G.E. Beats Expectations With Help of Industrial Units

Source: New York Times • Posted: Monday, October 21, 2013

General Electric posted lower overall revenue and profit in the third quarter, but improving sales of complex industrial equipment gave hope to investors that the company’s transformation of its business was succeeding.

G.E. said on Friday that net income fell 9 percent to $3.19 billion and revenue fell 1 percent to $35.73 billion in the third quarter. In last year’s comparable quarter, the company earned $3.49 billion on revenue of $36.3 billion. G.E.’s earnings per share dropped to 31 cents, from 33 cents last year.

Still, the company’s results exceeded Wall Street expectations on the strength of 11 percent growth in profit at its industrial divisions — those that make aircraft engines, CT scanners, gas turbines, locomotives and oil and gas drilling equipment.

Adjusted to remove the effects of restructuring and other charges, the company said it earned 40 cents a share. Analysts had expected G.E. to earn 35 cents a share, on average, according to FactSet.

Shares of G.E. rose 3.6 percent, to close at $25.57 on Friday.

Since 2008, G.E. has sold or reduced the size of its banking operations and other nonindustrial businesses like NBCUniversal. The company has not yet fully replaced the lost revenue and profit. GE Capital’s revenue slipped 5 percent in the third quarter, pulling down the company’s overall revenue.

But G.E. has worked to expand the parts of its business that build and service equipment, products and services sold to utilities, hospitals, oil and gas drillers and aircraft manufacturers around the world. Sales and profit from its industrial units — which both G.E. and investors are most concerned about — have improved.

“Our business lines are in big infrastructure, the stuff that companies and countries are investing in,” said Jeff Bornstein, the chief financial officer. “We’re getting to the point where we have the mix of businesses we want to go forward with.”

G.E. had predicted that its industrial operations would show strong growth later this year. Industrial segment profit rose 11 percent to $3.97 billion in the third quarter.

“We’re doing double-digit growth in a world that isn’t growing double digits,” Mr. Bornstein said.

G.E.’s aviation, oil and gas, transportation and home and business solutions divisions all had profit of more than 10 percent. The company’s power and water division, which had been hurt earlier in the year by lower sales of wind turbines, posted a 9 percent rise in profit. Health care grew 7 percent, but profit at the company’s energy management division declined by 57 percent.

“They are going to have to deliver on better expectations for the (fourth) quarter, but they are making good progress toward that,” said Christian Mayes, an analyst at Edward Jones.

G.E.’s global operations give it a close look at the pace of economic growth around the world. The company said its orders improved in Europe, Asia, North America, the Middle East and North Africa, suggesting continued widespread growth, though Latin America and India were relatively weak.

The company said orders rose 19 percent in the quarter to $25.7 billion and that its backlog of future orders hit a record $229 billion.

Jeffrey R. Immelt, the chief executive, said that would help the company stay on track to improve its profit margin by 0.7 percentage points for the year, and continue to grow in 2014. “We should see earnings growth accelerate in the fourth quarter,” Mr. Immelt said in a conference call with investors.