GE results sparkle

On Friday we received second quarter results from GE which beat expectations and sent the stock up 4.6%. This is the highest the stock has been since 2008 on the back of strong orders in the US and some stabilisation coming through from Europe. Let's look at the fundamentals and then see what they have to say about their operations. It is a massive industrial conglomerate so it is always very interesting see how their world looks when results are released.


Operating earnings came in at $3.7 billion or $0.36 per share. This is down 5% from the second quarter last year but it is growth in the right places which is encouraging shareholders. Estimates for the full year are for $1.66 which is up 9.2% from last year's $1.52. Trading at 14.9 times this year's earnings and growing just below 10%, I wouldn't call it expensive considering the rest of the market.


The comments from CEO Jeff Immelt were very encouraging: "In the second quarter, GE achieved Industrial segment profit growth in six of seven businesses, reduced structural costs, and continued to invest in growth. We executed in a business environment that was slightly improved versus the first quarter. Emerging markets remain resilient, and in the U.S. we saw strong growth in orders this quarter. Europe is stabilizing but still challenged. We expect margin expansion to continue and segment profits to grow in the second half of the year."


Infrastructure orders were up 4% and the backlog of equipment and services were at their highest level ever, a whopping $223bn. This is very important because this is the part of the business which investors are most interested in. GE Capital, their banking division contributes 30% to revenues and 33% to profits. GE management are trying to decrease the size of the banks portfolio and focus more on the industrial side. GE Capital nearly brought the company to its knees during the financial crisis and if they could find a suitable buyer for its book I am sure many shareholders would be very happy. Earnings fell 9% in this division because of planned asset reductions.


We continue to recommend GE for two reasons. Firstly they are an extremely innovative business with exposure to many exciting sectors. As populations grow and people become more wealthy companies like GE create a better standard of living for the masses. Secondly we feel that if the company were to unlock some value by selling off divisions this would be very beneficial for shareholders. GE Capital is a case in point. Jeff Immelt's comments about the globe in general are also very encouraging for both GE and many other companies. We continue to add to the stock at current levels.