Cost cuts help GE profit beat expectations as order book swells
German chancellor Angela Merkel and chief executive of General Electric Jeff Immelt chat with a worker during a visit of a GE plant in Berlin earlier this month. Photograph: Tobias Schwarz/Reuters
General Electric Co beat quarterly profit expectations, helped by cost cuts and sales of jet engines and oil pumps, sending shares up 4.5 per cent.
Chief executive Jeff Immelt said he was bullish on the company’s prospects for the rest of the year as GE tries to reduce the size of its finance unit and boosts industrial-related sales.
GE said its order book, an indicator of how much work it has received from customers, was up 4 per cent globally and 20 per cent in the United States, jumps that surprised Wall Street. “This is as close as GE comes to a positive surprise as possible,” said Tim Ghriskey of Solaris Asset Management, which owns GE shares.
Some analysts were wary though, hoping the conglomerate will be able to achieve its long-stated goal of boosting 2013 margins by 0.7 per cent.
“That will require Herculean improvement in the second half” of 2013, said Nick Heymann, an analyst at William Blair & Co, which trades GE shares.
The trick is for GE to turn around orders quickly so it can collect revenue from customers. GE cannot recognise the $223 billion in orders as revenue until it actually delivers products to customers.
The world’s largest jet engine manufacturer announced more than $26 billion in jet engine orders last month at the Paris Air Show. Earlier this month, it closed on its nearly $3 billion buyout of oilfield pump maker Lufkin, broadening its offerings of pumps that pull oil and gas to the surface.
Sales in both its oil and gas and aviation units rose 9 per cent in the quarter.
Energy and aviation are considered two of GE’s strongest growth areas, drawing the most optimism from shareholders.
The shrinking of the finance unit, GE Capital, dented overall results, though it has been expected on Wall Street and has been Mr Immelt’s long-stated goal.
GE Capital’s revenue fell 3 per cent from the same period last year and its earnings dropped 9 per cent. The company transferred its chief financial officer, Keith Sherin, to run GE Capital earlier this month, a move designed to help achieve the goal.
GE Capital nearly sank the whole company during the 2008 recession, highlighting why Immelt and his team want to shrink it. Still, the unit brought in nearly one-third of overall quarterly revenue and wrote a $1.9 billion dividend check to its parent company during the quarter, showing just how large it remains. – (Reuters)