Updated with coverage of conference, latest stock quote, investor quote.
FAIRFIELD, Conn. (
) -- The quick take on
second-quarter report seems to be solid but unspectacular.
"As usual, there are puts and takes, but the quarter is a solid result, showing further progress and a clean upside beat on GECS
GE Capital," JPMorgan analysts wrote earlier this morning, ahead of the company's conference call. After wrestling with the minutiae of how the numbers may or may not compare to Wall Street's consensus view, the firm cut to the chase: "Either way, to avoid controversy, at worst, this is in line."
But the stock was off 3.4% to $14.73 in late morning trades, indicating some disappointment with the performance. Volume was already at 55 million less than two hours into the session.
Before the opening bell, GE reported second-quarter net income from operations of $3.3 billion for the three months ended June 30. Excluding $75 million in dividends on preferred shares, net income attributable to common shareholders came in at $3 billion or 30 cents a share.
The average estimate of analysts polled by Thomson Reuters was for a profit of 27 cents a share in the June period.
Total revenue for the second quarter was $37.4 billion, an increase of 2% from the first quarter but down 4% year-over-year and below Wall Street's consensus projection of $38.6 billion.
The $3 billion in preferred shares have an expensive 10% coupon. CEO Jeff Immelt has said previously the company plans to use excess cash to redeem the preferred shares before considering an increase in the dividend on common shares, which now sits at 10 cents a share after being reduced from 31 cents a share in July 2009.
Shares were yielding 2.62% as of Thursday's market close at $15.25, and with reinvested dividends, had returned 2% year-to-date and 28% over the previous year.
Immelt said GE was continuing "to generate strong cash flow, which we will invest strategically to create shareholder value, while keeping the company safe."
Although the $6.3 billion in industrial cash flow during the first half of 2010 was a decline of 10% from a year earlier, the company appeared to be well-positioned to follow through on its plans to retire the preferred shares and consider returning capital to shareholders through increased dividends on common shares and possibly buybacks, as total cash and equivalents were $74 billion as of June 30, up from $70 billion the previous quarter and $52 billion a year earlier.
The company reported single-digit year-over-year revenue declines in its Energy, Technology and GE Capital units, partially offset by revenue increases in the Home & Business Solutions and NBC Universal divisions, however profits increased in all segments, except for Technology, where earnings were down 11%.
GE Capital's segment profit was $0.8 billion, as loan losses and impairment write-downs declined $0.5 billion from the first quarter, when the segment profit was $0.6 billion. GE Capital's profit was $0.4 billion a year earlier.
JPMorgan analysts said GE's Industrial and Capital units each came in a penny ahead of its profit expectations for the period.
"GE Capital trends continue to look better, and, unlike last quarter when Industrial orders disappointed, the underlying order flow looks stronger this quarter," JPMorgan said. "There will be some debate around the items as always, but the bottom line to us is that this is at least an in-line quarter even under a more conservative reading, a positive versus expectations coming in."
During GE's analyst conference call, there was considerable discussion about GE's growing hoard of cash. Assuming the sale of a 51% stake in NBC is completed by year-end, Immelt said the company expects to have about $25 billion cash on the corporate level. That's a very high number, as the company tended to hold around $2 billion at the parent level before the financial crisis began.
Immelt repeatedly said the cash position at GE Capital and the parent makes it "easier to focus on the dividend," but that the company would consider "good complimentary transactions," as well as stock buybacks.
Charlie Smith, Chief Investment Officer for Fort Pitt Capital Group said GE and other U.S. companies were "cautious to roll out cash for investment," and were possibly over-reacting to the crisis by building up so much excess cash.
Smith also said that GE's $524 million reserve provision for its commercial mortgage portfolio was "a number that stood out to me," and indicated that GE Capital's elevated loan loss provisioning would continue for "longer than anybody expected."
The bottom line for Smith was that GE's industrial business has reach an equilibrium, and he described the stock as "super-cheap, trading at just five times cash flow from operations." The stock is among the investments held by the funds he manages.
Written by Philip van Doorn in Jupiter, Fla.
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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 TheStreet.com 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.