3 Key Takeaways From General Electric Company's Earnings Report

Here's what you need to know about GE's year thus far.

Apr 17, 2014 at 6:25PM

For the first quarter of 2014, General Electric reported strong sales growth that was bolstered in large part by its industrial businesses. Organic revenue, in fact, increased 8% for the quarter across the industrial units, beating GE's own expectations of 4%-7% during the first three months of the fiscal year. Earnings per share, meanwhile, declined 15% including one-time events from 2013, but reflected an increase of 9% when excluding those events.

From a broader perspective, the quarter provided reassurance for GE investors about the year ahead, with management describing the economic environment as "generally positive" and the typically lackluster European market as "better than expected." As the momentum builds in a positive direction, here are three key takeaways for investors to digest from the conglomerate's most recent quarter:

Source Flickr Jeffrey Turner

Source: Flickr/JeffreyTurner.

1. GE is on firmer footing in 2014
At this point in 2013, GE's first quarter was tainted by a 17% decline in European orders, leading The Wall Street Journal to remark that the continent across the pond had "sapped its industrial businesses." Expectations for the year were ratcheted down and management was highly concerned about the tumultuous economic environment.

Fast-forward 12 months, however, and those days of severe uncertainty are but a distant memory. GE posted steady growth in its core industrial businesses, offset slightly by the planned downsizing of GE Capital. Overall, revenues were $34.2 billion, or 2% shy of the year-ago period.

On the bottom line, GE is generating healthy earnings and cash flow. Operating earnings amounted to $3.3 billion for the quarter while cash generation totaled $1.7 billion, including $500 million in a cash dividend from GE Capital.

Relative to last year's shaky start, GE appears to be performing in a manner that aligns with the goals set in its 2014 operating framework. While the first quarter is often the slowest for manufacturing companies, GE managed to boost industrial segment profits by 12%, keep infrastructure orders on par, and increase profitability by 50 basis points versus the prior year. Early readings of the company's performance indicate GE's in a much better position this go-round.

2. Industrial revenue and profits are expanding in lockstep.
As GE looks to spinoff a sizable portion of its financing arm, GE Capital, all eyes are on the industrial businesses that will be critical to fuel future earnings growth. So far in 2014, signs point to a well-tuned engine in the core areas of the business, despite the lumpiness of the individual segments. Here's an illustration of the sales growth across GE's seven industrial units during the latest quarter:


As you can see, these specific operations -- at least on an individual basis -- move at their own speed, and that goes for their earnings performance as well. Nevertheless, one of the benefits of running a conglomerate is that the sum of several distinct parts can lead to moderated but positive growth for the whole. This is truly the case for GE due to the ebbs and flows of business cycles, seasonality, and investment timing. In the first quarter of 2014, revenue for all segments combined ticked up by 8% and segment profits followed in lockstep with a 12% overall increase.

3. GE Capital's humming along ahead of partial spin-off
Summer is right around the corner, and with the new season comes the highly anticipated IPO spinoff of GE Capital's North American retail finance unit. Before GE parts ways with what will be known as Synchrony Financial, however, the company is polishing off its balance sheet to inspire confidence in potential investors.

One measure of banking resiliency that's become widely cited by analysts and pundits since the financial crisis is the Tier 1 common ratio, which provides a gauge of a lender's capital adequacy. In this regard, GE Capital appears increasingly well fortified. During the first quarter, GE Capital posted a Tier 1 common ratio of 11.4%, up 32 basis points and nearly double the required 6% benchmark for a firm to be considered "well-capitalized."

On its own, GE Capital's revenue declined 8% while profits were flat for the quarter. Four out of its five financial segments posted profit growth, however, as GE is positioning its banking arm to grow at a pace on par with the industrial business after the spin-off.

Where's the upside from here?
Despite last year's rough start, management retooled their game plan and 2013 proved to be a prosperous year for both the company and investors. During that time frame, GE's stock price increased by 24% from mid-April through the end of the year.

A year later, GE has a lot more wind in its sails, but the expectations from the market look reasonable going forward. GE still trades at a discount to its peers at 18 times trailing earnings relative to the industry average of 21 times earnings. And until the financial spinoff is complete, that discount is likely to persist.

The market, on the whole, seems keen on waiting to see how the spinoff shakes out, but GE's industrial businesses keep picking up momentum. If you expect that to continue, there's no reason to sit on the sidelines with this stock.

Hq Upstatenyer

Former GE headquarters building. Source: Wikipedia/UpstateNYer.

Three stocks poised to be multibaggers
Cutting-edge engineers at GE believe the collision between manufacturing, computing, and 3-D printing will usher in some of the most promising technological advancements in decades. You can invest in these game-changing projects alongside companies like GE by identifying the right stocks in the current market. Our top-notch analysts have unveiled three stock picks that they believe could generate the phenomenal returns in the years to come. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Isaac Pino, CPA and The Motley Fool own shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers