GE beats estimates with gains in aviation, transport

  • Bloomberg News
  • Friday, October 16, 2015 3:58pm
  • Business

NEW YORK — General Electric Co. beat analysts’ third- quarter earnings estimates, buoyed by gains in the aviation and transportation units, as the industrial giant re-emphasized manufacturing and accelerated a retreat from finance.

The shares rallied Friday, reaching the highest in intraday trading since September 2008. The dark cloud: Sales fell short of projections, dragged down by the oil and gas unit. Industrial orders declined as the rout in global crude markets sapped demand for equipment.

“From an operational execution standpoint, it was good,” said Nicholas Heymann, a William Blair &Co. analyst who upgraded GE to outperform from market perform this week. “Orders were the big concern, down 23 percent organically. My sense is we’re really not going to see higher oil and gas orders until ‘17.”

The results capped a quarter of dramatic portfolio reshaping, with Chief Executive Officer Jeffrey Immelt shrinking GE Capital and beefing up the divisions making products such as jet engines and locomotives. GE agreed to divest billions of dollars in GE Capital assets, and is now poised to close “within weeks” on its 8.5 billion-euro ($9.64 billion) acquisition of Alstom SA’s energy business.

A long-expected share exchange in Synchrony Financial is set to start next week, GE said, as the company sheds a majority stake in GE Capital’s former North American retail finance unit. Finishing the split-off will help position GE Capital to apply in the first quarter to drop its federal designation as a systemically important financial institution.

Proceeds from Synchrony should be $18 billion to $21 billion, GE said. That could produce a buyback of as many as 750 million shares, the company said.

Adjusted profit was $2.9 billion, excluding portions of the lending unit set for divestiture, GE said in a statement. The per-share figure of 29 cents topped the 26-cent average of 13 estimates compiled by Bloomberg. Revenue of $27.9 billion missed analysts’ average estimate of $28.6 billion.

Revenue in the oil and gas unit fell 16 percent, while health-care sales dropped 5 percent. Sales increased 5 percent in the aviation division and 3 percent in transportation.

“We’re a long-term player in oil and gas,” Immelt said on a conference call with analysts and investors. “We like the industry, we’re committed to the industry.”

For 2015, earnings in the manufacturing units will be $1.13 to $1.20 a share, GE said, reaffirming an earlier forecast. Immelt said GE may finish toward the high end of that range if the sale of the appliance unit to Sweden’s Electrolux AB goes through. The U.S. Justice Department has filed an antitrust suit to block the deal.

“We still expect appliances to close in the quarter,” Immelt said on the call. “I don’t see any reason why we shouldn’t.”

Immelt’s strategic shifts gained additional urgency this month after Nelson Peltz’s activist investment firm Trian Fund Management LP disclosed a $2.5 billion stake in GE. While supporting the GE Capital divestitures, Trian said it wants to see Immelt follow through on the plan and other efforts to boost margins.

The Synchrony share exchange is the latest in a series of moves to shrink GE Capital, which was once so large it imperiled the parent company during the financial crisis. This week, GE agreed to sell $32 billion of lending assets to Wells Fargo &Co., adding to a series of deals during the third quarter and bringing the agreed-upon disposals this year to $126 billion.

With a smaller lending business, GE Capital’s third-quarter sales fell 1 percent.

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