You can only believe one thing if you run GE or own GE stock: Consistent earnings and cash flow growth, with expanding returns, increase shareowner value. This is a long-term investment. There are no short-term tricks.
We lead the Company to grow earnings and cash flow with high returns. We invest and deliver consistently. If you take out the effect of non-cash pension, over the last five years we have nearly doubled GE’s profits from $11 billion in 2001 to $21 billion. Cash flow from operations has made similar progress, growing to $24.6 billion. Our return, at 18.4%, has increased 220 basis points in the last two years and is near our target.
We strive to be a reliable growth company. Our earnings growth has been 11% over one year, 10% over five years, 11% over 10 years, 12% over 15 years and 11% over 20 years. Over the past 20 years, the S&P 500’s earnings growth has averaged 8%.
The question is: Has reliable growth gone out of style? Alternative investments such as hedge funds are very popular today. GE’s PE ratio is only a modest premium to that of the S&P 500, despite our strong performance.
We don’t believe reliable growth has gone out of style. We know that reliable growth is always in style for long-term investors. They look at the Company over an extended horizon, like I do. They benefit from a company that anticipates change in the environment and executes aggressively. This is your GE.
It took courage to invest $11 billion to acquire Amersham in 2004. This was our biggest industrial acquisition, and it gave us capability in molecular diagnostics. Today, we have a transformed Healthcare business that is a leader in the early detection of disease.
At the same time, we will always be disciplined in our actions. It takes discipline to be one of only six U.S. industrial companies with a “Triple-A” balance sheet. It is tempting, particularly today, to add more leverage. However, we like the financial flexibility of a strong balance sheet.
Delivering on commitments is important in our culture. Many of our mornings begin with meetings to review working capital or pricing. We “sweat” the details required to run a successful company.
Building a reliable growth company that invests and delivers requires a unique team. They must be “ambidextrous” managers. They are expected to deliver on commitments in the short term and required to invest to build leadership over the long term.
The future may be different. The engine of global economic growth has been the U.S. consumer, propelled by historically low interest rates. While consumers are still solid, 17 interest rate increases over the last two and a half years have mellowed them a bit.
In almost any economic environment, GE is positioned for sustained high single-digit revenue and double-digit earnings growth, while expanding margins and returns. We have used our size and unique multi-business structure to build early leadership positions in the trends that shape the future. At the same time, we remain disciplined in the application of our strategic principles to deliver consistent performance.
This is the story of how we invest and deliver.
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