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GE Revenue Rises, Lifted by Oil and Gas (Update 1)

  • Third-quarter operating earnings of $3.7 billion, or 36 cents a share.
  • Earnings down 3% year-over-year, but EPS flat because of share buybacks.
  • Earnings beat consensus estimate of 35 cents.
  • Revenue of $35.7 billion misses consensus estimate of $36.0 billion.
  • Industrial revenue up 2% year-over-year, Oil & Gas up 18%, Power & Water down 10%.
  • GE Capital pays $2.0 billion dividend to parent company.

Updated fro 7:41 a.m. ET with market reaction and comment from Deutsche Bank analyst John Inch.

NEW YORK ( TheStreet) -- General Electric (GE - Get Report) on Friday reported 11% industrial profit growth year-over-year, while industrial revenues were up 3%.

The Fairfield, Conn., conglomerate reported third-quarter operating earnings of $3.699 billion, or 36 cents a share, compared to $3.685 billion, or 36 cents a share, in the second quarter, and $3.798 billion, or 36 cents a share, in the third quarter of 2012.

The third-quarter operating profit beat the consensus estimate of 35 cents, among analysts polled by Thomson Reuters.

Third-quarter total revenue was $35.725 billion, which was lower than the consensus estimate of $35.955 billion. Total revenue rose from $35.1123 billion in the second quarter, but was down from $36.254 billion in the third quarter of 2012.

The company's "third-quarter results were very strong in an improving global business environment," said GE Chairman and CEO Jeff Immelt. "Orders grew 19% with orders growth around the world. Total segment profit grew 12%, Industrial margins grew 120 basis points in the quarter, and we are on track for planned margin expansion of 70 basis points for the year."

GE's order backlog for industrial products and services grew to $229 billion as of Sept, 30 from $223 billion the previous quarter, marking its largest backlog ever.

Industrial Segments

Total industrial revenues were down 3% from a year earlier, to $25.813 billion in the third quarter, with Oil & Gas showing the largest increase of 18%, while Power & Water showed the largest decline of 10%.

"As expected, our Power & Water business is strengthening in the second half of the year," Immelt said. "Our strategic initiatives are working: growth market orders expanded 22%; service revenues grew 7%; and margins grew significantly, driven by a positive value gap and company-wide simplification efforts. We have reduced Industrial structural costs by approximately $1 billion year-to-date, and will exceed our plan for the year."

For Power & Water segment, third-quarter revenue totaled $6.498 billion, increasing from $5.715 billion during the second quarter, but declining from $7.196 billion during the third quarter of 2012. Third-quarter profit for the Power & Water segment was $1.289 billion, increasing from $1.087 billion the previous quarter and $1.184 billion a year earlier.

Third-quarter Oil & Gas revenue totaled $4.315 billion, up from $3.955 billion the previous quarter and $3.645 billion a year earlier. Oil & Gas segment profit for the third quarter was $519 million, down from $532 million in the second quarter, but up from $469 million in the third quarter of 2012.

Energy Management revenue during the third quarter totaled $1.828 billion, declining from $1.981 billion in the second quarter and from $1.879 billion in the third quarter of 2012. Segment profit was $18 million in the third quarter, down from $31 million the previous quarter and $42 million a year earlier

Aviation segment revenue for the third quarter was $5.364 billion, growing from $5.303 billion in the second quarter and $4.781 billion in the third quarter of 2012. Profit for the Aviation segment rose to $1.091 billion in the third quarter from $1.067 billion the previous quarter and $924 million a year earlier.

Third-quarter Healthcare revenue $4.304 billion, declining from $4.490 billion the previous quarter and down slightly from $4.307 billion a year earlier. Segment profit was $665 million, down from $726 million in the second quarter, but up from $620 million in the third quarter of 2012.

GE Capital

GE Capital's third-quarter revenue totaled $10.670 billion, declining from $10.980 billion the previous quarter and $11.274 billion a year earlier. Third-quarter profit for the finance unit was $1.895 billion, down slightly from $1.922 billion in the second quarter, but up from $1.675 billion in the third quarter of 2012.

GE Capital paid a $2.0 billion dividend to the parent company during the third quarter.

The finance unit had $515 billion in total assets as of Sept. 30, declining from $521 billion the previous quarter. The unit's "ending net investment" (ENI), excluding non-interest bearing liabilities, cash and equivalents, was $385 billion. Immelt has said his goal for GE Capital's ENI is a further reduction to between $300 billion and $350 billion by the end of 2013.

Following the dividend payments to the parent company, GE Capital's Tier 1 common equity ratio was 11.3%.

Parent and Stock

GE in February increased its common share buyback authorization to $35 billion from $25 billion. Immelt has previously said the company's 2013 share repurchases would total about $10 billion. The company said it had "returned $13.9 billion to investors year-to-date through dividends and share buybacks."

General Electric's shares closed at $24.68 Thursday, returning 20% this year, following a 21% return during 2012.

Based on a quarterly payout of 19 cents, the shares have a dividend yield of 3.08%.

The shares trade for 13.7 times the consensus 2014 EPS estimate of $1.80. The consensus 2015 EPS estimate is $1.94.

GE's shares were up over nearly 4% in afternoon trading, to $25.60.

"GE's earnings quality in the quarter was high," wrote Deutsche Bank analyst John Inch in a note on Friday.

"Equipment and Services orders for the quarter were up 19% - a substantial improvement from last quarter's up 4%, with Europe rebounding to up 17% and the U.S. continuing to remain extremely robust at up 18%," Inch wrote.

A major contribution to growing Power & Water orders was the signing in September of three contracts with Algeria's national gas and electric company, for $2.7 billion, which includes providing turbines for six power plants.

"Overall, we believe that investors have been in a 'show me' posture toward GE given the stock's weak performance since the 2Q13 earnings beat - with particular scrutiny applied toward the company's target of 70bps of margin expansion. Consequently, we expect GE's shares to outperform," Inch wrote.

His price target for GE' stock is $28.00.

GE Chart GE data by YCharts

Interested in more on General Electric? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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