General Electric reported healthy fourth quarter 2014 results on sustained industrial focus. While quarterly revenues increased year over year, operating earnings beat the Zacks Consensus Estimate by $0.01. The company is realigning the corporate strategy to a manufacturing-based entity and intends to shrink its finance business by 2015 to reduce credit risks. The successful acquisition of Alstom's Power and Grid business will further lead to cost synergies and accretive earnings through complementary products, combined resources and increased geographical presence. However, GE Capital's loan defaults are likely to be a drag on the company's profitability. In addition, a huge backlog of equipment and services increase operating risks amid a challenging macroeconomic environment. Nevertheless, we maintain our Neutral recommendation for the stock.
General Electric Company is one of the largest and the most diversified technology and financial services corporations in the world. With products and services ranging from aircraft engines, power generation, water processing, and security technology to medical imaging, business and consumer financing, media content and industrial products, it serves customers in more than 100 countries and employs more than 287,000 people worldwide.
Effective January 1, 2011, General Electric reorganized its Technology Infrastructure segment into three separate segments namely Aviation, Healthcare, and Transportation. Earlier, this segment comprised all three together. General Electric further reorganized its Energy Infrastructure segment into three separate segments effective October 1, 2012, namely Power & Water, Oil & Gas, and Energy Management. Effective fourth quarter 2013, the company has further renamed the Home & Business Solutions segment as Appliances & Lighting. Consequently, the company presently has eight operating segments: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting, and GE Capital as discussed hereunder.
GE Capital (27.4% of total revenues in fourth-quarter 2014): Equipped with diverse type of products, ranging from consumer lending to financial solutions, GE Capital meets the financial needs of businesses of all sizes. The segment includes General Electric's Commercial Lending and Leasing, Consumer, Real Estate, Energy Financial Services and GE Capital Aviation Services businesses and General Electric Capital Corporation Corporate. The primary competitors for this segment include Ally Financial Inc., Ford Motor Credit Company LLC and ORIX Corporation.
Commercial Lending and Leasing provides customer specific financing solutions to aid them in their operations, growth and restructuring. The customers served range from small businesses to Fortune 100 companies. During third quarter 2014, General Electric spun off its North American consumer-lending arm Synchrony Financial (SYF) in an initial public offering (IPO) as the first concrete step to shrink its finance business by 2015. The spin-off will realign the corporate strategy of General Electric to a manufacturing-based entity with emphasis on big-ticket items such as medical equipment and scanners.
Consumer Financing provides innovative financing and banking solutions, including credit cards, personal loans, saving and deposits through a diverse network of businesses retail banks, retailers and dealers in 20 countries.
Energy Financial Services make worldwide investments across the capital spectrum in essential, long-lived and capital-intensive assets that meet global energy demand. The business also offers General Electric's technical know-how, technology innovation, financial strength and rigorous risk management.
GE Capital Aviation Services (GECAS) provides wide range of leasing, financing and servicing products on commercial aircrafts, engines and parts. The business is an industry leader in commercial aviation financing. It has over 1,800 owned and managed commercial jet aircraft, deep domain expertise and a global presence.
Real Estate Financing provides real estate lending, equity capital, asset management and investment management in 31 countries across North America, Europe and Asia.
Power & Water (22.4%): The segment produces gas, steam and aero derivative turbines generators combined cycle systems and renewable energy solutions, as well as provides water treatment services and equipment. This segment also sells surface and sub-sea drilling and production systems, floating production platform equipment, compressors, turbines, turbo expanders, and high pressure reactors to oil and gas companies, as well as provides related services.
GE Aviation (15.3%) is a leading supplier of commercial and military jet engines and components. It also provides avionics, electric power, and mechanical systems for aircraft along with an extensive global service network to support these products. Competitors include United Technologies-Pratt and Whitney division, Honeywell and Rolls-Royce.
Oil & Gas (11.9%): GE Oil & Gas provides highly developed technology equipment and services to onshore, offshore and sub-sea oil & gas projects.
GE Healthcare (12.2%) has expertise in medical imaging and information technologies, medical diagnostics, patient monitoring systems, disease research, drug discovery and biopharmaceutical manufacturing technologies. The primary competition for this segment comes from Phillips which is a market leader in this category.
Appliances & Lighting (5.5%) segment includes Appliances and Lighting, and Intelligent Platforms businesses. It sells and services major home appliances including refrigerators, freezers, electric and gas ranges, cook tops, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners, and residential water systems for filtration, softening and heating.
Energy Management (4.7%): GE Energy is a foremost global provider of power generation and energy delivery technologies in all areas of the energy industry including coal, oil natural gas and nuclear energy as well as with renewable resources such as water, wind, solar and alternative fuels.
GE Transportation (3.7%) provides technology solutions for customers in a variety of industries, such as railroad, marine, drilling, wind and mining. The business provides freight and passenger locomotives, railway signaling and communications systems, information technology solutions, marine engines, motorized drive systems for mining trucks and drills, high-quality replacement parts and value added services.
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