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 At a time multinational industrial manufacturers face pressure from
foreign currency swings and weak oil and gas markets, GE and
Honeywell also showed the benefits of being diversified with pockets
of strength in areas such as aerospace.
"Any multinational company in this environment is seeing very little
organic revenue growth and revenue growth declines when you account
for currency weakness," said Jim Corridore, an equity analyst at S&P
Capital IQ. "So you have to find a way to offset that."
GE shares were up 0.9 percent and Honeywell shares rose 1.7 percent
in afternoon trade, outperforming U.S. markets, which weakened
slightly.
Wall Street was encouraged that both companies posted revenue
increases excluding currency swings: 5 percent for GE and 3 percent
for Honeywell.
But the companies also demonstrated they could wring more profits
from those sales. GE's industrial profit margin expanded to 16.2
percent from 15.5 percent a year ago, while Honeywell's margin rose
to 18.4 percent from 16.7 percent.
GE's total costs and expenses were flat compared with a year ago,
despite a 1.5 percent sales increase.
After focusing on sales and administrative costs, GE more recently
started a drive to increase gross product margins. That includes
driving down material prices and becoming more efficient with
manufacturing operations, GE Chief Financial Officer Jeff Bornstein
said in an interview.
"What we are trying to get is more output for the same or less cost,
and on a product-specific basis how do we have the most
cost-competitive products in the world," he said.
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Bornstein said GE was ahead of its plan to remove $600 million in
costs this year for its oil and gas division. Indeed, even though
GE's oil revenue slumped 15 percent, the division's operating profit
fell by a less-severe 12 percent.
"When things are getting more competitive, your ability to get costs
out of your product or your services is absolutely critical," he
said.
In an example of Honeywell seeking more efficiency, Chief Financial
Officer Tom Szlosek said it is examining ways to design products
that require less material or fewer components.
"I wouldn’t say that we’re out to cut costs," Szlosek said in an
interview. "We’re out to operate our enterprise more efficiently,
and in a more economic way."
(Reporting by Lewis Krauskopf; Editing by Peter Galloway)
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