Please ensure Javascript is enabled for purposes of website accessibility

The Amazing, Shrinking General Electric

By David Smith – Updated Nov 11, 2016 at 6:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It reports lackluster earnings, then says it's selling off more of its businesses.

I only wish I could shrink as fast as General Electric (NYSE:GE) is planning to. But I can't, and GE can, and so it will. Wisely.

The company ended the week by announcing that it plans to spin off its entire consumer and industrial businesses. That'll get it out of the slow-moving appliance, lighting, motors, and electrical businesses just as soon as the units can be rolled into a separate company and spun off to GE shareholders. That'll probably take place next year.

Also on the way out is its consumer finance business in Japan, which GE said Friday it'll sell to Shinsei Bank for $5.4 billion. Those moves will follow the shedding of the company's flimsy plastics business, which was sold last year to a Saudi Arabian company for $11.6 billion.

GE management obviously hopes that paring those units in favor of concentrating on its faster-growing businesses will boost the company's growth. After a disappointing first quarter and a lackluster second quarter -- which was positive only in that it met expectations -- some punch in the company would be welcomed.

The company's second-quarter results slipped 5.8% from a year ago, with net income coming in at $5.07 billion, or $0.51 per share, compared with $5.4 billion, or $0.52 a share, in the second quarter of 2007. This year's numbers include $400 million for restructuring and other charges. Continuing operations yielded $0.54 a share, comparable to last year. The infrastructure business clearly was the star of the show, chalking up a 24% growth in earnings, with the energy, oil and gas, transportation, and aviation units leading the way.

So GE follows Alcoa (NYSE:AA), which also led off earnings season by reporting lower year-over-year results that nevertheless beat or matched expectations. I'm wondering whether we might be in the early stages of a trend here: pats on the back for big companies with declining earnings that meet or exceed forecasts. Perhaps we'll know more when we hear from the likes of DuPont (NYSE:DD), United Technologies (NYSE:UTX), and Boeing (NYSE:BA).

In the meantime, I'd suggest that Fools let the proof of the pudding be in the results, and resist positions in GE until its restructuring is closer to completion.    

For related Foolishness:

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
GE
$64.55 (-1.24%) $0.81
Alcoa Inc. Stock Quote
Alcoa Inc.
AA
The Boeing Company Stock Quote
The Boeing Company
BA
$131.26 (-5.37%) $-7.45
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$82.03 (-1.70%) $-1.42
E. I. du Pont de Nemours and Company Stock Quote
E. I. du Pont de Nemours and Company
DD

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.