GE reports solid industrial growth

Earnings up 14% in sector where company has cast its lot

A General Electric employee crosses the factory floor at the GE Aviation Test Operations center in Peebles, Ohio, earlier this week. GE on Friday reported a net first-quarter loss of $13.6 billion.
A General Electric employee crosses the factory floor at the GE Aviation Test Operations center in Peebles, Ohio, earlier this week. GE on Friday reported a net first-quarter loss of $13.6 billion.

General Electric on Friday reported solid profit growth in the first quarter in its industrial business, where it is increasingly betting for the future. The nation's largest industrial corporation announced last week that it was selling off its finance business faster than previously planned.

The company's earnings from its industrial businesses rose 14 percent during the quarter even as industrial revenue was flat, held back by a strong dollar, which reduces reported sales because most of GE's business is abroad.

GE reported a net loss for the quarter of $13.6 billion, reflecting the impact of the company's announcement a week ago that it was accelerating its strategic retreat from its big finance arm, GE Capital. As part of that move, the company said it would take a $16 billion charge in the quarter.

GE operating earnings for the company as a whole, excluding the one-time charge, declined 5 percent, to $3.1 billion, or 31 cents a share. That was slightly above the average estimate from Wall Street analysts of 30 cents a share, as compiled by Thomson Reuters.

Revenue for the quarter was $29.4 billion, down 12 percent from the year-earlier quarter, largely attributable to the intended shrinkage of GE Capital, whose revenue fell 39 percent.

Last week, when GE disclosed its stepped-up return to its industrial roots, the company's executives said the industrial businesses were on track to contribute profits of $1.10 to $1.20 a share -- growth of about 15 percent.

But analysts question how it can deliver sharply rising profits when oil prices have dropped significantly, hitting GE's big unit that sells oil field equipment as oil companies slash exploration and production budgets. The weakness in that business must be made up by a robust performance in the company's other industrial divisions, which sell and service jet engines, power generators, locomotives and medical-imaging equipment.

"The challenge for the year is getting to that high level of profit on the industrial side with a big drop in the oil and gas business," said Nicholas Heymann, an analyst at William Blair and Company.

GE's first-quarter results show some of the paths. Its aviation, power-generation and transportation divisions generated solid growth. Its health care business, which had been sluggish as hospitals held off buying new equipment amid uncertainty over reimbursement policy, picked up somewhat.

Cost cutting is also part of the formula. GE reported that the profit margin in its industrial business rose by more than a percentage point, as expenses were cut.

On April 10, GE announced it was selling off commercial real estate investments valued at $26.5 billion mainly to funds managed by the Blackstone Group, the large private investment firm. And that move, the company said, was one step in a plan to shed $200 million more in assets from GE Capital by 2018, getting rid of not only real estate but also its consumer finance and most of its commercial lending and leasing assets. What will remain of GE Capital will be its financing of industrial equipment purchases by GE customers.

GE has been aggressively paring back its big finance unit since the financial crisis hit in 2008, threatening the company's stability. In good years, GE Capital was a money machine. In 2007, GE Capital contributed 57 percent of corporate operating earnings. By last year, that share was down to 42 percent, with the industrial side accounting for 58 percent.

Under its previous plan, GE Capital's earnings would go down to 25 percent of the corporate total by 2018. Under the accelerated timetable, the finance arm will account for less than 10 percent of GE's operating earnings by then.

Business on 04/18/2015

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