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
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
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.