GE Posts Profit Growth in Most Industrial Segments (Update 1)

  • General Electric (GE) first-quarter operating earnings of $3.7 billion, or 36 cents a share, down 5% from a year earlier.
  • Earnings beat consensus estimate of 35 cents.
  • Revenue of $35.1 billion misses consensus estimate of $35.6 billion.
  • Industrial revenue down 1% year-over-year, Power & Water down 17%.
  • GE Capital pays $1.9 billion dividend to parent company.

Updated from 7:36 a.m. ET with market reaction and comment from Bank of America Merrill Lynch analyst Andrew Obin.

NEW YORK ( TheStreet) -- General Electric ( GE) on Friday reported profit growth in all of its industrial businesses, except for Power & Water

The Fairfield, Conn., conglomerate reported second-quarter operating earnings of $3.685 billion, or 36 cents a share, down from $4.059 billion or 39 cents a share, in the first quarter, and $4.010 billion, or 38 cents a share, in the second quarter of 2012.

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

Second-quarter total revenue was $35.1123 billion, missing the consensus estimate of $34.555 billion. Total revenue declined from $36.397 billion a year earlier.

GE CEO Jeff Immelt said the company "achieved Industrial segment profit growth in six of seven businesses, reduced structural costs, and continued to invest in growth," describing a "business environment that was slightly improved versus the first quarter."

Immelt also said in GE's earnings press release that "Emerging markets remain resilient, and in the U.S. we saw strong growth in orders this quarter. Europe is stabilizing but still challenged. We expect margin expansion to continue and segment profits to grow in the second half of the year."

GE's shares were up 5% in morning trading to $24.80.

Industrial Segments

Total industrial revenues were down 1% from a year earlier, to $25.168 billion in the second quarter, with all industrial segments showing year-over-year revenue growth except for Power & Water, which was down 17%, and Healthcare, which was flat. GE said the Power & Water unit's shipments "are expected to strengthen in the second half of the year."

The company also said it had reduced industrial structural costs by $474 million during the first half of the year, and was on track for an industrial profit margin expansion of 70 basis points for all of 2013.

Power & Water segment, second-quarter revenue totaled $5.719 billion, increasing from $4.825 billion in the first quarter, but declining from $6.900 billion during the second quarter of 2012. Second-quarter profit for the Power & Water segment was $1.087 billion, increasing from $719 billion the previous quarter, but declining from $1.303 billion a year earlier.

Second-quarter Oil & Gas revenue totaled $3.955 billion, increasing from $3.399 billion the previous quarter and $3.642 billion a year earlier. Oil & Gas segment profit for the second quarter was $532 million, up from $325 million in the first quarter and $466 million during the second quarter of 2012.

Energy Management second-quarter revenue totaled $1.981 billion during the second quarter, increasing from $1.748 billion in the first quarter and $1.877 billion in the second quarter of 2012. Second-quarter segment profit was $31 million, increasing from $15 million the previous quarter and $4 million a year earlier.

Aviation segment revenue for the second quarter was $5.303 billion, growing from $5.074 billion in the first quarter and $4.855 billion in the second quarter of 2012. Profit for the Aviation segment came in at $1.067 billion, up from $936 million the previous quarter and $922 million a year earlier.

Second-quarter Healthcare revenue totaled $4.490 billion, compared to $4.289 billion in the first quarter and $4.500 billion in the second quarter of 2012. Segment profit was $726 million in the second quarter, increasing from $595 million the previous quarter and $694 million a year earlier.

Bank of America Merrill Lynch analyst Andrew Obin rates General Electric a "Buy," and on Friday raised his price target for the shares by a dollar to $26, citing "much improved Industrial margins up 50bps with solid execution across the board relative to muted expectations."

In a note to clients, Obin noted that "Power & Water margin (which was the main culprit of 1Q13 disappointment) recovered robustly up y/y and q/q to 19%, despite continued double-digit decline in volume."

"In our view, GE's execution in 2Q13 will alleviate investors' concern over achievability of the targeted margin expansion in '13.," he wrote.

GE Capital

GE Capital's second-quarter revenue totaled $10.980 billion, down from $11.535 billion the previous quarter and $11.354 billion a year earlier. Second-quarter profit for the finance unit was $1.922 billion, declining from $1.927 billion in the first quarter and $2.122 billion a year earlier.

GE announced that GE Capital had paid $1.9 billion in dividends to the parent company during the second quarter, and that the dividend payments were expected to total $6.5 billion for 2013.

Following the dividend payments to the parent company, GE Capital's Tier 1 common equity ratio was 11.2% under Basel 1, increasing from 10.1% a year earlier, as the company continued on its planned shrinkage of the finance arm's balance sheet.

GE Capital had $515.5 billion in total assets as of June 30, declining from $533.4 billion a year earlier. The unit's "ending net investment" (ENI), excluding non-interest bearing liabilities, cash and equivalents, was $391.2 billion.

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 "has returned $9.9 billion to investors year-to-date through dividends and share buybacks."

General Electric's shares closed at $23.63 Thursday, returning 3% year-to-date, following a 21% return during 2012.

Based on a quarterly payout of 19 cents, the shares have a dividend yield of 3.22%.

The shares trade for 13 times the consensus 2014 EPS estimate of $1.82. The consensus 2013 EPS estimate is $1.66.

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 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.