NEW YORK – General Electric Co. (GE) Friday forecast sharper earnings growth for 2006, boosted its dividend and stock buyback plan and agreed to sell most of its reinsurance business to Swiss Re for up to $7.6 billion.
GE, whose shares rose 3 percent, said it will incur a $2.8 billion after-tax charge from the deal, but that being able to scale back its insurance unit will free it from a business that had been a drag on earnings and cash flow in recent years.
After the deal closes, GE said it would own between 10 percent and 13 percent of Swiss Re's common stock and have the right to nominate one representative for election to the reinsurer's board.
The improved outlook and plans to return more cash to shareholders come as GE shares remain mired in a slump. The company's stock has fallen 5 percent in the year to date versus a 2 percent decline on the S&P 500 .
Investors praised the moves and said they indicated that the industrial, media and financial conglomerate was optimistic about the company's future.
"Every one of those actions independently would be a sign of confidence in the foreseeable future," said Henry Asher, president of the Northstar Group, a New York-based money manager that owns GE shares.
"Taken altogether, it's a pretty ringing endorsement of what they see as their place over the next 12 to 36 months."
GE said it now expects earnings, excluding the insurance business, of $1.92 to $2.02 a share for 2006, up 12 percent to 17 percent from its current forecast for 2005.
The company had previously forecast 10 percent to 15 percent growth with the insurance segment included, but the removal of the business and the share repurchases boosted GE's profit outlook.
It now targets 2005 earnings from continuing operations of about $1.72 a share. Before the sale, it had been on track to meet its forecast of $1.81 to $1.83, it said.
The company will report most of its insurance earnings, which it had expected to contribute about 10 cents per share to earnings in 2005 and 2006, as discontinued operations.
GE will receive up to $3.7 billion in cash and notes for the insurance business, about 55 percent of the purchase price. The remaining 45 percent of the deal value will be paid in Swiss Re shares, GE said.
Fairfield, Connecticut-based GE has been scaling back its insurance business to reduce some earnings volatility and allocate capital for faster-growing businesses, such as consumer finance and medical equipment.
Since 2002, GE has shrunk its reinsurance business and spun off its life and mortgage insurance company Genworth Financial Inc. Analysts and investors had expected the sale of the reinsurance business for some time.
GE plans to sell off its remaining 25 percent stake in Genworth Financial Inc. next year. It still holds a U.S. life and health reinsurance business as well as personal protection insurance firm Union Fidelity Life and GE Life (UK), a pensions and wealth management company.
Chief Executive Jeff Immelt said in a statement that after the sale, the company would have "a better mix of growth, higher return on equity financial services businesses and faster-growing industrial businesses, all driving stronger free cash flow."
GE said it expects 2006 cash flow from operating activities to rise to about $24 billion, up about 20 percent from 2005.
The company also said it will raise its quarterly dividend 14 percent to 25 cents a share. It will increase its stock repurchase program to $25 billion through 2008, up from its previous plan to buy back $15 billion in shares through 2007.
GE said it plans to buy more than $4 billion of its stock during 2005, $7 billion to $9 billion in 2006 and $6 billion to $8 billion per year in 2007 and 2008. If it completes the entire repurchase plan, it would represent about 7 percent of its current market capitalization of $364 billion.
Shares of GE rose $1.05 cents to $35.71 on the New York Stock Exchange on Thursday.