Declines At GE May Be Good Enough (GE)

As far as General Electric Co. (NYSE: GE) and earnings, we felt as though GE was going have to beat earnings expectations handily to keep the investing public interested after the run up we have witnessed.  The conglomerate did turn in a handsome report and shares are not indicated lower.  The company reported that earnings from continuing operations was $2.3 billion, or $0.21 EPS.  Revenues were down 5% to $36.6 billion.  The earnings report is above a Thomson Reuters consensus of $0.16 EPS, but slightly under the revenue estimates of $37.1 billion.

The company noted that the year-over-year revenue drop was primarily due to acceleration of downsizing at GE Capital, as well as the effect of currency exchange rates. Also noted was that positive items were offset by charges in the quarter, as after-tax transaction gains of $0.02 per share were offset by $0.02 per share in after-tax restructuring and other charges.

Industrial cash flow from operations came in at $2.6 billion for the quarter, and more importantly is on track for $13 to $15 billion this year. GE’s company backlog remained steady at $174 billion in orders.  Cash generated from Industrial operating activities in the first three months of 2010 totaled $2.6 billion.

Perhaps the biggest relief is that GE Capital actually MADE $600 million, with pre-tax earnings of $235 million. The company noted that that business is seeing solid signs of stabilization as its losses, delinquencies and its non-earning assets (excluding FAS 167 impact) all declined in the quarter. As we have seen from banks, Ge said that “GE Capital losses seem to have peaked.”

As far as guidance, “GE’s 2010 framework remains achievable with upside potential and we expect to grow earnings for the balance of 2010.”

The company is not committing to formal guidance nor to a solid date on dividends. Jeff Immelt noted, “We may evaluate additional restructuring that will improve our earnings power going forward. We will have substantial cash available for allocation and we expect to grow earnings and dividends in 2011 and beyond.”

• Energy Infrastructure earnings were up 12% at $1.5 billion, while revenue fell 5% to $8.7 billion; Oil & Gas profitability was up 7% and Energy profitability was up 12%.
• Technology Infrastructure earnings fell 18% to $1.4 billion, while revenues was down 9% to $8.6 billion;  Healthcare strength offset pressure in Aviation and Transportation.
• Excluding the Olympics, NBC Universal earnings increased 1% to $199 million on revenues that were flat year-over-year.
• Home & Business Solutions earnings rose 58% to $71 million while revenues grew 1%.

The reality is that this is a report that leaves enough for both bulls and bears to grab what they want.  Profits and revenues are down, but not out of the ordinary and the bottom line came in above what was expected.  The lack of commitment to formal upside and to a formal dividend hike may be a disappointment and our own take is that we really want to see a more formal commitment to that dividend other than a “2011 time frame.”

The market reaction is still hard to garner with 2 hours and thirty minutes until the open, but we have already seen more than 500,000 shares trade and the stock is up around $19.85 to $19.90 after a $19.50 close.  The old 52-week high put in this week was $19.69.

JON C. OGG