GE Rises as Finance Joins Energy to Fuel Earnings Growth
General Electric Co. (GE) rose after gains in energy, its biggest industrial business, and finance fueled higher earnings than analysts estimated.
Earnings from continuing operations advanced to $4.01 billion, or 38 cents a share, greater than the 37-cent average estimate from analysts. Chief Executive Officer Jeffrey Immelt said the company is on track to expand profit margins in its industrial units by 0.3 percentage point to 0.5 percentage point this year.
GE is benefiting from the CEO’s efforts to boost industrial earnings while shrinking the finance arm after $32 billion of credit losses in the financial crisis. GE Capital profit rose 31 percent to $2.12 billion, while energy earnings climbed 13 percent even though wind-turbine demand fell, the Fairfield, Connecticut-based company said today in a statement.
“The industrial businesses are building up some decent momentum that hasn’t been derailed by Europe or the broader economic slowdown,” Matt Collins, an Edward Jones & Co. analyst in St. Louis, said in an e-mail. “The key for the rest of the year is margins. If they meet the guidance and finally start turning around, that should support the stock heading into 2013.”
The company said separately it would divide its energy business, which has about 100,000 employees and makes up about 30 percent of sales, into three separate units. Vice Chairman John Krenicki, who headed the division, will leave at the end of 2012 and the chiefs of the three new units will report directly to Immelt.
“We had kind of a $50 billion company within a company,” after making $11 billion in energy acquisitions through 2011, Immelt said on a conference call with analysts and investors. “The idea to get a little bit faster and more focused on those businesses seemed to be a logical position.”
Reorganizing the energy unit, which will take effect in the fourth quarter of this year, will eliminate a layer of management and bring three senior executives within one step of Immelt. Steve Bolze, who leads the GE Power & Water business; Dan Heintzelman, head of GE Oil & Gas; and Dan Janki, in charge of GE Energy Management, will report directly to the CEO once the changes take effect.
GE expects the move will save it $200 million to $300 million in costs, Immelt said on the call, without giving details.
GE rose 0.4 percent to $19.87 at the close in New York, outperforming declines in the broader Standard & Poor’s 500 Index and Dow Jones Industrial Average. The shares climbed as much as 2.9 percent in intraday trading.
Accounting changes included in a U.S. transportation spending bill signed into law by President Barack Obama earlier this month will reduce pension expense by $2.5 billion through 2013, Immelt said on the call.
The industrial division’s order backlog climbed to a record $204 billion from $201 billion in the three months through March, GE said. Orders in those businesses fell 1 percent, dragged down by a 37 percent slide in demand for wind turbines ahead of the scheduled expiration of a U.S. power-production tax credit later this year.
“We prepared ourselves for a pretty tough year this year, certainly a volatile year,” Immelt said on the call. “We haven’t been disappointed.”
Profit declined at the health-care business and the aviation unit, which makes jet engines for airplanes. In the transportation division, which builds diesel locomotives, earnings increased 58 percent to $282 million.
Including $352 million in pension expenses and $553 million in costs from discontinued operations such as the WMC mortgage business sold in 2007, GE’s net income declined 18 percent to $3.11 billion, or 29 cents a share, from $3.76 billion, or 35 cents. Revenue climbed 2 percent to $36.5 billion, trailing analysts’ estimates of $36.8 billion.
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