GE's Q4 Operating Earnings in Sync - Analyst Blog
17 Januar 2014 - 9:54PM
Zacks
General Electric Company (GE) reported strong
fourth quarter 2013 results as operating earnings increased to $5.4
billion or 53 cents a share from $4.7 billion or 44 cents a share
in the year-ago quarter. The healthy increase in year-over-year
earnings was primarily attributable to improved market conditions
in growth markets and steady progress in the U.S. Operating
earnings per share for the reported quarter were in line the Zacks
Consensus Estimate.
For full-year 2013, General Electric reported operating earnings of
$16.9 billion or $1.64 per share compared with $16.0 billion or
$1.51 per share in 2012.Operating earnings for the year were also
in sync with the Zacks Consensus Estimate.
On a GAAP basis, the company reported quarterly earnings of $5.1
billion or 49 cents per share from continuing operations compared
with $4.4 billion or 41 cents in fourth quarter 2012. For full-year
2013, GAAP earnings from continuing operations were $15.5 billion
or $1.47 per share compared with $14.8 billion or $1.38 per share
in 2012.
Revenues
Revenues for the reported quarter improved 3% year over year to
$40.4 billion and matched exactly with the Zacks Consensus
Estimate. While overall Industrial segment revenue increased 6% to
$29.9 billion, GE Capital revenue declined 5% year over year to
$11.1 billion.
For full year 2013, revenues remained flat year over year at $146.0
billion and narrowly missed the Zacks Consensus Estimate of $146.3
billion.
The company received strong orders during the quarter across the
globe. U.S. and Europe orders were up 8% and 3%. Orders from growth
markets were up 13% as six out of nine regions witnessed
double-digit revenue growth. Total backlog of equipment and
services at quarter-end reached a record level of $244 billion.
During the reported quarter, CFM International – a 50/50 joint
venture between General Electric and Snecma -- received over $40
billion worth of contracts at list price for its aircraft engines.
In addition, the company procured approximately $700 million
contract from Saudi Electricity Company for F-class combined-cycle
gas turbines and services, and received 545 megawatts of
commitments for wind turbines in Brazil’s A-3 auction.
Revenues by Segment
During the reported quarter, Oil & Gas
revenues improved 17% year over year to $5.3 billion, while
Energy Management revenues increased 4% to $2.0
billion. Revenues from the Aviation segment
climbed 13% year over year to $6.2 billion. However, revenues from
the Power & Water segment witnessed a flat
trajectory year over year at $7.7 billion.
Healthcare segment revenues declined 1% to $5.1
billion. Revenues from Appliances & Lighting,
which formerly was known as Home & Business
Solutions, surged 6% year over year to $2.2 billion.
Revenues from the Transportation segment improved
7% year over year to $1.5 billion.
Revenues from the GE Capital segment declined 5%
year over year to $11.1 billion as it continued its strategy to
reduce the overall size of its portfolio while focusing on core
growth. In accordance with this plan, GE Capital paid $2 billion as
fourth quarter dividend to General Electric. Ending net investment
or ENI (excluding cash and cash equivalents) for GE Capital was
$380 billion at quarter-end. GE Capital finished the quarter with a
Tier 1 common ratio of 11.4%, up 1.2% year over year.
During the quarter, General Electric announced its intention to
shrink its finance business by 2015 through the divesture of its
North American consumer lending unit. The strategic move is
arguably the biggest step in restructuring GE Capital’s portfolio
to shield the parent company from intense market volatilities that
plagued the market during the 2008-09 financial crisis. The
spin-off will realign the corporate strategy of the company to a
manufacturing-based entity with emphasis on big-ticket items such
as medical equipment and scanners.
Margins, Balance Sheet and Cash Flow
With the spin-off, General Electric intends to focus more on its
industrial business and expects operating profit to aggregate 65%
of the total operating earnings of the company by 2015. The company
also expects to record a profit of approximately $1 billion from
the divesture of its retail finance business.
During an investor meeting in December, General Electric forecasted
double-digit growth in profits from aviation, healthcare and other
industrial units in 2014, driven by higher investments in the
industrial sector. At the same time, the company observed that it
was on track to reduce its profit share from the financial units to
30% of the total operating profit by 2015.
Operating margin in the Industrial segment increased 100 basis
points with cost productivity. General Electric’s total segment
profit for the reported quarter increased 19% year over year, with
a rise in profits from Oil & Gas (up 24%), Appliances &
Lighting (up 23%), Aviation (up 20%) and Transportation (up 11%),
partially offset by a considerable decline in profits in the Energy
Management segment (down 28%). Total Industrial segment profit was
up 12% while GE Capital profit climbed 38%.
Cash generated from operating activities for full year 2013 was
$17.4 billion. Cash and marketable securities at year-end 2013
aggregated $132.5 billion compared with $125.8 billion in the
year-ago period. General Electric returned $18.2 billion to
investors in 2013 through dividend payouts and buybacks. During the
quarter, the company announced a 16% increase in its quarterly
dividend to 22 cents per share, the fifth such increase in about
three years. General Electric also completed $9 billion worth of
acquisitions in 2013.
Outlook
With a focused and dedicated execution of its strategic plans,
General Electric expects to continue its bull run in 2014 as well
and simultaneously benefit the shareholders with a healthy return
on investments. The company has exited from the media business and
has increased its investments in core industrial businesses through
restructuring, state-of-the-art technology, and R&D
initiatives. General Electric also remains focused on its stringent
cost-cutting measures. We remain encouraged with these endeavors of
the company.
Moving Forward
Despite solid quarterly and full year 2013 results with a diligent
execution of operating plans – taking $1.6 billion of cost out,
growing margins, reducing the size of GE Capital, and returning
over $18 billion to shareholders – market sentiments were a bit
down. Share prices dipped in pre-market trading as investors
probably expected a more positive outlook from the company with a
healthy beat in earnings.
General Electric presently retains a Zacks Rank #3 (Hold). Other
companies in the industry worth mentioning include CLARCOR
Inc. (CLC), Crane Co. (CR) and
Carlisle Companies Inc. (CSL), each carrying a
Zacks Rank #2 (Buy).
CLARCOR INC (CLC): Free Stock Analysis Report
CRANE CO (CR): Free Stock Analysis Report
CARLISLE COS IN (CSL): Free Stock Analysis Report
GENL ELECTRIC (GE): Free Stock Analysis Report
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