Like clockwork, the world's most valuable company met earnings estimates with solid growth in revenues and profits. GE continues to benefit from its increasing services revenue, and from its successful transition to a “new economy” industrial company.
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By
Da numbas
The company reported sales of $32 billion, up 18% over the year-earlier period, with earnings jumping 20% to $3.18 billion and earnings per share (EPS) 19% higher, to $0.32. GE also continued to improve operating margins, which reached 17.6%, above last year's 16.7% (excluding the effects of a retirement benefit change).
The company's many diverse divisions also reported healthy growth. GE Capital Services, the largest commercial financing company in the U.S., reported a 17% earnings increase, to $1.48 billion, almost half of the quarter's profits. The Power Systems division reported 43% growth in revenues, to $3.52 billion, and a 90% jump in orders over last year's third quarter. And despite NBC's Olympic disappointments, GE's broadcasting company increased revenues 76%, to $1.9 billion, though operating profits were only up 10%, to $292 million.
A successful transition
In addition to the company's ability to sell billions of dollars of industrial products, GE's cash flow is benefiting from continuing increases in higher-margin services revenue, and from its "e-business" efforts that make it probably the most successful case study of how to transition an old-line industrial company into the Internet Age.
For example, the company's Power Systems division signed $1.2 billion in service agreements during the quarter, according to the company's news release, and the division now boasts $12.2 billion worth of long-term contracts. The Aircraft Engines unit, which continues to win the majority of the world's orders for aircraft engines, signed almost $1 billion in new multiyear service contracts with airlines such as Qantas and Japan Airlines. These contracts provide long-term recurring revenues that make the company's earnings more reliable and predictable.
In addition, the company is continuing to succeed at "Webifying" its various operations. CEO Jack Welch has predicted that productivity enhancements from increasing business over the Internet may save as much as $12 billion in operating costs over the next 2 1/2 years. Today, the company reported that online orders for the company's Medical Systems unit have now surpassed $1 billion so far this year. And the company's appliance division is aiming to receive 45% of its orders over the Internet, resulting in substantial savings compared to phone and mail-in orders, as Phil Weiss points out in this Fool Research article.
As a result of all this, the company's cash from operations jumped 34% in the first nine months of this year, to $9.9 billion. GE's solid cash flow enables the company to both pay a dividend and repurchase shares. The company is continuing its $22 billion share buyback program, and has spent $17 billion so far to repurchase 943 million shares since December 1994.
Finally, the company stated it is comfortable with full-year earnings estimates of $1.27 per share. Shareholders can be fairly confident the company will hit that target, given its record so far, and should enjoy GE's reliability amidst earnings warnings from so many other companies.
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