Leading diversified conglomerate General Electric (GE, Financial) is going through a major restructuring program. The company is lessening its exposure to GE Capital and expanding its industrial base. Investors are looking confident and happy with the move, but downsizing the financial unit is having a bearing on the company’s results. Here’s a lowdown on General Electric’s latest financial results, the impact of GE Capital on the key numbers, and the company’s prospects going forward.
Quarter in a snapshot
Company CEO Jeff Immelt said that GE performance in the first quarter was good, considering that the environment was volatile. However, infrastructure saw continual growth opportunity. The quarter showed positive results for the company’s industrial businesses, with 14% increase in operating earnings per share. General Electric has also announced its plan to simplify its operations and create greater value to solidify its industrial base by trimming majority of GE Capital assets. This is going to be a crucial strategic step to lift GE’s competitive advantages.
The company saw its revenue drop 3% to $33.1 billion during the quarter. The decline in revenue is attributable to the 7% fall in GE Capital revenue. General Electric’s industrial segment registered a revenue of $24.4 billion for the quarter. The multinational behemoth has seven industrial segments – Power & Water, Aviation, Transportation, Oil & Gas, Healthcare, Appliance and lighting, and Energy Management.
GE Capital exit weighs on earnings
The company’s overall operating earnings had dropped 5% to $3.1 billion, which translates to $0.31 a share. The industrial segment profit stood strong and grew 9% to $3.5 billion compared with a year ago quarter. Five out of seven segments reported positive earnings growth.
Though industrial segment profit improved, General Electric suffered a hefty net loss of $13.6 billion that translates to a loss of $1.25 a share against a net profit of $3 billion in the year ago quarter. The reason being GE Capital reported a loss of $12.5 billion as the division had to take a massive charge of $14 billion in the first quarter. The company has been selling its financial assets in the process of becoming an industrial focused entity.
Driving growth ahead
The earnings figure may have disheartened investors, but that’s part of the transition the company’s going through. Jeff Immelt is confident about the company’s prospects going forward and said, “We have laid out a clear plan to reshape GE for the future. We will reduce the size of our financial business through the sale of most GE Capital assets over the next 24 months, with the potential to return more than $90 billion to investors in dividends, buyback and the Synchrony exchange through 2018. Our industrial businesses are performing well, and we will continue to invest in our competitive advantages built on the GE Store. We will continue to boost margins and returns. This is the plan for the future of GE as a fast-growth, high-tech industrial company.”
Meanwhile, the American conglomerate’s attempt to simplify its operations seems to be proucing positive results. As mentioned by Immelt, General Electric has set a goal of increasing both equipment and service margin in 2015. Already in the first quarter, equipment margin expanded 120 basis points while service improved 70 basis points.
Besides, the company’s strong balance sheet remains one of its strength. General Electric expects to gain efficiency over time and is confident to make its financials even stronger. The company is on track to close the Alstom deal in the second half of this year. Presently even Alstom (ALSMY, Financial) is facing a volatile market as General Electric. Despite current headwinds, GE sees Alstom integration as a great strategic move that should bolster the company’s performance in energy in the future and prove extremely rewarding to its investors. General Electric is fundamentally strong and should see the rewards of its decision in years to come. Investors could hold on to their faith and give the industrial conglomerate a consideration.
