The U.S. conglomerate, General Electric (GE, Financial), has been a pioneer is almost all its streams of business and the management knows the rules well for growing the company even during financial recession or oil price volatility or any other scenario which serves as a headwind for continued growth. The strength of the company is well demonstrated through the right mapping it does when it picks companies to be acquired and which could create a difference for it in the domain of business. That’s why when Alstom (ALSMY, Financial) deal got initiated it raised several eyebrows of GE’s rivals as this acquisition is expected to create a vital addition to GE’s product line and could boost its top line to a considerable extent. The beauty of GE’s business lies in the diversification of business line across various industries, such that when one industry is down the other might be in the boom thus pulling up sales chart for GE.
Lately, the management has provided prediction on the third quarter numbers of the fiscal year which were pretty bleak for the investors. Yet, investors are holding to the stock and are not short-selling it. Let’s dive in and find out how GE has been growing through the year and what the company expects to see in the upcoming quarters as it enters a new year.
Looking back into the inorganic growth mode
Early this year, the acquisition of Alstom got finalized and is expected to be completed by GE early next year. In fact, analysts have opined that this acquisition would lead to cost savings worth $1.2 billion for the company after five years and would induce accretion of the earnings per share. GE is expecting to enhance its presence in the European region through this deal that would allow GE to expand its energy assets and subsequently improve the performance during the upcoming year.
Acquisition of the Power and Grid business of Alstom would aid GE in growing the revenues of the industry segment which it has indicated to grow phenomenally in the coming years, while reducing the dependence on the financial arm to a considerable extent.
Going ahead in the acquisition spree
As GE is concentrating in the industry segment growth, its emphasizing on growing the subsea technology and operations and in the venture to do so has recently announced closing the deal with Oceaneering International (OII, Financial) to acquire its Subsea Electric Actuator line by the first quarter of next year.
If the deal actually goes through as in currently in the air, it would surely act as a boost to GE’s oil and gas sector as this acquisition would bring subsea technology which could be likely integrated with GE’s existing technology.
Future Guidance weak
When the announcement was made from the company deak last week, it did disappoint several analysts and investors as the company is trying to take a cautious stand. For the third quarter, Ge expects revenue to be around $36.2 billion and earnings of nearly $0.38 a share which does not match the Street expectations.
The company estimates that the industry segment would see a rise in earnings of around 65% in the coming year, while the capital earnings are estimated to the $0.20 less than the current year estimates. In the industry segment, the aviation and the transport division might show considerabke growth the next year, while the healthcare sector is expected to remain flat as far as the growth curve is concerned.
GE’s management have projected that Alstom’s acquisition would boost the Energy management and Lighting Appliances segment in the next year. However, CEO, Jeff Immelt, has taken a cautious stand by announcing that the company earnings might be hurt the coming year due to headwinds such as the continued oil price volatility may act as a hindrance to GE’s progress in its industrial operations.
Last word
The management want to maintain a decent top and bottom line for GE, and thus taking the current scenario into account have provided projections which might look appalling at the first instance. But as the company has solid strategies to grow inorganically as it did in the past decade, investors should not be worried and should relax and keep watching GE’s upcoming moves. Also, as GE has recently improved on its dividend pay-out it does look a lucrative dividend stock for the investors. So, let's stay tuned and keep watching for more news on GE’s progress in the industry segment which comprises the core revenue for the U.S. giant.
