GE Earnings: Industrial Margins Gain as Capital Keeps Winding Down
The expansion of industrial margins helped offset the dent caused by General Electric’s (NYSE:GE) sale of NBCUniversal, making for two notable highlights from the company’s first quarterly report of 2014, released Thursday morning. Shares are trading up in early market activity as a result after the conglomerate beat analysts’ expectations on the profit front and delivered good news for the company’s large industrial divisions.
That’s a promising sign as GE works to wind down its GE Capital business and stokes the fires in its manufacturing and industrial sectors. “If you dig into the industrial businesses, the bigger businesses were the ones that did really well,” Christian Mayes, an Edwards Jones analyst, told Bloomberg. “Oil and gas and aviation have been strong for a while now. Especially on the aviation side, you’re starting to see orders for spare parts increase again, with the airlines feeling like they can restock their shelves.”
“GE is on track to achieve its goal of $1B or more in structural cost-out for the year,” said CEO Jeff Immelt in the company’s report. “Industrial structural costs in the first quarter were down $254 million versus the prior-year period, driven by simplification initiatives and benefits from restructuring investments.”
Industrial segment profits rose 12 percent to $3.3 billion, as Oil and Gas leapt 27 percent year-on-year and Aviation contributed another 12 percent gain in sales growth. GE’s financial operations are winding down appropriately and on schedule. Immelt noted that GE is ”on track for our Retail Finance IPO and remain committed to a GE that has 70 percent of our earnings from the Industrial businesses.” Last year, Industrial made up just 53 percent.
Infrastructure orders remained flat with the year-ago quarter, at $23.7 billion in revenue. GE Capital revenue fell to $10.5 billion, down 8 percent versus the year-ago period. Overall, first-quarter revenues fell by 2 percent to $34.2 billion, as Industrial sales of $24 billion gained 8 percent when compared to the first quarter of last year.
During the first quarter, GE took orders for 233 advanced Evolution Series locomotives in a transaction valued at about $700 million, and airline Air France-KLM announced its choice of GE’s GEnx jet engines for 37 Boeing 787 Dreamliners in a deal worth $1.7 billion at list prices.
“We’re off to a good start to the year, and our 2014 framework remains unchanged,” Immelt said, referring to the earnings framework that GE offers in lieu of formal earnings forecasts. “The environment is consistent with our expectations, with a positive bias.”