(Adds CFO comments, updates share price)
By Lewis Krauskopf and Ernest Scheyder
April 17 General Electric Co posted a 12
percent rise in overall industrial profits on Thursday, as
strength in its businesses selling gas turbines, jet engines and
oil industry equipment offset weakness in healthcare and
GE, which is increasingly focusing on its traditional
manufacturing businesses over its finance unit, posted an 8
percent increase in industrial revenue, even as overall company
revenue fell slightly short of Wall Street's target.
GE shares rose 2.4 percent to $26.74 in afternoon trading as
profit also edged past analyst estimates.
"The big story is the organic revenue growth," said Tim
Ghriskey, chief investment officer of Solaris Asset Management,
which owns GE shares. "It really shows the return to an
industrial emphasis is paying off, and where the company is
The results underscored GE Chief Executive Officer Jeff
Immelt's strategy to focus the company even more on
manufacturing of large industrial products as he reduces the
company's dependence on its GE Capital finance unit. Immelt is
also seeking to improve profit margins and slash administrative
costs at the 307,000-employee company.
Still, GE said it plans to divest $4 billion worth of
industrial businesses this year as the conglomerate focuses its
portfolio on high-returning businesses. The company is already
in the process of spinning off its North American retail finance
business as it seeks to reduce the contribution from GE Capital
to 30 percent of company profits by 2016, compared to about 45
percent in 2013.
"We are more active on the divestiture front this year,"
Immelt told analysts on a conference call.
GE also is targeting acquisitions in the $1 billion to $4
billion range, although it would consider spending more if the
deal was "absolute strike zone," Chief Financial Officer Jeff
Bornstein said in an interview, including targets that fit with
its main businesses and offer significant cost savings.
Many conglomerates want to step up dealmaking but also must
grapple with targets being expensive due to the rising stock
market, a perspective that Bornstein echoed.
"Valuations are quite high and we will be very selective in
what we do," Bornstein said.
Rival U.S. diversified manufacturer Honeywell International
Inc also posted slightly better-than-expected profit on
Thursday, helped by sales of its automobile turbochargers in the
United States and China.
Honeywell shares were little changed on Thursday. But its
shares this year have still outperformed those of GE, which
through Wednesday had declined about 7 percent in 2014, worse
than industrial rivals and the broader U.S. markets.
GE's first-quarter net earnings fell to $3 billion, or 30
cents per share, from $3.53 billion, or 34 cents per share, a
year ago, when the company's results were boosted by its sale of
Excluding one-time items, operating earnings of 33 cents
topped analysts' average estimate by a penny, according to
Thomson Reuters I/B/E/S.
Revenue fell 2.1 percent to $34.18 billion. Analysts were
looking for $34.36 billion.
Revenue in its two largest industrial segments, aviation and
power and water, each rose 14 percent, while its oil and gas
division posted a 27 percent increase.
As expected, GE's transportation segment that makes
locomotives was weak due to a poor environment for the mining
sector. But its healthcare unit, which makes an array of MRI and
other scanning machines, saw revenue slip 2 percent where some
analysts were expecting growth.
"Healthcare was pretty weak," said Perry Adams, a portfolio
manager at Northwestern Bank.
With a "massive structural change" in the U.S. healthcare
market caused in part by President Barack Obama's healthcare
law, Bornstein said hospitals and other GE customers may have
been more cautious about spending.
"I expect that softness to persist into the second quarter,"
Bornstein said, but he said the company expects healthcare to
increase profits globally this year.
GE's profit margins for its industrials businesses, a
closely watched measure, improved to 13.4 percent from 12.9
percent a year earlier.
That margin improvement was "actually a little shy of what I
would have expected," said Jack DeGan, chief investment officer
at Harbor Advisory Corp, which owns GE shares.
Still, DeGan said, "the thing that surprised me was that
organic growth was 8 percent when they were targeting for the
year, 4 to 7 percent. To do that in the environment that we're
in, indicates that as a whole they operated well in the first
GE's backlog of orders for everything from oil pumps to jet
engines and turbines stood at $245 billion. Infrastructure
orders for the quarter were $23.7 billion, unchanged from a year
ago, disappointing some analysts.
GE backed its previous major 2014 financial targets,
including the expectation of industrial profits growing by at
least 10 percent.
(Reporting by Lewis Krauskopf and Ernest Scheyder; Editing by
Franklin Paul, Chizu Nomiyama and Meredith Mazzilli)