General Electric Co. (GE) delivered second-quarter earnings that matched analysts’ estimates, buoyed by rising sales in units making jet engines and gas turbines, as the company heads toward an initial public offering for the Synchrony Financial (SYF) unit this month.
GE begins meeting with investors today to pitch them on Synchrony, the provider of credit cards to retailers such as Wal-Mart Stores Inc. (WMT), and projects raising about $3.1 billion in the IPO. In selling 15 percent of the consumer-lending unit, Chief Executive Officer Jeffrey Immelt will take a step in his plan to pare GE’s financial arm.
“That’s an important part of transitioning toward an industrial focus,” said Christian Mayes, an Edward Jones & Co. analyst in Des Peres, Missouri, who rates the stock a hold. “It’s not a big amount in terms of the dollar value but it keeps them on track,” he said.
Synchrony is offering 125 million shares for $23 to $26 apiece, according to a regulatory filing today. GE said it will retain a position of about $17 billion in Synchrony until completing a full split-off in late 2015. Synchrony is seeking a market value of as much as $22 billion.
GE, based in Fairfield, Connecticut, also reported adjusted profit from continuing operations climbed 8 percent from a year earlier to $3.9 billion, or 39 cents a share. Net income rose 13 percent to $3.55 billion while quarterly revenue rose 3 percent $36.2 billion, missing analysts’ estimates of $36.3 billion.
Divesting a portion of GE Capital, which imperiled the parent company during the financial crisis, is part of Immelt’s emphasis on returning GE to its industrial roots. Last month he signed GE’s biggest acquisition: $17 billion to buy Alstom SA (ALO)’s energy assets.
“Deals like this come around infrequently, particularly at this kind of valuation,” Immelt said on a conference call with analysts. “The overall economics are extremely compelling.”
The CEO, 58, said he expects industrial units to account for about 75 percent of GE earnings in 2016, up from 53 percent last year.
As GE looks to reshape its portfolio, the company is in talks to sell its appliances business following a similar effort in 2008, according to people familiar with the discussions, Bloomberg reported this week.
GE expects more than $4 billion in divestitures this year, Jeff Bornstein, GE’s chief financial officer, said in a telephone interview after the company released earnings. He didn’t offer specifics on the dispositions under consideration.
“We are working to prune the industrial portfolio,” he said.
Industrial profits rose 9 percent to $4.2 billion, and the segment’s margins increased 20 basis points from a year earlier, the company said. Earnings rose 25 percent in the oil and gas unit and 12 percent in the aviation business. GE Capital’s profit fell 5 percent.
GE’s backlog of equipment and services rose in every segment to a total of $246 billion. This week, the company’s aviation unit and its joint-venture partner announced more than $36 billion in orders at England’s Farnborough Air Show, the industry’s largest expo this year.
“Our orders and backlog give us confidence in the second half and 2015,” Immelt said.
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