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GE Chairman and CEO Jeff Immelt’s Annual Letter to GE Shareholders: 2014

Last November, RBC analyst Deane Dray published a research note talking about the speed of transformation at GE. “The theme now at GE is ‘change,’” he wrote. “In our view, there are more changes happening at GE today than during any previous period in the company’s history.” He and his team noted that GE Chairman and CEO Jeff Immelt has now “divested more than half of the revenues” he inherited as CEO, and “the portfolio mix shift to 75 percent industrial technology and 25 percent finance by 2016 will be a game changer, both in how investors perceive GE and its expected boost to valuation.”

It seems that Immelt wouldn’t disagree. “Sometimes companies play it safe, defend the status quo and manage momentum,” he writes in his annual letter to investors, which was just released. “Not GE…We have reshaped the portfolio from a broad conglomerate to a more focused infrastructure leader and took important steps in that pivot last year.”


GE Chairman and CEO Jeff Immelt wants 75 percent of its portfolio in industrial technology and 25 percent in finance by 2016

The steps include GE’s planned acquisition of the power and grid businesses from France’s Alstom, splitting off non-core assets like the company’s retail finance unit, Synchrony, and agreeing to sell its appliances business to Electrolux.

Just as Dray said, Immelt is moving GE’s portfolio to a place where three quarters of the company’s earnings will come from its core industrial businesses making jet engines, locomotives, oil and gas equipment and healthcare technology by 2016.

This goal will allow GE to widen margins and return $50 billion to investors through dividends and share repurchases between 2014 and 2016. “We are convinced that this pivot will deliver a much higher valuation over time,” Immelt writes.



The GE Store is helping develop the LEAP engine, which took its maiden flight last fall, and has 3D printed parts and components made from next-generation materials called ceramic composites.

GE’s industrial shift also brings benefits like the GE Store. “It means that every business in GE can share and access the same technology, markets, structure and intellect,” Immelt writes. “The value of the GE Store is captured by faster growth and higher margins; it makes the totality of GE more competitive than the parts.”

The GE Store allows the company to take FAA-certified alternators from its jet engines and use them to build better oil pumps. It can also use medical imaging technology to inspect subsea pipelines. “No other company has the ability to transfer intellect and technology as GE can through the Store,” Immelt writes.

A group of analysts who recently visited GE’s research headquarters in Schenectady, N.Y., seem to get the point. “Everyone shops at the GE store,” wrote Nigel Cole, analyst at Morgan Stanley. “We believe the cross pollination of technologies strongly endorses the conglomerate structure.”

GE has also taken its cue from startups and started innovating its product development process and working closer to customers. “We have put everything on the clock, launching a process called ‘FastWorks,’ based on the entrepreneurial spirit of Silicon Valley,” Immelt writes in his letter to shareholders. “We are already seeing shorter product cycles, quicker IT implementation, and faster customer response than any of our competitors.”

Steve Winoker, Sanford Bernstein analyst, recently noted that these changes are what underpins the long view for investors in GE. “Our long term investment thesis is predicated on portfolio transformation, simplification, and cultural change—all of which are on track,” Winoker wrote.


Major product launches in 2014 included the LEAP jet engine, the Tier 4 locomotive, the world’s most powerful gas turbine and other machines.

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