors in particular are concerned of decelerating revenue profit growth. they are exposed to the right end markets for multi-year growth, specifically global infrastructure. playing parts of the world where people are working hard to become less poor. there are conditions where they can do that. we’re bullish on the name. that’s why it is our top large cap pick.
>> what about the goal of jeff immelt talking about the 8% sales growth. under or overpromising here?
>> the thing about 8% core growth rate is it is definitional. in the near term they were double digit core growth in the first quarter. i think they could do that in the second quarter. over time i tend to think of their portfolio being a 6% core growth portfolio. but again i tend to take a stringent view as to what i define as core growth. i exclude all deals whether finance or otherwise as well as currency. i think it’s a good target to go for. i think they give it striking distance. it would be a little stretchy. it’s not unfair for the leader of a large company to do that.
>> if he misss that 8% number, you think that will spook investors? will that send shares down?
>> if you were to―talk about tomorrow. if we were to see a core top line growth number not as strong as what people are looking for, it could impact the stock clearly. i don’t think that will happen but yes, it would.
>> in the last 30 seconds, the biggest risk to the stock?
>> a meteror―meteor hitting the planet. i’m not look for surprise.
>> there must be some risk that you have priced into the stock.
>> i think that’s a lot of the reason that it has traded up a couple of points in the last few weeks. if you think about the indirect impact of oil on an industrial company, it’s going to be a relatively small part of the total cost for an industrial company but there are derivative impacts on consumer spending, things like that. that doesn’t tend to play out until later. we’re not seeing that yet.
>> thank you for joining us.
>> thank you.
>> brian langenberg joining us from our chicago bureau. we’ll take a quick break. we’ll continue coverage of the latest financial news on bloomberg “after the bell.” keep it here.
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Listen Market briefing --- Ellen (slow)
Marriott --- Bob (fast)
Newspaper publishers --- Brett (slow)
>> welcome back to “after the bell.” i’m ellen braitman. 30 after the hour. let’s recap the day on wall street. stocks rose lifting the s&p 500 to a four-year high. today’s gains coming on better than expected earnings at companies such as apple. index also getting a boost as government reports showed that growth in retail sales came along with tame inflation. the dow up 71 points. s&p three. nasdaq just shy of nine points higher. well, one barometer of the travel industry each quarter and that is the earnings report from marriott international. that was released today. watch closely because marriott is the largest hotel company. bob bowdon is following that report. bob, i want to start off, positive reports but shares trading lower. give us insight.
>> let’s start with the headline numbers which don’t explain the stock drop. that’s what marriott reported. 85 cents a share the operating profit. that well above the 67 cents you see from the same quarter last year, second quarter last year. also beating the 78 cent per share analyst estimate. that news seems good, 85 cents. revenue exceeding estimates coming in at $2.66 billion, up 11% from the $2.4 billion in the same period a year ago and beating the $2.95 billion analysts were looking for. revenue looks like good news. the troubling story was the cost that marriott incurred last quarter like the $94 million it spent to terminate management contracts with c.t.f. holdings. they own hotels which are operated under the marriott name. it sued marriott two years ago alleging improper practices with suppliers. that $94 million resolved the lawsuit and also bought some hotels. marriott spent $29 million upgrading bedding. its room quality has lagged competitors like starwood hotels according to robert lefleur of susquehanna financial group. as a consequence of the charges, net income number was $138 million or 59 cents a share. that doesn’t look like the 85. that’s a drop from the 67 cents that was the net number last year. last year the second quarter net and operating number were the same. this year operating at 85. net at 59. the spinning spending impacted the full-year forecast. 2005 net income range is 2.68 to 2.78 fully missing the entire previous forecast of 2.80 to 2.90. it’s unusual for a new high end to be lower than the old low end. analysts expecting 2.91 for the year. that is a disappointing forecast. still the future was character identifies positively by c.e.o. will yard marriott jr. who said with robust industry demand, our increasing share of expected low industry supply growth and the strength of our brand preference we skpeblgt continued pricing power and strong financial results for the remainder of 2005 and beyond. marriott shares have closed down 3.5%. throughout the day sinking as the day went on finishing at virtually the low mark of the session down 3.5%. checking reaction in other hotel stocks. down across the board as well. you see choice hotels the worst down 1%. starwood also down around 1% on the day. back to you.
>> ok. bob, thank you so much. we stick with the travel-related stories for a moment and bring you the latest on airline news. delta raising some fares by as much as $100. higher fuel costs pushed the airline toward bankruptcy. they surged on that news up 18%. it was the biggest gain in the s&p 500. in the meantime, higher prices and more bookings helped southwest increase profit in the second quarter. net income at largest low-fare carrier up 41% from a year ago. beat the average analyst estimate by .two cents a share. southwest is battling rising oil prices by hedging fuel costs. it has been an industry leader in terms of hedging. chief executive gary kelly says the hedging bets saved $196 million in the last quarter alone.
>> even with our hedge, our jet fuel prices were up 24.5% year over year. it’s definitely a head wind. overall, though, our cost performance even with that was very good. our unit costs were down 3.5%. if you exclude fuel, they were down 7.7%. we are doing our best to lower our cost to be able to afford higher energy prices. i’m confident we can do that. >> and those shares of southwest today ended up 3.2% higher. also gaining today, shares of the second biggest newspaper publisher in the u.s., tribune company. gains coming as profit more than doubled in the second quarter. that mostly on a gain of an investment. other newspaper publishers are battling lower ad revenue and higher costs. let’s get an update from brett gary.
>> a difficult year for the newspaper publishers. siting such as google erode revenue at the top newspaper companies. both tribune and knight-ridder, number four newspaper publisher, posted a drop in national advertising of nearly 4%. knight-ridder’s profit fell 14% on relatively flat sales. at tribune, sales fell 2.3% to $1.46 billion. profit came in at 73 cents a share. excluding the investment gain that we mentioned earlier, earnings came out just 60 cents a share surpassing analyst estimates. tribune tempered the impact of lower ad revenue and higher newsprint costs by cutting 1,000 jobs. the publisher of the los angeles times and new york’s news day papers cut ad prices. that move was designed to keep advertisers after admiting to overstating circulation at some of its papers. circulation revenue sank at least 3% at both tribune and knight-ridder. one analyst says investor sentiment is so negative on the stocks we may be touching bottom. john miller at aerial capital says investors are looking for better returns next year because results are expected to improve. in fact, both companies were upbeat about the prospects for improvement today. knight-ridder indicated national ad sales may begin to turn around. ellen?
>> thanks so much. we take a break. we come back and preview g.e. earnings. those are due before the bell tomorrow morning. keep it here.
