When General Electric (GE) released its third quarter results on October 17, it left investors delighted, as the company is on a fascinating growth track with respect to its earnings from the diverse segments it operates into – which proves that GE knows how to grow. However, the top line numbers missed the analysts' estimates, though they were well above what was reported in the last quarter or even a year ago. Let's take a sneak peek into the financial playbook of GE for better insight on the quarterly results, and try to determine whether GE's growth could be expected to grow rapidly in the near future.
A quick quarter glance
Revenue for the quarter stood at $36.2 billion, compared to $35.73 billion reported last year in the same quarter. Also, earnings saw a clear boost with net income rising to $3.54 billion, or $0.35 per share from $3.19 billion, or $0.31 per share, a year earlier. Analysts had expected GE to report earnings of about $0.37 per share on $36.79 billion in revenue, according to a consensus estimate from Thomson Reuters. But, GE clearly missed to meet consensus both in the top and bottom lines.
Although the quarterly growth missed the analysts' expectations, GE said that the revenue was on track for the higher end of the projected range of 4-7% growth for the fiscal year. GE's strength in the industrial segment remains evident in the third quarter results which saw industrial margins up 0.9 percentage points to 16.3% and industrial profit went up 9% from that reported last year.
Now, let's assess the key drivers driving the success story of GE which just reported a fantastic quarter.
Industrial segment performance on track
The industrial segment drivers were mainly in the aviation and oil and gas sectors which saw rapid growth during the quarter. The industrial segment organic revenue rose by 4% this quarter, and the growth market orders were up by 34%. U.S. orders were also up 25%. During the third quarter, equipment orders were also up 22%. Even the order backlog stood at $250 billion, up $21 billion from that reported last year.
The oil and gas segment's revenue improved 7% year-over-year, while Energy management revenue went down 1% to $1.8 billion. Revenue from Aviation and Transportation rose 6% and 10% to $5.7 billion and $1.5 billion when compared year-over-year, respectively. Meanwhile, the Power & Water segment's revenue plunged 2% year-over-year to $6.4 billion. Both Healthcare and Appliances section were up 5% and 1% respectively, to $4.5 billion and $2.1 billion.
Investors need to take note of GE's expectations from the industrial segment. The company hopes that industrial segment would comprise 75% of its earnings by 2017. GE is also working on the approval process to acquire Alstom (AOMFF) Power and Grid businesses for about $16 billion. The deal would possibly add close to $0.06 to $0.09 per share in 2016, since it's expected to close by end of next year.
The GE aviation wing is looking forward to acquire helicopter lessor Milestone Aviation Group for $1.78 billion; this acquisition is a perfect fit to its strategic plan of "growing the core areas aligned with GE's industrial business."
Cost cutting measures keep margins safe
The company is currently on track to achieve its goal of $1 billion cost-cuts in the fiscal year. By restructuring efforts, the company has been able to reduce the structural costs by $674 million during the first nine months of the year. Since six of the seven business lines showed positive margin growth, margins rose substantially this quarter.
Operating profit in the industrial segment improved 9% to $4.3 billion with cost productivity, while GE Capital profit decrease
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