General Electric full year results are good!

One of the smaller share prices in the Dow Jones and a widely owned stock, General Electric reported numbers on Friday pre the market opening. I love earnings season. After the dust had settled, GE actually closed flat at 19.15. The presentation can be found here -> GE 2011 fourth quarter performance.

The overview section at the beginning of the presentation tells you about all that you need to know, Europe is struggling, the US appliance market is also struggling. But the line that I like the most is the following "Leading indicators encouraging ... strongest orders results in history" In their whole history? Wow. But the real estate business continues to be a drag "4Q earnings (were) better by $256MM, embedded loss in equity business declined by $2.5B in 2011 to $2.6B" Still not good! But I guess that was the result of diversification, the GE Money and real estate businesses seemed like excellent ones at the time.

The Industrial segment of the business grew revenues by 10 percent in the quarter, but reported profits of only two percent more than the same quarter last year. GE Capital saw revenue contract 9 percent for the quarter, but profits were 58 percent higher. Overall earnings were 16 percent lower, on a per share basis it translated to 35 cents, 17 percent worse than this time last year. The quarterly dividend has been increased to 17 cents, comfortably better than in 2010.

For the full year the company made 1.23 cents EPS and paid 61 cents of dividends, the simple valuation metrics sees the stock trade on 15.6 times earnings with a forward dividend yield (17 cents per quarter) of 3.55 percent. Not a very demanding multiple from a historic point of view, and a handsome yield, in a world that is searching hard. Full year revenues were 2 percent less than last year, clocking 147.3 billion Dollars. Costs decreased 6 percent, I guess that is pleasing as stockholders. The lower costs were mostly as a result of lower cost of goods and smaller provisions on receivables.

On a segmental basis the two biggest divisions from a revenue contribution in 2011 are Energy Infrastructure at 29.66 percent, with GE Capital piping it at 31.05 percent. Aviation contributes 12.80 percent to overall revenues and the last division in double digits is Healthcare at 12.28 percent. From a profits point of view, it is a pretty good mix, the aviation business has the best margins at over 18 and a half percent. Most of the other major businesses are around 15 percent. The most profitable two business are Energy Infrastructure at 32.33 percent and GE Capital 31.84 percent. So it is fair to say that it matters what happens to those main two segments in the short term. The fastest growing parts of Energy Infrastructure of course is the oil and gas business, but of course there was a sizeable acquisition there last year.

That is all very nice, but why would you want to own this business? Energy networks of all sorts rolling out faster, infrastructural development still a global theme, healthcare improving for all middle class folks, flying is far cheaper nowadays than it has ever been in the past. So they are certainly in the sweet spot. The future as ever is unknown, but this business has been around for 120 years. The financial services segment is where the issues are for current (or reluctant) investors. But we suspect, like you are seeing now, that business segment is improving. We continue to buy and recommend the stock as a core part of most portfolios.