GE's Messy First Quarter: What to Expect

NEW YORK ( TheStreet) -- General Electric's ( GE) first-quarter earnings report will be a messy one, and that's a good thing.

The company in February announced it would accelerate the sale of its remaining 49% stake in NBCUniversal to Comcast ( CCV) for $12 billion in cash, $4 billion in Comcast debt, and "$0.7 billion of preferred stock in a holding company controlled by Comcast whose sole asset is its interests in NBCUniversal."

GE's first-quarter results will also include the sale of office space at 30 Rockefeller Plaza in New York to Comcast for $1.4 billion in cash.

GE CFO Keith Sherin said during a conference call on Feb. 12, "GE will realize a $1 billion pretax gain on the 49% sale and GE Capital will realize a $900 million pretax gain on the real estate sale." Sherin said the company would be paying $3.2 billion in "cash taxes."

GE ended 2012 with $77 billion in cash and cash equivalents. Sherin said during the Feb. 12 call the NBCUniversal deal with increase the company's cash by roughly $13.5 billion, after tax.

When discussing the deal with Comcast, General Electric CEO Jeff Immelt was upbeat, as usual, saying during the call that "we don't expect any earnings dilution from the loss of NBC earnings in 2013 and 2014."

Even more important for investors was Immelt's statement that the exit from NBCUniversal would "increase and accelerate the buyback" of common shares. "Our Board has authorized an increase to our buyback from the existing $25 billion to $35 billion through 2015. As of today, we have about $23 billion remaining and our plan is to buy back approximately $10 billion worth of stock this year alone."

GE continues to make moves to support its goals of growing its energy business and increasing its percentage of revenue from industrial operations. The company on April 8 agreed to purchase oil drilling equipment manufacturer Lufkin Industries ( LUFK) for $3.3 billion in cash.

First-Quarter Preview

GE reports its first-quarter results early Friday morning, with a consensus earnings estimate of 35 cents a share among analysts polled by Thomson Reuters, but increasing from 34 cents in the first quarter of 2012.

Morgan Stanley analyst Betsy Graseck rates GE "equal-weight" and in a report on Monday said it would be "an extremely complex quarter" for the company, given the NCBUniversal deal, along with "restructuring activity and distorted tax rates. Graseck is slightly behind the consensus, estimating first-quarter EPS of 34 cents.

GE Capital

During the fourth quarter, GE Capital paid the parent company $1.0 dividend, for a total of $6.4 billion in dividends kicked upstairs during 2012.

GE Capital has "become a cash machine," according to Graseck, who wrote, "we see potential for $30bn cash distribution over 2012/15e," assuming the finance unit maintains a Basel I Tier 1 common equity ratio of 10.0%.

Graseck estimates GE Capital's earnings for the first quarter will come in at $2.216 billion, increasing 24% from $1.792 billion in the first quarter of 2012. She also estimates the financial arm will pay the parent company a first-quarter dividend of $665 million. "We model a 30% payout ratio of projected GECS earnings," she wrote.

GE Capital had $539.2 billion in total assets as of Dec. 31, declining from $548.5 billion a year earlier, in keeping with the company's plan to reduce the size and risk of its finance business. Excluding non-interest bearing liabilities, cash and equivalents, the finance unit's "ending net investment" was $418.6 billion as of Dec. 31, already below Immelt's earlier target of $425 billion.

While shrinking GE Capital, GE has also worked to improve the unit's liquidity mix. The company in January completed its acquisition of Metlife Bank's deposit business, as MetLife ( MET) continued to work to escape Federal Reserve regulation as a bank holding company. GE Capital added about $6.4 billion in deposits and an "established online platform" to gather retail deposits.

Industrial Segments

The consensus first-quarter operating revenue estimate for General Electric is $34.513 billion, declining from $39.327 billion in the fourth quarter and $35.182 billion during the first quarter of 2012.

Most analysts are expecting solid year-over-year revenue increases across GE's various industrial groups, except for the power and water group. Graseck estimates Power & Water revenue will decline 19% year-over-year to $5.295 billion in the first quarter, from $6.551 billion a year earlier.

During the first quarter of 2012, GE shipped 611 wind turbine units. Sherin said during the fourth-quarter earnings call that "we had orders for 412 wind turbines versus 1023 last year." Graseck expects first-quarter wind turbine shipments to come in at about 200 units. She also forecasts a decline in shipments of gas turbine units to 17 in the first quarter from 35 a year earlier.

Citigroup analyst Deane Dray in a report on April 9 estimated that GE would see double-digit year-over-year profit increases for all industrial units, except for Power & Water. For the Oil & Gas segment, Dray estimates first-quarter profits of $405.8 million, increasing from $340 million in the first quarter of 2012. For the Aviation unit, Dray expects a first-quarter profit of $966 million, increasing from $862.0 million a year earlier.

Dray also sees Healthcare profits rising 10% year-over-year to $642 million in the first quarter, with Transportation earnings increasing 12% to $261 million.

Dray rates GE a "buy," with a $28 price target.

GE's Stock

General Electric's shares closed at $22.76 Wednesday, returning 9% this year, following a 21% return 2012.

The shares trade for 12.3 times the consensus 2014 EPS estimate of $1.85. The consensus 2013 EPS estimate is $1.67.

Based on a quarterly payout of 19 cents, the shares have a dividend yield of 3.34%.

GE Chart GE data by YCharts

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-- 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.

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