GE Beats Estimates as Energy Sales Buoy Industrial Unit

General Electric Co. Chief Executive Officer Jeffrey Immelt
Chief Executive Officer Jeffrey Immelt is increasing GE’s focus on divisions that make gas turbines, jet engines and diesel locomotives while shrinking GE Capital’s balance sheet. Photographer: Tony Avelar/Bloomberg

General Electric Co. climbed to the highest in more than two weeks after first-quarter earnings topped analysts’ estimates, propelled by profit gains at the energy business, its largest industrial division.

Earnings from continuing operations rose less than 1 percent to $3.59 billion, or 34 cents a share, excluding some costs, from $3.56 billion, or 33 cents, a year earlier, GE said today in a statement. That exceeded the 33-cent average of 13 analysts’ estimates compiled by Bloomberg.

Chief Executive Officer Jeffrey Immelt is increasing GE’s focus on divisions that make gas turbines, jet engines and diesel locomotives while shrinking GE Capital’s balance sheet. He has pledged to boost industrial earnings this year by 5 percent to 10 percent, excluding the effect of acquisitions, while expanding profit margins.

“The industrial operations are beginning to take over and shoulder more of the load,” Daniel Holland, a Morningstar Inc. analyst in Chicago, said in a telephone interview. “It’s very encouraging that the company was able to perform pretty well even with essentially flat earnings out of GE Capital.”

GE gained 1.1 percent to $19.36 at the close of trading in New York, the fifth-largest increase today among companies in the Dow Jones Industrial Average. The Fairfield, Connecticut-based company’s shares have advanced 8.1 percent this year, trailing a 9.6 percent gain by the Standard & Poor’s 500 index.

Energy Earnings

Earnings at GE’s energy infrastructure unit climbed 10 percent to $1.52 billion, leading industrial profit of $3.27 billion. Orders at the unit grew 21 percent to $7.7 billion as customers purchased 696 wind turbines in the quarter, compared with 327 in the same period a year earlier. Energy’s growth outpaced that of GE Capital for the first time since the first quarter of 2010.

The finance unit’s profit was little changed at $1.79 billion, with the real estate business contributing $56 million in its first profitable quarter since the three months ending Sept. 30, 2008. That period included a freeze in global credit markets with the bankruptcy of Lehman Brothers Holdings Inc.

GE Capital will sell its Irish residential mortgage business, leading to a $200 million charge against first-quarter net income, according to the statement. Neither the buyer nor terms of the transaction were disclosed.

GE Capital

“A lot of things are getting better around the world, but the Irish mortgage portfolio was one place we didn’t see the outlook improving,” Keith Sherin, GE’s chief financial officer, said in a telephone interview. “We made a determination that the buyer’s bid would be a better deal than to continue to work on that portfolio and try to increase the value over time.”

The sale of the unit, which has $600 million in assets, may be concluded by the end of this year, Sherin said. The business is among the $180 billion of GE Capital assets the company decided to shed after profit plunged during the financial crisis.

GE’s backlog of industrial orders climbed to $201 billion from $200 billion in the fourth quarter of last year. Organic industrial revenue gained 11 percent, the company said.

“It’s very encouraging to see this kind of organic industrial growth,” said Nick Heymann, a New York-based analyst at William Blair & Co. “There’s more evidence of things starting to shift, whether it’s continued strong orders or sales.”

Revenue dropped 8 percent to $35.2 billion, while still beating analysts’ estimates of $34.7 billion.

Net Income

“Today’s results demonstrate that we are achieving industrial growth,” Immelt said in the statement. “We witnessed broad-based strength in orders across all our infrastructure businesses and in both equipment and services.”

Including pension expenses and the effects of the NBC Universal stake sale in the first quarter of 2011, net income dropped 12 percent to $3.03 billion, or 29 cents, from $3.43 billion, or 31 cents.

While GE may pursue smaller acquisitions to supplement businesses it’s already in, the company likely won’t pursue a large takeover in 2012, Immelt said on a conference call with analysts. The company is still digesting $11 billion in energy acquisitions completed through 2011, he told investors in March.

“I just don’t want to do a big deal this year,” he said.


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