GE: Earnings Drivers Shareholders Must Know

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The Dow Jones Industrial Average finished Friday down over 200 points. General Electric (NYSE:GE) posted third-quarter earnings before the bell, showing increased profit but missing expectations.

Drivers

Some figures attracting attention are an 8.3 percent rise in net income and a 2.8 percent increase in revenue — growth that fell short of analyst estimates. Shares dropped as much as 1.6 percent in pre-market trading, and continue to trade low in the morning.

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Infrastructure orders were down 5 percent to $21.5 billion, a drop GE pins primarily on decreased wind turbine orders.

CEO Jeff Immelt said in the earnings press release, “The overall environment remains challenging, but GE continues to execute on our growth strategy.” He continues, “The global economy is uncertain, and we are prepared for a variety of economic outcomes.” The company clearly sees macroeconomic conditions as an obstacle to higher growth numbers, but reiterates that despite soft earnings it is prepared to weather the storm.

GE has been trimming down its capital arm and focusing on the more profitable mid-market. Profit for the arm rose 11 percent to $1.68 billion while revenue dropped 5.4 percent to $11.37 billion.

The company pointed at a $1.1 billion revenue loss due to foreign-currency exchange rates.

Wind Turbine

The global alternative energy industry is in a tenuous position. As noted, GE’s infrastructure orders were hit by a decrease in wind turbine orders. The Wind Power arm at Siemens (NYSE:SI), which claims about 6.3 percent of market share, may see this as a cautionary tale. Window power infrastructure may not prove to be as powerful a position moving into a future with more rapidly developing solar infrastructure, and a renewed push at oil and gas.

Schlumberger (NYSE:SLB), a competitor in the oil and gas equipment and technology space, might look at GE’s 7 percent rise in orders and $9.5 billion equipment backlog and understand that the company is serious about growth in the area. Oil and gas earnings are up 19 percent for the quarter at GE.

Exchange rate losses and macroeconomic conditions will continue affect international manufacturers across the board. GE is smartly setting itself up to endure by trimming back superfluous segments and aggressively entering emerging markets. GE has announced that it will be restructuring its operations in Europe in order to save as much as $2 billion over the next two years, a strategy that competitors may emulate as the global economy shifts. Cutting back in Europe and exploring options in Asia and the Middle East will be how GE and like-minded companies see growth.

“We’re not assuming Europe gets any better,” says Immelt.

General Electric Earnings Recap

Results: Net income for the diversified operations rose to $4.49 billion (33 cents per share) vs. $3.22 billion (22 centers per share) in the same quarter a year earlier. This marks a rise of 8.3 percent from the year-earlier period.

Revenue: Rose 2.8 percent to $36.35 billion from $35.36 billion.

Actual vs. Wall St. Expectations: General Electric Company reported adjusted net income of 36 cents per share. By that measure, the company fell short of a mean estimate of 37 cents per share. It fell short of the average revenue estimate of $36.8 billion.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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