General Electric (GE) Slumps Despite Strong 1Q Earnings

Shares of General Electric (GE) slid last week, after the company followed up strong first quarter earnings with lackluster guidance. For its first quarter, GE earned $0.34 per share, or $3.53 billion, a 16% rise from the $0.29 per share, or $3.03 billion, it earned in the prior year quarter. On an adjusted basis, GE earned $0.35 per share, matching the Thomson Reuters' analyst consensus estimate. The adjusted earnings included proceeds from its exit from NBCUniversal and higher revenues from its finance division, GE Capital.

Revenue came in at $35 billion, flat from the previous year but topping the analyst estimate of $34.5 billion. Daily Chart
Analysts had been increasingly concerned that GE was overly dependent on its finance arm, which sank the company during the financial crisis of 2008-2009. The company attributed 46% of its 2012 pre-tax earnings to GE Capital - a figure that analysts such as Nomura Securities analyst Shannon O'Callaghan believes needs to come down to 30% to 35% to better insulate the company from unpredictable financial headwinds. GE's industrial business, which is often used as a bellwether of global economic health due to its wide exposure to a wide range of industries, reported a 6% decline to $22.67 billion. GE attributed the decline in the unit, which produces industrial components ranging from jet engines to medical equipment, to lower sales of generators for electrical power plants and wind turbines. A weak macro environment in the United States and Europe has led to a decline in energy usage, which caused demand for generators to wane. Many clean energy investment subsidies have also been phased out, due to widespread government cost-cutting measures both at home and abroad, which adversely impacted wind turbine sales. This also led to revenue losses from services and maintenance of these components. GE's power and water unit, a segment of the industrial segment, posted a 26% decline in revenue to $4.8 billion. Excluding that big decline, the industrial unit would actually have grown during the first quarter. "This is a power and water story," stated CFO Keith S. Sherin. These declines were offset by gains in its aviation and oil & gas equipment units, as well as GE Capital. GE's aviation unit, which primarily produces jet engines, posted 47% sales growth, while its oil and gas equipment segment rose by 24%. GE is not alone in its struggles. Other big industrial equipment companies such as Siemens, Honeywell and United Technologies are expected to face major challenges in the first half of 2013. Looking forward into the rest of 2013, its backlog rose to $216 billion, a historical high for the company, which bodes well for a stronger second half of the year. However, the company's European business, which posted a 17% decline in sales, isn't expected to improve anytime soon. To offset some of those losses, GE intends to cut costs by $1 billion by the end of the year, and spend $18 billion on dividend payments and share buybacks. Other News About GE G.E. Reports a 16% Rise in Quarterly Profit GE slumps despite strong first quarter earnings. Why I Would Sell GE The bearish case against GE. Other Stocks in the News Is This Search Giant Back on Track? Is Mayer steering Yahoo in the right direction? ShouldYouInvest inThisToyStory? Why is Mattel a better stock to own than Hasbro? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Apr 22, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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