General Electric Co. (GE:US) benefited from rising sales of jet engines and oilfield equipment last quarter, helping Chief Executive Officer Jeffrey Immelt deliver on his plan to fatten profit margins.
The stock rose the most in the Dow Jones Industrial Average (INDU) today after GE beat analysts’ earnings estimates. Buoyed by growth in the industrial business, GE reported adjusted profit from continuing operations of 33 cents a share, topping the 32-cent average of 11 estimates compiled by Bloomberg.
Immelt is emphasizing industrial margins while working to build up the manufacturing units and shrink GE Capital, whose North American consumer-lending business will have an initial public offering this year. Profit margins in the industrial segment at Fairfield, Connecticut-based GE improved by 50 basis points to 13.4 percent.
“If you dig into the industrial businesses, the bigger businesses were the ones that did really well,” said Christian Mayes, an Edwards Jones & Co. analyst in Des Peres, Missouri, with a hold rating on GE. “Oil and gas and aviation have been strong for a while now. Especially on the aviation side, you’re starting to see orders for spare parts increase again, with the airlines feeling like they can restock their shelves.”
While quarterly revenue fell 2 percent to $34.2 billion, trailing the average estimate of $34.4 billion, industrial sales rose 8 percent with organic growth of 8 percent, GE said.
The shares climbed 1.7 percent in New York to $26.56, the highest closing price in three months. That pared GE’s year-to-date decline to 5.2 percent (GE:US), trailing the 0.9 percent advance for the Standard & Poor’s 500 Index.
GE’s oil and gas division, the company’s fastest-growing business, is being boosted by the drilling boom pushing U.S. oil and natural gas production to its highest levels in three decades. Engine sales are rising, too, as airlines take delivery of jets leaving Boeing Co. (BA:US) and Airbus Group NV (AIR) factories at a record clip. Air France-KLM Group (AF) picked GE last quarter to supply engines for 37 Boeing 787 Dreamliners.
“We feel good about growth for the year,” Immelt said today in a conference call. GE will look to do acquisitions in a range of $1 billion to $4 billion, and will spend more when there is “unique value,” he said.
GE expects about $4 billion of divestitures in its industrial segments this year, including one sale currently being negotiated in an infrastructure business, Chief Financial Officer Jeff Bornstein said in a telephone interview.
“We’re always re-evaluating the portfolio -- businesses, products, geographic platforms,” he said.
GE, which doesn’t give earnings forecasts, reaffirmed the so-called framework of information given to analysts to devise their own estimates. Profit excluding some costs and gains will be $1.70 a share for the full year, based on the average of 15 estimates compiled by Bloomberg.
First-quarter operating earnings were $3.3 billion, down 18 percent from the year-earlier period, which was boosted by the sale of NBC Universal. Including pension costs and discontinued operations, net income slid 15 percent to $3 billion.
Infrastructure orders were unchanged at $23.7 billion, and the order backlog grew to $245 billion, GE said.
“While your backlogs grew across virtually every business, flat orders is going to raise some eyebrows,” said Nicholas Heymann, a New York-based analyst at William Blair & Co. who rates GE as market perform. “The margins were certainly a little better than we expected. The largest area of concern would be that orders were flat overall.”
Sales in the oil and gas division climbed 27 percent to $4.3 billion. The aviation unit posted a 14 percent gain to $5.8 billion.
Reduced sales of mining equipment contributed to a 14 percent drop in transportation unit revenue to $1.2 billion. Bad weather in the quarter hurt the appliances and lighting division, where sales declined 3 percent to $1.9 billion. Health-care revenue fell 2 percent to $4.2 billion.
“There’s just so damn much going on in the U.S. health-care market right now,” Immelt said, alluding to consolidation in the medical industry and uncertainty caused by the Patient Protection and Affordable Care Act. “We’re not really thinking much about robust growth.”
GE Capital’s revenue slid 8 percent to $10.5 billion.
Immelt has said he wants industrial units eventually to account for 70 percent of GE earnings, up from 53 percent last year. The CEO has been slimming GE Capital since the 2008-09 financial crisis, when the freeze in credit markets hamstrung the unit and imperiled the parent company.
The planned IPO of Synchrony Financial, as GE Capital’s North American consumer operations are now known, is “on track,” Immelt said. A split-off transaction for the rest of the business is to follow in 2015. Synchrony’s offerings include store credit cards for companies such as Wal-Mart Stores Inc. and J.C. Penney Co.
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