 "GE results reflect shift away from finance unit")
General Electric reported second-quarter results on Friday that reflected its steady return to its industrial roots, as the giant conglomerate looks to accelerate the shift.
GE, the largest industrial company in the United States, said revenue from its industrial businesses, with products including jet engines, power generators, oil field machinery and medical imaging equipment, rose 7 per cent. Revenue at its sizable finance unit, GE Capital, declined 6 per cent.
The reduction of the finance side of the GE portfolio is by design, as the company has steadily trimmed its dependence on GE Capital since the financial crisis hit in 2008.
GE also announced on Friday that it intended to spin out its North American consumer-finance business, Synchrony Financial, in an initial public offering in late July. In its filing with the Securities and Exchange Commission, the company said it would sell 15 per cent of the business to the public, 125 million shares, with $24.50 a share as the midpoint of the expected price range. The offering would value Synchrony at roughly $20 billion.
The SEC filing described the offer as "a first step in GE's exit" from the business. The spinoff with an initial public offering yields considerable tax savings compared with the faster path of shedding the consumer finance unit in a sale to another company, Jeffrey S Bornstein, GE's chief financial officer, noted in an interview.
Selling the business to another company, Bornstein said, would involve a sizable tax bill from a cash transaction. In the Synchrony offering, GE shareholders will be offered a tax-free swap, if they choose, of GE shares for Synchrony shares, with the ratio of exchange not yet determined.
The further move away from finance comes only a month after GE agreed to buy the energy businesses of Alstom, a French industrial corporation, for $13.5 billion.
GE says it is on target to reduce the share of its earnings that come from GE Capital to 25 per cent by 2016. Before the financial crisis, the finance unit routinely accounted for more than half its earnings. In the second quarter, GE Capital contributed 43 per cent of the company's earnings.
In a conference call, Jeffrey R Immelt, GE's chief executive, pointed to the Alstom acquisition and the Synchrony spinoff as evidence that the tilt to the industrial business was not only proceeding but also accelerating. "We are boldly reshaping the company," he said.
The second-quarter results showed that GE was willing to sacrifice some revenue growth as it trimmed its finance business.
Total revenue across the corporation rose 3 per cent, to $36.2 billion, from $35.1 billion in the year-earlier quarter. But the total revenue figure was slightly below the average estimate of Wall Street analysts of $36.3 billion, as compiled by Thomson Reuters.
GE reported net income of $3.5 billion, a 13 per cent increase from the year-earlier quarter. The company's operating earnings per share rose 8 percent, to 39 cents a share, which matched analysts' expectations. The percentage gain in net income was higher because it included one-time gains from businesses sold that were not included in operating earnings per share.
The company's three largest industrial businesses - power and water, aviation, and oil and gas - all reported strong growth, ranging from 10 per cent to 20 per cent. The backlog of orders for GE's industrial equipment and services reached a record $246 billion, up $23 billion from the year-ago quarter. And industrial profits outpaced revenue growth, as cost-cutting improved margins.
There were weak spots, including the sales of health care equipment in the United States. The falloff in health care spending seen since the introduction of the Affordable Care Act has left hospitals and clinics reluctant to buy new equipment, like medical-imaging machines.
The solid growth of the overall industrial business helps further the GE strategy. But the recent transactions, analysts note, are really speeding up the industrialisation of the company. The Alstom purchase, for example, is among the largest acquisitions in GE's history. (GE's purchase of RCA in 1986 for $6.4 billion, if adjusted for inflation, would be slightly larger.)
"GE is right in the middle of making major changes, remaking its portfolio," said Steven Winoker, an analyst at Bernstein Research.
FOCUSING OUT
GE's second-quarter results show that GE is willing to sacrifice some revenue growth as it trims its finance business. Here are some of the highlights of its results
GE, the largest industrial company in the United States, said revenue from its industrial businesses, with products including jet engines, power generators, oil field machinery and medical imaging equipment, rose 7 per cent. Revenue at its sizable finance unit, GE Capital, declined 6 per cent.
The reduction of the finance side of the GE portfolio is by design, as the company has steadily trimmed its dependence on GE Capital since the financial crisis hit in 2008.
GE also announced on Friday that it intended to spin out its North American consumer-finance business, Synchrony Financial, in an initial public offering in late July. In its filing with the Securities and Exchange Commission, the company said it would sell 15 per cent of the business to the public, 125 million shares, with $24.50 a share as the midpoint of the expected price range. The offering would value Synchrony at roughly $20 billion.
The SEC filing described the offer as "a first step in GE's exit" from the business. The spinoff with an initial public offering yields considerable tax savings compared with the faster path of shedding the consumer finance unit in a sale to another company, Jeffrey S Bornstein, GE's chief financial officer, noted in an interview.
Selling the business to another company, Bornstein said, would involve a sizable tax bill from a cash transaction. In the Synchrony offering, GE shareholders will be offered a tax-free swap, if they choose, of GE shares for Synchrony shares, with the ratio of exchange not yet determined.
The further move away from finance comes only a month after GE agreed to buy the energy businesses of Alstom, a French industrial corporation, for $13.5 billion.
GE says it is on target to reduce the share of its earnings that come from GE Capital to 25 per cent by 2016. Before the financial crisis, the finance unit routinely accounted for more than half its earnings. In the second quarter, GE Capital contributed 43 per cent of the company's earnings.
In a conference call, Jeffrey R Immelt, GE's chief executive, pointed to the Alstom acquisition and the Synchrony spinoff as evidence that the tilt to the industrial business was not only proceeding but also accelerating. "We are boldly reshaping the company," he said.
The second-quarter results showed that GE was willing to sacrifice some revenue growth as it trimmed its finance business.
Total revenue across the corporation rose 3 per cent, to $36.2 billion, from $35.1 billion in the year-earlier quarter. But the total revenue figure was slightly below the average estimate of Wall Street analysts of $36.3 billion, as compiled by Thomson Reuters.
GE reported net income of $3.5 billion, a 13 per cent increase from the year-earlier quarter. The company's operating earnings per share rose 8 percent, to 39 cents a share, which matched analysts' expectations. The percentage gain in net income was higher because it included one-time gains from businesses sold that were not included in operating earnings per share.
The company's three largest industrial businesses - power and water, aviation, and oil and gas - all reported strong growth, ranging from 10 per cent to 20 per cent. The backlog of orders for GE's industrial equipment and services reached a record $246 billion, up $23 billion from the year-ago quarter. And industrial profits outpaced revenue growth, as cost-cutting improved margins.
There were weak spots, including the sales of health care equipment in the United States. The falloff in health care spending seen since the introduction of the Affordable Care Act has left hospitals and clinics reluctant to buy new equipment, like medical-imaging machines.
The solid growth of the overall industrial business helps further the GE strategy. But the recent transactions, analysts note, are really speeding up the industrialisation of the company. The Alstom purchase, for example, is among the largest acquisitions in GE's history. (GE's purchase of RCA in 1986 for $6.4 billion, if adjusted for inflation, would be slightly larger.)
"GE is right in the middle of making major changes, remaking its portfolio," said Steven Winoker, an analyst at Bernstein Research.
©2014 The New York Times News Service
FOCUSING OUT
GE's second-quarter results show that GE is willing to sacrifice some revenue growth as it trims its finance business. Here are some of the highlights of its results
- GE's revenue from its industrial businesses rose 7%
- Total revenue across the corporation rose 3%, to $36.2 bn, from $35.1 bn in the year-earlier quarter
- GE reported net income of $3.5 bn, a 13% increase from the year-earlier quarter
- Revenue at its sizable finance unit, GE Capital, declined 6%
- The reduction of the finance side of the GE portfolio is by design, as the company has steadily trimmed its dependence on GE Capital since the financial crisis hit in 2008
- GE also intends to spin out its North American consumer-finance business, Synchrony Financial, in an IPO in late July
- GE says it is on target to reduce the share of its earnings that come from GE Capital to 25% by 2016; in the second quarter, GE Capital contributed 43% of the company's earnings