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After years of defensive moves, GE is beginning to invest in growth and return more cash to shareholders, says Morningstar's Daniel Holland.

Transcript

Why You Should Invest in General Electric Earnings Update from Morningstar.com Morningstar Jeremy Glaser: For MorningStar.com I’m Jeremy Glaser. General Electric who put a third quarter results I’m here with analyst Daniel Holland let’s take a closer look. Thanks Daniel. Daniel Holland: Thanks for having me Jeremy. Jeremy: So how would you characterize this quarter? Daniel: Well the results were largely in line with what we expected we had some weakness in the revenues and then industrial side but profitability held up pretty well. GE capital again is kind of on the mend have a very nice profitable core 832 million dollars from continuing operations and so what you’re saying is kind of a more focused and restructured GE capital business you now I think is going to serve GE well going down the road. Jeremy: Is the company still producing a fair amount of cash? Daniel: It is and so you know one of the key take away from the call this morning was that you know GE is actually going to be at the high end of its cash guidance for this year at 14 to 15 billion dollars of cash generation from it’s industrial operations which in our opinion is pretty strong just given the environment that GE has been operating in that has been able to delivery it you know kind of this range for it for some time and so you know it’s something that I think is good to think about. Jeremy: So with all the cash being produced what are management plans for it? Daniel: Well you know if you take a look at what the company has done in the third quarter you’ve got some you know pretty good signals here. You know they raise a dividend back right after they release the second quarter results you know in the quarter they had a billion dollars of share by backs. In addition just last week they announced a $3 billion acquisition of dresser. We’ve had some acquisition activity out of a GE capital and some other smaller renewable energy type of deals that have been going on and so what you’re looking at is company that’s kind of changing the page a little bit from the safe and secure mode that was in a couple of years ago to now being a bit more in the offensive side saying well let’s go ahead and play offense with this capital we’re going to go ahead and return some value back the shareholders and we’re going to go on and acquire some business that we think are going to help out our core portfolio. Jeremy: It sounds like it’s a lot more confidence there. Daniel: You’re expecting further dividend increase in the near future. I would expect to see that dividends continue to grow in line with the earnings and so as you see earnings bounce back in 2011 I don’t. I think that a dividend increase is definitely something that’s going to come down with it as well. Jeremy: And would you expect for there to be further sales businesses they don’t really see as quite universals on the way out rather other areas you think that they might divest from? Daniel: Right now I’m in a portfolio is kind of starting to take shape. I mean I think there might be some one off situations but I think that largely there are no other big pieces that I expect to move out but I am curious about the pieces that are going to be coming in? Jeremy: What are some avenues you think that they’re going to look at for acquisitions? Daniel: Well you know continue to look at the energy business because that’s one of the areas the G has a very solid core competence can easily add on the service agreements which are very high margin for the company and they’ve got experience doing that so I would expect to see the company continued to kind of look at the energy side and see if there are other acquisitions potentially in the healthcare base as well just as it kind of gets its arms around what the new healthcare environment is going to look like. Jeremy: Great Daniel thanks for talking with me today. Daniel: Thanks for having me Jeremy. Jeremy: For Morningstar.com I’m Jeremy Glaser.