GE: Mediocre Results A Disappointment: Company Fails To Reinvent Itself

GE showed the world that it has been unable to transform itself from an unwieldy conglomerate to a company that is worth more than the sum of its parts. The firm says it will increase its M&A activity. Until the results of those efforts are known, GE will remain stuck in mediocrity and unable to satisfy investors

Wall St. expected a fair amount from the world’s largest conglomerate as it reported its most recently quarter. General Electric was expected to have $.27 in EPS on $37.54 billion in revenue for the third quarter, according to Thomson Reuters data. Among other things, Wall St. was acutely concerned about the balance sheet of the GE Capital finance business which was damaged by the credit crisis. The outlook for GE’s huge infrastructure operations was also essential to the reactions of the firm’s long-suffering shareholders.

GE announced third-quarter 2010 earnings from continuing operations of $3.2 billion, with EPS of $.29 per share up 32% from the third quarter of 2009. Revenues were $35.9 billion for the quarter, down 5%–effected by lower equipment sales and reduced GE Capital assets. GE expects fourth-quarter 2010 Industrial revenues to grow sequentially from third quarter and to be about flat with the year-ago period.

Equipment orders increased 9%, including 33% growth in Technology Infrastructure, one of the firm’s flagship divisions

Most of the damage done to GE in the third quarter was due to a steep drop of 14% in revenue at its Energy Infrastructure operations–down to $8.4 billion. Operating income in the division was flat at $1.6 billion. Technology Infrastructure did better. Its revenue was down only 1% to $9.2 billion. It could not, however, transform flat sales into flat operating earnings, which fell 10% to $1.5 billion.

The one jewel in the earnings report was GE’s embattled Capital division, which has revenue that dropped 3% to $11.6 billion. Operating income was $871 million compared to $144 million in the same period a year go. That should allay some fears about the value of its balance sheet. Results from NBCU showed why GE is so anxious to sell a majority of the firm to Comcast. Revenue was flat at $4.1 billion. Operating income fell 15% to $625.

Aside from the move with NBCU, GE has decide to bet its future on its Energy Infrastructure and Technology Infrastructure business, which do not seem to be able to do much other than match the improvement in the global economy, and for now, they are barely able to do that.

GE disappoints, again

Douglas A. McIntyre