The General Electric Company (NYSE:GE) came out with its fiscal 2014 second quarter earnings on July 18, and the numbers have painted a more than interesting picture for the American conglomerate. While the company didn’t provide guidance figures, analysts following the stock were expecting average earnings of $0.39 per share, and GE was able to deliver this. The company reported operating EPS of $0.39 a share, up 8% from the prior year period. Let’s take a quick plunge in the number pool.
The Numbers of the Quarter
Analysts and industry experts are pretty satisfied with the numbers that the company posted. Let’s start with the revenue that GE generated and then work our way down. The top line surged 3.2% to $36.23 billion, up from the prior year second quarter’s $35.12 billion, and the industrial segment was the big winner, registering a 7% rise year on year.
The company has been working hard to reduce its dependence upon the sectors that are not considered to be core to GE’s operations and increase the support of the industrial segment to total revenues. By 2016, GE wants to earn 75% and more of its revenues from the industrial segment. So, the numbers of the quarter are suggesting that the company is making all the right choices to achieve its goal.
- Warning! GuruFocus has detected 8 Warning Signs with GE. Click here to check it out.
- GE 15-Year Financial Data
- The intrinsic value of GE
- Peter Lynch Chart of GE
General Electric F404 turbofan engine for F/A-18 Hornet. Source: Flickr
Next, let’s move on to the bottom line. GE’s GAAP net income rose 13% at $3.55 billion or $0.35 per share, up from $3.13 billion or $0.30 per share of the previous year’s same quarter. However, after making adjustments for the one-time costs and discontinued operations, the EPS comes to $0.39, in line with what Yahoo analysts had predicted. The primary boost to the bottom line came from the company’s Aviation and Oil & Gas businesses. Even the improving global economy was responsible for the robust numbers.
Now, looking at the segment wise improvements, the industrials segment again made its mark with a whopping 9% surge in the segment profits over the same comparative period. The segment comprises seven sub-segments and among them the Oil & Gas division registered the highest growth (25% yoy), followed by the Aviation wing (12% yoy). The cash position of the company also looked well at the end of the quarter. Total cash generated by GE’s operating activities was $3.4 billion and the industrial segment contributed $2 billion to it.
What Else Is Going On?
GE’s results clearly indicate the shifting focus of the company from its finance wing to its industrial business. In line with CEO Jeff Immelt's strategy, GE Capital continued to shrink. Excluding cash and cash equivalents, the ENI stood at $371 billion, down 5% compared to the previous year. The company plans to spin off its North American Retail Finance business and then make it’s a separate publicly traded entity. The entire process is targeted to get over by the end of July this year. GE intends to part with 15% of the unit and thus raise $3.1 billion in the process.
The company is also said to be in talks with multiple parties to sell off its Appliacnes & Lighting division. During 2013, the segment had contributed only 6% to the total segment revenues and less than 2% to the segment profits. Like I already mentioned, Jeff wants GE to become lean and agile and in order for that to happen, he is ready to do away with any division that doesn’t contribute massively and isn’t considered a core component.
So, a lot of restructuring is going on at GE. The deal with Alstom got acceptance from both Alstom board and the French government during the quarter, and according to sources familiar with the matter, all activities related to the transition are on track and should be completed by 2015. GE expects the synergies will add another $0.06 to $0.09 to GE’s EPS.
Things are looking great at GE. Segments are performing as desired and Jeff is able to achieve milestones that should lead to a stronger, leaner and more agile GE. The small headwinds that the company is facing will fall short in comparison to the huge upside potential the company has. The management is positive about the company’s prospects and expect the performance to improve significantly by the end of the year. In short, GE had a great quarter and reported some very encouraging numbers.