General Electric Co. (GE:US) climbed the most since 2011 after second-quarter earnings beat analysts’ estimates, joining the 93 percent of Standard & Poor’s 500 Index industrial companies posting higher-than-expected profit.
Adjusted profit from continuing operations was 36 cents a share, GE said today in a statement, exceeding the 35-cent average (GE:US) of 13 analysts’ projections compiled by Bloomberg. Net income at Honeywell International Inc. and Ingersoll-Rand Plc also surpassed estimates.
GE Chief Executive Officer Jeffrey Immelt is investing in the aviation and oil and gas divisions, opening factories and making purchases including Lufkin Industries Inc., to boost sales and profit from manufacturing and service operations. Results at GE and its peers contrast with the 71 percent of S&P 500 technology firms whose earnings exceeded estimates.
“The reaction to the industrials so far has been better than most people thought because expectations were set quite low and because companies are finding new growth opportunities,” Nicholas Heymann, a New York-based analyst at William Blair & Co., said in a telephone interview.
GE climbed 4.6 percent, the most since November 2011, to $24.72 at the close in New York. The stock’s 18 percent year-to-date gain (GE:US) trails the 19 percent advance for the S&P 500 and a 20 percent jump for the S&P 500 Industrials Index.
The Fairfield, Connecticut-based company affirmed its forecast for 2013 profit-margin expansion and industrial revenue growth. Julian Mitchell, an analyst at Credit Suisse Group AG in New York, had predicted that the sales target was at risk after falling earnings at the power and water unit dragged down first-quarter results.
Mitchell is among 14 analysts surveyed by Bloomberg (GE:US) who rate GE as a buy or equivalent, while Heymann is among eight who recommend holding the shares.
GE said the profit margin at its industrial businesses grew 50 basis points, or 0.5 percentage point. Immelt has pledged to expand margins by 70 basis points this year. Operating earnings at the units rose 2 percent from the same period in 2012 to $3.84 billion.
“We expect margin expansion to continue and segment profits to grow in the second half of the year,” Immelt said in the statement.
Revenue declined 3.5 percent to $35.1 billion, GE said, trailing the $35.6 billion average estimate in a Bloomberg survey of 10 analysts.
Eight of the 15 companies in the S&P 500 Industrials Index that have reported quarterly earnings since June 19 through today have missed analysts’ sales estimates, while only Cintas Corp. (CTAS:US) has failed to meet profit projections, according to data compiled by Bloomberg.
Meanwhile, Google Inc. and Microsoft Corp. were among five of the 17 companies in the S&P 500 Information Technology Index that reported profit that fell short of analysts’ projections.
GE said aviation sales climbed 9 percent, as did revenue for the oil and gas segment. GE Capital, the finance unit, reported sales of $11 billion, 3 percent less than a year earlier. The industrial backlog rose 3.2 percent to $223 billion.
The oil and gas business is GE’s fastest-growing unit by revenue as the company seeks to serve energy producers drilling in more-difficult-to-reach locations both on and offshore. GE agreed to buy Lufkin Industries, a manufacturer of oil-field equipment, in April for about $3.3 billion.
GE also is the world’s biggest maker of jet engines, and its $4.3 billion acquisition of Avio SpA, an aerospace-parts maker that counts GE among its biggest customers, is scheduled to close in the third quarter, according to the statement.
“You’re seeing a little faster growth in those businesses, and that’s going to be a main focus on the industrial side and across the whole company,” Christian Mayes, an Edward Jones & Co. analyst in St. Louis who has a hold rating on GE, said in a telephone interview. “Those are areas that have the most potential and where they’re spending money on acquisitions.”
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