General Electric Co Earnings Call Nuggets: Value Gap and China’s Growth

General Electric Co (NYSE:GE) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Value Gap

Scott Davis – Barclays Capital: It looks like most of the full year margin expansion came from value gap. Can you talk more specifically about 4Q? The 120 basis points is a pretty big number; if there’s a way to think of that in terms of value gap versus maybe mix or cost?

Keith S. Sherin – Vice Chairman and CFO: Sure. I’ll give you both actually, because I think it’s helpful to look at the pieces. You said it in the fourth quarter value gap was big. It was 80 basis points, so the growth came from value gap. We had very strong pricing. We saw a material deflation. And you can see that the changes in order pricing are flowing through into revenue. We had – equipment service mix was a drag. As you know, that’s been a drag all year long. It was 50 basis points; the same as what we had for the total year as we had higher revenues and equipment growth on services, and also you know the wind story; higher wind revenues at lower margins has been a drag all year long.

We offset two things. One, we did have the dispositions. That was about 60 basis points in the quarter, and we had strong productivity, which was 30 basis points in the quarter as we offset the impact of the negative mix; so, overall 120 basis points. And for the year, it’s really a similar story. Value gap was 20 basis points of that 30 basis points growth. We had a real drag on mix in other that was in total 60 basis points. But we offset that with strong productivity. A lot of that is simplification. Our SG&A as a percent of revenue went down a full point. We have done a good job with costs and we’ve got great programs in place that will help us as we go forward into ’13 as you know and the gains in total for the total year were about 7 basis points on the impact for the margins. So, pretty good performance; so the strength really value gap and productivity driving margin improvement, both in the quarter and for the total year.

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Scott Davis – Barclays Capital: Stepping back to a little bit of a bigger picture question. The Avio deal seems pretty interesting for many reasons. But when you think about taking a step backwards and is this part of a bigger trend and opportunity to start to buy in some of the supply partners that you have that, I mean, there’s multiple positives that can come out of that I guess in risk reduction and controlling intellectual property and things like that. I mean, are there other things out there that you can do that are similar to this type of transaction?