General Electric results, a meet on the bottom, a miss on the top

On Friday we received third quarter numbers from one of our biggest holdings in New York, the massive conglomerate General Electric. This company who has businesses all over the world breaks up their interests into two main categories, Infrastructure and Finance. Infrastructure includes GE's involvement in manufacturing equipment for energy, health, transportation and technology. The finance division works like a bank with a more focused structure helping GE as a whole capitalise on market specific opportunities, according to their website.


Of their $36.3bn revenue for the quarter, $24.7bn came from industrial sales while $11.4bn came from capital revenue from the financial division. This was up 3% from last year thanks to 7% growth from industrial sales despite a 5% decrease in their financial division. That is because they are trying to decrease their reliance on this division going forward. It is a strategy we are happy with as you will know our long term positivity on the big banks is very muted mainly due to risks and regulations.


The infrastructure division is of course further broken down. Here is the revenue breakdown. Energy $12.1bn, aviation $4.8bn, healthcare $4.3bn, transport $1.4bn, Home & Business Solutions $2.2bn. All this revenue amounted to $3.8bn of operating earnings which was up 10% from last year thanks to efficient cost cutting. Per share this equated to 33c which was below expectations of 36c. The stock is expected to make $1.55 for the full year. Currently at $22 they are trading on forward 2012 earnings of 14.3. For a company looking to grow earnings around 12% next year I would say that is fair.


We feel the company is exposed to the right sectors. As the global economy grows the demand for energy, healthcare and transport will certainly increase. They have a massive alternative energy division so if you are looking for a green investment GE fits the requirements. They have been focusing heavily on developing markets which is now responsible for $8.9bn of their industrial revenue. Like I mentioned earlier, we are happy with their strategy to become less reliant on GE capital. This also has a negative impact on current growth with the future in mind.


Earnings were a miss which caused the stock to fall over 3%. It is however up 27% so far this year so the market had high expectations. Sales targets were trimmed which is a theme we have seen this earnings season as top line growth slows down. There is only so much cost cutting a company can do but we are positive this will turn for GE and the whole US economy as the housing market starts pushing confidence. We will carry on adding to this stock, especially when it pulls back like Friday.