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 GE, which is increasingly focusing on its traditional manufacturing
businesses over its finance unit, posted an 8 percent increase in
industrial revenue, even as overall company revenue fell slightly
short of Wall Street's target.
GE shares rose 2.4 percent to $26.74 in afternoon trading as profit
also edged past analyst estimates.
"The big story is the organic revenue growth," said Tim Ghriskey,
chief investment officer of Solaris Asset Management, which owns GE
shares. "It really shows the return to an industrial emphasis is
paying off, and where the company is focusing."
The results underscored GE Chief Executive Officer Jeff Immelt's
strategy to focus the company even more on manufacturing of large
industrial products as he reduces the company's dependence on its GE
Capital finance unit. Immelt is also seeking to improve profit
margins and slash administrative costs at the 307,000-employee
company.
Still, GE said it plans to divest $4 billion worth of industrial
businesses this year as the conglomerate focuses its portfolio on
high-returning businesses. The company is already in the process of
spinning off its North American retail finance business as it seeks
to reduce the contribution from GE Capital to 30 percent of company
profits by 2016, compared to about 45 percent in 2013.
"We are more active on the divestiture front this year," Immelt told
analysts on a conference call.
GE also is targeting acquisitions in the $1 billion to $4 billion
range, although it would consider spending more if the deal was
"absolute strike zone," Chief Financial Officer Jeff Bornstein said
in an interview, including targets that fit with its main businesses
and offer significant cost savings.
Many conglomerates want to step up dealmaking but also must grapple
with targets being expensive due to the rising stock market, a
perspective that Bornstein echoed.
"Valuations are quite high and we will be very selective in what we
do," Bornstein said.
Rival U.S. diversified manufacturer Honeywell International Inc <HON.N>
also posted slightly better-than-expected profit on Thursday, helped
by sales of its automobile turbochargers in the United States and
China.
Honeywell shares were little changed on Thursday. But its shares
this year have still outperformed those of GE, which through
Wednesday had declined about 7 percent in 2014, worse than
industrial rivals and the broader U.S. markets.
GE's first-quarter net earnings fell to $3 billion, or 30 cents per
share, from $3.53 billion, or 34 cents per share, a year ago, when
the company's results were boosted by its sale of NBCUniversal.
Excluding one-time items, operating earnings of 33 cents topped
analysts' average estimate by a penny, according to Thomson Reuters
I/B/E/S.
Revenue fell 2.1 percent to $34.18 billion. Analysts were looking
for $34.36 billion.
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Revenue in its two largest industrial segments, aviation and power
and water, each rose 14 percent, while its oil and gas division
posted a 27 percent increase.
As expected, GE's transportation segment that makes locomotives was
weak due to a poor environment for the mining sector. But its
healthcare unit, which makes an array of MRI and other scanning
machines, saw revenue slip 2 percent where some analysts were
expecting growth.
"Healthcare was pretty weak," said Perry Adams, a portfolio manager
at Northwestern Bank.
With a "massive structural change" in the U.S. healthcare market
caused in part by President Barack Obama's healthcare law, Bornstein
said hospitals and other GE customers may have been more cautious
about spending.
"I expect that softness to persist into the second quarter,"
Bornstein said, but he said the company expects healthcare to
increase profits globally this year.
GE's profit margins for its industrials businesses, a closely
watched measure, improved to 13.4 percent from 12.9 percent a year
earlier.
That margin improvement was "actually a little shy of what I would
have expected," said Jack DeGan, chief investment officer at Harbor
Advisory Corp, which owns GE shares.
Still, DeGan said, "the thing that surprised me was that organic
growth was 8 percent when they were targeting for the year, 4 to 7
percent. To do that in the environment that we're in, indicates that
as a whole they operated well in the first quarter."
GE's backlog of orders for everything from oil pumps to jet engines
and turbines stood at $245 billion. Infrastructure orders for the
quarter were $23.7 billion, unchanged from a year ago, disappointing
some analysts.
GE backed its previous major 2014 financial targets, including the
expectation of industrial profits growing by at least 10 percent.
(Reporting by Lewis Krauskopf and Ernest Scheyder;
editing by
Franklin Paul, Chizu Nomiyama and Meredith Mazzilli)
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