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GE's Q4 Operating Earnings in Sync - Analyst Blog

By: Zacks.com
Posted: 1/17/2014 3:54:00 PM
Referenced Stocks: CLC;CR;CSL;GE

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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