October 16, 2019

G.E. Profits Rise 6% in Fourth Quarter

G.E. on Friday reported fourth-quarter operating profits that slightly exceeded Wall Street’s expectations, but revenue fell short, reflecting slower sales of some lines of industrial equipment, a stronger dollar and the economic slowdown in Europe.

The quarterly financial performance, analysts say, provides further evidence that G.E. is successfully executing its long-term plan to prune its big finance arm and rely more on its traditional industrial businesses.

“G.E. ended the year with more things positive than negative,” said Steven Winoker, an analyst at Sanford C. Bernstein Company. “Even with all the economic uncertainty, the confidence level is higher at G.E. There is an increasing sense that the strategy is working and management has greater control.”

G.E. executives expressed confidence that despite “volatile” economic conditions, especially in Europe, the company would remain on track for double-digit earnings growth in 2012 and an increase in the dividend payout to shareholders.

G.E. reported that its operating earnings rose 6 percent to $4.1 billion, which excludes the previous year’s contribution from NBC Universal. G.E. had owned NBC Universal but sold a majority stake to Comcast.

Net earnings attributable to the company fell 18 percent, to $3.7 billion, largely because the year-ago quarter included the proceeds of the sale of BAC Credomatic GECF, a lending company in Central America. Profit in the 2011 fourth quarter was also reduced by a one-time charge for provisions for loan losses on a Japanese consumer finance business; G.E. sold the business in 2008 but continues to hold liabilities. The company’s operating earnings per share rose 11 percent, to 39 cents a share. The result partly reflects fewer shares outstanding than the year-earlier quarter, because the company bought back shares, and was just above analysts’ average estimate of 38 cents a share, as compiled by Thomson Reuters.

Revenue for the quarter declined 8 percent, to $38 billion. That was below Wall Street’s forecast of $40 billion. Part of the falloff is explained by the absence of the NBC Universal revenue in 2011; revenue from continuing operations rose 4 percent. But the loss of NBC Universal was accounted for in analysts’ calculations. The revenue result not only disappointed analysts but also came in about $1 billion below the company’s internal forecasts a month or so ago, mainly because some anticipated industrial equipment sales were delayed and because demand weakened in Europe, Keith S. Sherin, chief financial officer, said in an interview.

Most of G.E.’s profit growth continues to come from GE Capital, the business seen as the company’s Achilles’ heel when the financial crisis hit in 2008. Before the credit crisis, the unit had grown well beyond its traditional business of financing sales of the company’s industrial equipment into home mortgages in Britain and consumer finance in Japan. In the boom years, the big finance arm contributed as much as half of corporate earnings.

But in 2009, General Electric was forced to slash its dividend, the first such cut since the Great Depression. And GE Capital began the lengthy process of shedding bad loans and trimming the finance business.

Today, GE Capital is smaller but healthier. Its revenue declined 9 percent to $10.7 billion, but its operating profits rose 58 percent to $1.6 billion, as earnings rebounded from depressed levels earlier.

But future gains in profits will have to come from G.E. industrial businesses, which now contribute nearly three-fourths of total profits. In a conference call. Jeffrey R. Immelt, G.E.’s chief executive, said that the company’s top priority was to “grow industrial earnings by more than 10 percent.”

Revenue in industrial businesses as diverse as jet engines, power generators, medical-imaging equipment and windmills rose 10 percent to $26.8 billion. The result was helped by strong sales of jet engines and gas turbines in the Middle East. G.E.’s backlog of industrial orders rose to a record $200 billion, up from $175 billion last year.

Operating profits grew by 2 percent, to $4.3 billion. Profits were held down by weaknesses in some businesses like wind turbines and household appliances, which are included in the industrial group. Competitive price pressure has also trimmed margins in energy businesses, including power generators and oil and gas equipment.

Ripples from the financial turmoil in Europe are hurting sales of some industrial products, like medical equipment, which were down 13 percent in Europe. “We’re preparing for a recession in Europe and that’s what we expect,” Mr. Immelt said.

Despite uncertainties, G.E. emphasized that it would continue to make long-term investments, including last year’s 16 percent increase in research and development spending. Partly as a result, the company says it plans to introduce 800 new products this year.

G.E.’s finance business is now regulated like a bank, by the Federal Reserve. For six months, the Fed has been reviewing G.E.’s books to determine if it is healthy enough to restore its previous practice of paying about 45 percent of its earnings to the parent company. If that approval comes, the parent company would receive $3.2 billion in 2012, to raise dividend payments to shareholders or other uses, estimates Richard Tortoriello, an analyst at SP Capital IQ.

This article has been revised to reflect the following correction:

Correction: January 20, 2012

An earlier version of this article misstated a reason for the drop in General Electric’s net earnings in the fourth quarter. The fall was largely because the year-ago quarter included proceeds from G.E.’s sale of BAC Credomatic GECF, a lending company, not the sale of NBC Universal.    

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As Recovery Moves Ahead, G.E. Tops Expectations

The re-engineering of General Electric — a strategic overhaul begun in the depths of the financial crisis — remains on track and shows steady progress.

That, analysts say, is the underlying theme of the company’s second-quarter results on Friday, with profits and sales slightly surpassing Wall Street’s expectations.

G.E. has been slimming down its huge finance arm, GE Capital, while increasingly relying on its bedrock industrial businesses for long-term growth. The finance business is mending, with operating profits more than doubling in the second quarter from the depressed level of a year ago.

Indeed, GE Capital accounted for much of the profit improvement in the quarter. But industrial orders for equipment and services grew 24 percent during the quarter, and G.E.’s backlog of industrial orders reached a record $189 billion.

“GE Capital continues to get healthier, and industrial demand is picking up,” said Steven Winoker, an analyst at Sanford C. Bernstein Company. “That is the progression the company needs for the strategy to work.”

The solid second-quarter results from G.E., the nation’s largest industrial company, whose products range from jet engines to medical imaging machines, provide evidence of a gradually improving outlook for many industrial companies. Both Honeywell and Caterpillar reported sharply higher sales and profits on Friday and raised their earnings forecasts for the year. United Technologies and Goodrich also delivered strong results in recent days as well.

The strongest industrial growth for G.E., as for other large manufacturers, came in international markets, where revenue rose 23 percent in the quarter. Sales outside the United States account for 59 percent of G.E.’s industrial business.

“At least for companies that make advanced equipment that is often exported, there is a bit of manufacturing renaissance under way in the United States,” said Richard Tortoriello, an analyst at Standard Poor’s.

Still, investors did not reward the industrial companies on a skittish day in the markets. Honeywell and G.E. shares slipped, with G.E. off 12 cents, to close at $19.04. Caterpillar reported a 44 percent jump in earnings, but that was a few cents below Wall Street estimates, and its shares fell $6.45, to $105.15.

G.E.’s net income for the second quarter rose 21 percent, to $3.76 billion, up from $3.11 billion in the period a year earlier.

The company reported operating earnings per share — the measure of performance most closely watched by Wall Street analysts — of 34 cents a share, up 17 percent from 29 cents a share in the period a year earlier.

The average estimate of analysts, as compiled by Thomson Reuters, was 32 cents a share.

G.E. reported revenue of $35.63 billion, down 4 percent from the $36.93 billion it reported in the quarter a year earlier. The falloff was a byproduct of the company’s steps to narrow its focus, as it sold a majority stake in NBC Universal, the television network and movie studio, to Comcast. Excluding that from the year-to-year comparison, G.E.’s revenue would have increased 7 percent in this year’s second quarter.

The company’s revenue for the quarter was nearly $1 billion ahead of analysts’ consensus estimate of $34.7 billion.

GE Capital, which has aggressively shed bad debt since the financial crisis hit in the fall of 2008, reported a 1 percent decline in revenue, to $11.63 billion in the second quarter, while operating profits jumped to nearly $1.66 billion, up from $743 million in the period a year earlier.

Some problems remain, mainly in commercial real estate, where it lost $335 million. Still, that was an improvement from a loss of $524 million in the second quarter of last year.

“The turnaround is in place, and it is a smaller, more focused GE Capital today,” Keith Sherin, G.E.’s chief financial officer, said in an interview.

Despite the costly repair of its finance arm, G.E. has continued to invest aggressively to expand some of its industrial divisions.

In the last nine months, for example, the company has spent more than $7 billion on three acquisitions to bolster its oil and gas equipment business — Dresser, the John Wood Group and Wellstream Holdings. The companies make specialized equipment for oilfield and offshore production, widening G.E.’s range of offerings in that $10 billion-a-year unit.

In a conference call, Jeffrey R. Immelt, G.E.’s chief executive, suggested that there would be no more sizable acquisitions for a while. In integrating the new businesses, he said, “We have a lot on our plate already.”

Instead, he said, the company, which is based in Fairfield, Conn., will look to spend its extra cash on increasing the dividend and buying back shares.

G.E. has raised its dividend three times in the last year, to an annual level of 60 cents a share. But that is still less than half the $1.24 a share it had paid in early 2009, when the company had to sharply reduce its annual payout to shareholders to conserve cash. The move in 2009 was G.E.’s first dividend cut since the Depression.

Most of G.E.’s industrial businesses — aviation, transportation, health care, and oil and gas — showed solid improvement compared with last year. But profits were down 19 percent in its big energy business for power generation equipment — gas, steam and wind turbines. G.E. executives described that business as a cyclical laggard, with orders already accumulating, and sales and profits poised to improve later this year.

Over all, Mr. Immelt said, “We like our portfolio of businesses. We like the G.E. outlook.”

This article has been revised to reflect the following correction:

Correction: July 22, 2011

An earlier version of this article had an incorrect value for three General Electric acquisitions in its oil-and-gas equipment business. It was $7 billion, not $7 million.

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