General Electric Company
) reported relatively lackluster third quarter 2013 results with
operating earnings of $3.7 billion or 36 cents a share compared
to $3.8 billion or 36 cents a share in the year-ago quarter.
Although operating earnings per share for the reported quarter
remained flat year over year, it marginally beat the Zacks
Consensus Estimate by a penny.
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On a GAAP basis, the company reported quarterly earnings of $3.3
billion or 32 cents per share from continuing operations compared
to $3.5 billion or 33 cents in third quarter 2012.
Revenues for the reported quarter declined 1% year over year to
$35.7 billion, primarily due to lower revenues from the GE
Capital segment. While overall Industrial segment revenue
increased 2% to $25.3 billion, GE Capital revenue declined 5%
year over year to $10.7 billion. Revenues for the reported
quarter missed the Zacks Consensus Estimate of $36.0 billion by a
The company received strong orders during the quarter across the
globe. U.S. and Europe orders were up 18% and 17%, respectively,
increasing the overall tally by 19% year over year to $25.7
billion. Total backlog of equipment and services at quarter-end
reached a record level of $229 billion. The book-to-bill ratio
for the quarter was 1.2.
During the reported quarter, General Electric decided to supply
Algeria's Sonelgaz with power generation equipment and services
for six new combined-cycle power plants. Valued at $1.9 billion,
this is arguably one of the largest power agreements in the
company's history. Also during the quarter, General Electric
received a $600 million order to supply turbomachinery equipment
to Russia's Yamal liquefied natural gas project. In addition, CFM
International - a 50/50 joint venture between General Electric
and Snecma, received an order from Air Asia for 528 LEAP aircraft
engines and an order from Lufthansa for the new GE9X engine for
34 Boeing 777-9X aircraft, valued at more than $2.5 billion at
Revenue by Segment
During the reported quarter,
Oil & Gas
revenue improved 18% year over year to $4.3 billion, while
revenue decreased 3% to $1.8 billion. Revenue from the
segment climbed 12% year over year to $5.4 billion. However,
segment witnessed a flat trajectory in year-over-year revenue at
Home & Business Solutions
revenues surged 7% year over year to $2.1 billion.
Revenue growth from the
segment remained flat in the reported quarter at $1.4 billion.
Significantly fewer wind and gas turbine shipments, particularly
from the European markets, hampered revenue of the
Power & Water
segment, which decreased 10% year over year to $6.5
Revenue from the
segment declined 5% year over year to $10.7 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 third quarter dividend to
General Electric. GE Capital intends to pay dividends to the tune
of $6.5 billion in 2013 to its parent entity. Ending net
investment or ENI (excluding cash and cash equivalents) for GE
Capital was $384.6 billion at quarter-end. GE Capital finished
the quarter with a Tier 1 common ratio of 11.3%, up 116 basis
points year over year.
During the reported quarter, General Electric closed the
acquisition of Avio Aero, an Italy-based manufacturer of aviation
propulsion components and systems for civil and military
aircraft. In addition, GE Oil & Gas augmented its presence in
the oil and gas industry as it closed the acquisition of
artificial lift technology provider Lufkin Industries Inc. for
about $3.3 billion. Strengthening the artificial lift
capabilities of General Electric, the strategic acquisition
fortifies its turbomachinery product portfolio by leveraging
industrial gears and engineered bearings designed by Lufkin.
During the reported quarter, General Electric also collaborated
with XD Electric Group to offer high voltage transmission and
distribution solutions to customers in China.
Margins, Balance Sheet and Cash Flow
Operating margin in the Industrial segment increased 120 basis
points with cost productivity. Unit shipments in Power &
Water are expected to further recover in the later half of the
year. Year-to-date, General Electric has reduced Industrial
structural costs $1 billion and remains well on track for planned
margin growth of 70 basis points for the year.
General Electric's total segment profit for the reported quarter
increased 12% year over year, with a rise in profits from Home
& Business Solutions (up 28%), Aviation (up 18%) and
Transportation (up 15%), partially offset by a considerable
decline in profits in the Power & Water segment (down 57%).
Total Industrial segment profit was up 11% while GE Capital
profit climbed 13%.
Cash generated from operating activities for the reported quarter
was $7.8 billion. Cash and marketable securities at quarter-end
aggregated $130.4 billion. General Electric returned $13.9
billion to investors through dividend payouts and buybacks.
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.
General Electric presently retains a Zacks Rank #3 (Hold). Other
companies in the industry worth mentioning are
Hutchison Whampoa Ltd.
), each carrying a Zacks Rank #2 (Buy).