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GE Earnings Bode Well for the Future

Rich Smith
July 21, 2013

The last time General Electric (NYSE: GE) reported earnings, the news spooked investors enough to spark a 4% sell-off in GE stock. But investors had a different reaction entirely to GE earnings on Friday: They bid the stock up 4% (and even a bit more). So the news must have been good, right?

Well, yes and no.

Viewed in isolation, GE earnings Friday were no great shakes. Industrial cash flow from operating activities was $1.55 billion for the quarter, down 10% from last year, while total cash from operations was off by 46%. Q2 profits from continuing operations came in at $0.31 per diluted share on $35.1 billion in revenues. Those numbers were down 9%, and 4%, respectively, from last year's second quarter.

Today versus tomorrow
On the other hand, GE earnings did beat analyst estimates (by a penny). More importantly to investors, the company is showing signs of improved health that bode well for the future.

"Industrial segment profit growth in six of seven businesses" was up year over year, according to GE CEO Jeff Immelt, with industrial profit margins up 50 basis points. Meanwhile, structural costs are down. And perhaps most importantly, the "business environment ... was slightly improved versus the first quarter," with