General Electric Company
) 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.
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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 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
Revenues by Segment
During the reported quarter,
Oil & Gas
revenues improved 17% year over year to $5.3 billion, while
revenues increased 4% to $2.0 billion. Revenues from the
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
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
segment improved 7% year over year to $1.5 billion.
Revenues from the
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
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.
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.
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
Carlisle Companies Inc.
), each carrying a Zacks Rank #2 (Buy).