GE Whiz

By JAMES F. PELTZ

July 10, 1998 12 AM PT

TIMES STAFF WRITER

Anyone wondering why General Electric Co. this week became the first U.S. company to have a stock-market value topping $300 billion need only look at GE’s second-quarter results released Thursday.

GE once again posted double-digit gains in revenue and profit, gains smack in the middle of Wall Street’s forecasts. This from a company that’s already among the most profitable on Earth and that, yes, has exposure to the economic woes in Asia that are battering so many other U.S. companies.

No matter. Building on a years-long consistency that’s remarkable given GE’s enormous size and far-flung businesses, the company said its second-quarter profit climbed another 13% from a year earlier, to $2.5 billion, on a 14% revenue gain to $25.1 billion.

The news sent GE’s stock up 81 cents a share, to $94.13, in New York Stock Exchange composite trading. The shares are up 29% so far this year, and since 1994 GE’s investors have earned a total return (stock-price gains plus dividends) averaging a sizzling 45% annually.

“They just glide across the ice so gracefully while everyone else is falling down,” said Nicholas Heymann, an analyst at Prudential Securities in New York. “GE is simply the best growth company on the globe.”

It’s only the latest high praise for GE Chairman John F. Welch Jr., who took over GE’s reins 17 years ago and is planning to retire in 2000. The son of a railroad conductor and a chemical engineer by training, Welch has reinvented GE--for instance, pushing away from its manufacturing roots and toward more profitable services--and the way it does business.

Welch has always demanded that the Fairfield, Conn.-based giant be among the top players in each of its fields, that GE’s quality be exceptional, that its field managers have the authority to make quick changes, and that costs be attacked with a vengeance.

That covers a lot of ground, because GE is involved in everything from the mundane to the glitzy. It makes light bulbs, appliances, plastics, jet engines, power plants and exotic medical gear, such as diagnostic-imaging machines. GE owns the National Broadcasting Co. Its financial-services group, GE Capital, accounts for nearly half of the company’s total business by making auto and mortgage loans, leasing jetliners and rail cars, and selling insurance.

Yet even as Welch grew GE into an enormous enterprise, his devotion to change has kept GE from succumbing to the inertia that might grip a company closing in on $100 billion of annual revenue, and that has 276,000 employees spread among hundreds of plants and offices in dozens of countries.

Consider: Last year GE, after it paid every one of its bills, had $8.2 billion left over, and that profit was nearly double the profit it posted only four years earlier. Among all U.S. corporate earnings last year, GE’s were a close second to oil titan Exxon Corp.’s $8.5-billion profit, according to Forbes magazine, but Exxon’s earnings came on revenue that was $30 billion higher than GE’s.

“GE has a significant position in every business where they participate, they have massive resources, and tremendous management talent that executes extraordinarily,” said analyst Russell Leavitt of NationsBanc Montgomery Securities in New York.

Indeed, in an age when so many other conglomerates have shrunk themselves to “focus on their core businesses” (and bolster their lackluster stocks), GE keeps exploiting its geographic and operating diversity to its advantage.

Take the Asia problem. The region accounts for about 9% of GE’s business, a sector that’s not insignificant but not a back-breaker, either. Though GE didn’t break out specific second-quarter results for Asia, “it’s obvious Asia isn’t growing at the rate it was,” said GE spokesman Bruce Bunch.

Yet GE sees Asia “as a long-term opportunity,” he said, and analysts agree.

They noted how, years ago, GE took advantage of Europe’s economic woes to buy up businesses and invest in the region at depressed prices, and now is reaping profit from those operations. The process will be repeated in Asia, they said.

GE isn’t infallible. Some of its new products, including certain jet engines and power plants, in recent years have suffered from design and production snags--hardly the sterling quality Welch expects. The company has missed analysts’ earnings expectations on occasion. There’s been employee resistance to some of Welch’s programs.

But Welch presses on. A key initiative now is the “Six Sigma” quality-control program, a plan aimed at wringing out costs and inefficiencies that includes “Black Belt” employees who roam GE’s plants to improve their quality.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Powerful Record

General Electric’s consistent growth has made the conglomerate one of the most profitable companies on Earth. The Fairfield, Conn.-based firm’s earnings, revenues, stock price and return on investors’ equity have increased markedly in the last eight years:

A diverse mix of business. . .

GE’s major divisions:

* Aircraft engines

* Appliances

* Financial services

* Industrial control systems

* Information services

* Lighting and medical equipment

* Broadcasting (NBC)

* Plastics, power plants and locomotives

. . . nearly doubles sales and profit since 1990. . .

In billions of dollars: