GE Capital Returns $3 Billion to Parent (Update 2)

  • General Electric reports second-quarter operating earnings of $4 billion, or 38 cents a share, beating the consensus estimate by a penny.
  • Revenue of $36.5 billion misses the consensus estimate of $36.8 billion.
  • Foreign exchange "negatively impacted revenues by $0.9 billion."
  • GE Capital upstreams $3.0 billion to parent.

Updated with GE's separate announcement of a plan to split of its Energy Infrastructure segment into three units, and comment from JPMorgan Analyst Stephen Tusa.

NEW YORK ( TheStreet) -- General Electric ( GE) on Friday reported that financial arm GE Capital paid the parent company $3.0 billion in dividends during the second quarter.

GE reported second-quarter operating earnings of $4 billion, or 38 cents a share, beating the consensus estimate of a 37-cent profit, among analysts polled by Thomson Reuters. The company earned 34 cents during the first quarter, and also during the second quarter of 2011.

GE's second-quarter revenue totaled $36.5 billion, missing the consensus estimate of $36.8 billion, but increasing from $35.2 billion during the first quarter, and $35.6 billion during the second quarter of 2011.

The company said that Foreign exchange "negatively impacted revenues by $0.9 billion."

GE CEO Jeff Immelt said that "GE Capital's strong operating performance and capital position allowed it to return a $3 billion dividend to the parent, and our Industrial segments delivered another quarter of double-digit organic revenue growth," and that the company's "strategy to invest in growth markets is paying off, as we achieved orders expansion in growth markets of 14% and revenue growth of 17%," while ending "the quarter with a record backlog."

General Electric's shares were up 1% in morning trading, to $20.00, after the company separately announced that it would split its Energy Infrastructure segment into three separately reporting units, which Immelt said would "reduce costs and increase our speed, focus and agility in the marketplace so we serve customers better." Immelt added that the move would "greatly simplify the way we communicate to investors and customers."

Second-quarter revenue for the Energy Infrastructure segment totaled $11.9 billion, increasing from $11.2 billion in the first quarter, and $10.4 billion during the second quarter of 2011. The segment's second-quarter profit was $1.76 billion, increasing from $1.52 billion the previous quarter, and $1.55 billion a year earlier.

The company said that second-quarter "Infrastructure orders were $23.1 billion, down 1% primarily driven by a 37% decrease in orders for wind turbines. Orders were up 8% on a year-to-date basis."

Second-quarter Aviation revenue totaled $$4.86 billion, declining from $4.89 billion the previous quarter, but increasing from $4.7 billion a year earlier. Segment profit was $922 million, increasing from $862 million in the first quarter, but declining from $959 million in the second quarter of 2011.

Healthcare revenues totaled $4.50 billion during the second quarter, growing from $4.30 billion in the first quarter, but flat from a year earlier. Profit for the Healthcare segment came in at $694 million in the second quarter, increasing from $585 million in the first quarter, but declining from $711 million in the second quarter of 2011.

Transportation revenue increased 23% sequentially to $1.57 billion in the second quarter, growing 27% year-over-year. Second-quarter segment profit was $282 million, increasing from $232 million in the first quarter, and $178 million during the second quarter of 2011.

GE Capital

GE Capital's second-quarter revenue totaled $11.5 billion, increasing slightly from the previous quarter, but declining 8% year-over-year, "driven by planned shrinkage," while the finance subsidiary's second-quarter profit grew to $2.1 billion, from $1.8 billion in the first quarter, and $1.6 billion, during the second quarter of 2011.

Following the $3.0 billion payment to the parent company, GE Capital's Tier 1 common equity ratio was a strong 10.1%.

Jack De Gan, the chief investment officer of Harbor Advisory of Portsmouth, N.H., said on Wednesday that "there may be as much as six billion going upstream from GE Capital to the parent company by the end of the year, which is going to allow the company to increase the shareholder dividend and fund some buybacks," since GE "would love to get the number of shares outstanding back to where it was before the credit crisis."

GE's shares closed at $19.80 Thursday, returning 13% year-to-date, following a 1% return during 2011.

GE Chart GE data by YCharts

The shares trade for 11.5 times the consensus 2013 EPS estimate of $1.73. The consensus 2012 EPS estimate is $1.54.

Based on a 17-cent quarterly payout, the shares have a dividend yield of 3.43%.

JPMorgan Chase analyst Stephen Tusa rates General Electric "Overweight," with a $21 price target, and on Friday described GE's second quarter as a "pretty clean, straightforward operating result, with highlights being Industrial organic growth, and margins, which beat, and are now ahead of the +30-50 bps guidance, while orders held in better than we were expecting with better price,especially in the key Energy Infrastructure segment."

Tusa went on to say that "the stock has been strong, but in the context of a choppy market, we think the results validate the strength which we think is driven by GECS cash, late cycle earnings growth and relative safety, none of which changes on this result."

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

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

To contact the writer, click here: Philip van Doorn.

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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.

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