General Electric Outperforms - Analyst Blog

General Electric Company (GE) released its fourth quarter 2010 earnings results before the opening bell today, reporting earnings per share from continuing operations of $0.36, above the Zacks Consensus Estimate of $0.32, up 33% year over year. This was the third consecutive quarter in which the company witnessed strong growth in earnings.

For full year 2010, earnings per share from continuing operation were $1.15, beating the Zacks consensus Estimate by 3 cents and increasing by 15% from 2009.

Revenue

Total revenue in the quarter inched up for the first time in nine quarters by 1% to $41.4 billion, above the Zacks Consensus Estimate of $33.7 billion. The company continues to benefit from the improving economic environment. Full year revenues were $150.2 billion, down 3% year over year but above the Zacks Consensus Estimate of $144.4 billion.

Total orders in the quarter increased by 12% year over year, with the total backlog reaching a record level of $175 billion, up $3.1 billion. Orders for equipments increased by 20% and for services were up 5%. Orders in Energy Infrastructure surged 4%.

Segment Details

Energy Infrastructure revenue for the quarter decreased by 3% year over year to $11.0 billion. Technology Infrastructure revenue was $10.9 billion, up 9%. Revenues at NBC Universal increased by 12% to $4.8 billion.

GE Capital revenue declined by 4% to $11.9 billion, while Home & Business Solutions revenue increased by 5% to 2.3 billion.

Income

Total segment profit was $6.1 billion in the quarter, an increase of 28% year over year. Net Income from continuing operations in the quarter was $4.2 billion, an increase of 34%.

Despite the company's increasing R&D investment, industrial margins (excluding NBC Universal) increased by 10 bps year over year to 17.5% in the quarter. During the year, GE increased its total investment in R&D by 21%.

Balance Sheet

The company continues to maintain a strong cash position. Cash and marketable securities was $122.9 billion with shareowner's equity of $118.9 billion. Borrowings and bank deposits amounted to $478.6 billion at the end of the year.

The company generated $4.6 billion of cash from its industrial operating activities in the fourth quarter, amounting to $14.7 billion for the full year.

Acquisitions

In the last three quarters of 2010, General Electric made or announced a number of acquisitions. GE Healthcare completed its $580 million acquisition of a leading molecular diagnostics company, Clarient. GE Oil & Gas revealed its plans to acquire Wellstream Holdings plc, a leading engineer and manufacturer of pipeline products for oil and gas industry, for $1.3 billion.

Further, GE Energy plans to make a $3 billion acquisition of Dresser Inc., a worldwide provider of energy infrastructure technology and service. GE Energy also plans to acquire Lineage Power Holdings Inc. for $520 million.

Outlook

The company expects its earnings to continue to expand in 2011 and 2012. General Electric plans to maintain a disciplined allocation of its capital spending between dividend payments, acquisition and share repurchases.

General Electric has one of the best infrastructure franchises worldwide with solid organic growth rates, exposure to favorable secular trends and a large installed base supporting a growing annuity-like service business. Infrastructure businesses of the company are helping to build energy, health, transportation and technology infrastructure of the new century.

GE Healthcare has expertise in medical imaging and information technologies, medical diagnostics, patient monitoring systems, disease research, drug discovery and biopharmaceutical manufacturing technologies.

General Electric, however, operates in a highly competitive climate, characterized by changing technology that requires continuing research and development. The company remains focused on product leadership, expanding its core technologies, and creating a lower cost position.  However, the company's global expansion is subject to economic and political risks pertaining to diverse operating geographies.

Operating in more than 100 countries globally and employing about 300,000 people worldwide, General Electric Co. is a diversified infrastructure, finance and media company.  Major competitors of General Electric are Citigroup Inc. (C), Koninklijke Philips Electronics NV (PHG) and Siemens AG (SI).

We currently maintain our Neutral rating on General Electric, with a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.

 
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