TEXT-S&P: General Electric ratings unaffected by results
Jan 18 - Standard & Poor's Ratings Services said today that General Electric Co.'s (GE; AA+/Stable/A-1+) fourth-quarter 2012 results do not affect our ratings or outlook on the company. Industrial sales were up 2% year over year. Industrial organic revenue growth in the quarter was 4%. The equipment backlog and service backlog both rose sequentially; the total reached a record $210 billion (service backlog was $157 billion). Profitability trends were good. While order pricing for power and water and health care were down, the rest of industrial segments were up. Overall order price rose 0.5%. Industrial segment profit was up 12%, and margins in the quarter rose to 17.3%, up year over year and sequentially. For the year, segment margins were up 30 basis points. Industrial cash from operating activities (CFOA excluding dividends from GE Capital) was $11.4 billion, down 5% for the year (after pension contributions). We assumed industrial CFOA for all of 2012 would be at least $11 billion after pension contributions. GE reported consolidated earnings from continuing operations of $4.4 billion--up 10% from the same period in 2011. Industrial segment profits were all up year over year in the quarter and for all of 2012. We assume margins will improve again in 2013 because of product mix and pricing. This would be consistent with GE's expectation of about a 70 basis point margin expansion this year. GE ended the fourth quarter with industrial parent-level cash of $15.5 billion--well above our assumed ongoing cash balances at the industrial parent of about $8 billion or more. This higher balance largely reflects parent-level debt issued in the fourth quarter to repay the February 2013 maturity of $5 billion. GE previously reduced its expectation for required pension funding significantly between 2012 and 2013, and contributed about $400 million in 2012. Our rating assumption continues to be that GE will address its large postretirement obligation (which represents a majority of adjusted industrial debt), causing credit metrics to improve. The company has stated that its pension strategy (including plan changes) continues to focus on being fully funded in its primary plan. General Electric Capital Corp.'s improved performance continued. Pretax earnings were $1.9 billion, up 11% from 2011, while ending net investment was $419 billion (excluding cash) down 6%. The real estate segment profit was $309 million, compared with a loss in 2011.