March 28, 2024

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.    

Article source: http://feeds.nytimes.com/click.phdo?i=0b44d598d66dce0f2fa0145d78de4b33