stabilization in Europe sent General Electric shares to their highest
level since 2008 despite modest quarterly results.
"Orders in the U.S. were the strongest in some time," CEO Jeff Immelt
said on a conference call with investors following the release of the
company's second-quarter results Friday.
Immelt said the U.S. economic environment remained "mixed," but his
outlook marked an improvement from recent quarters, when he expressed
more caution about the U.S. market.
GE, based in Fairfield, Conn., has a broad view of the global economy
because it sells a wide variety of industrial equipment and appliances
around the world, including jet engines, medical diagnostic equipment,
oil and gas drilling equipment and washing machines.
GE's net income rose 6% in the first half of the year, and the
improved outlook raised hopes of even better growth in the second
half.
GE shares rose $1.09, or 4.6%, to $24.72 by midday. They went as high
as $24.95, the highest intraday level since September of 2008, when
the shares were in the midst of a plunge brought on by the financial
crisis.
The recovery in GE shares is not quite complete — shares would have to
rise another 15% to reach the roughly $30 per share they were trading
at before the financial crisis hit.
But the improvement in the company's share price represents confidence
in the company's transformation to a more focused industrial
conglomerate. GE is dramatically shrinking its banking division — the
giant financial services arm that threatened to pull the company apart
during the financial crisis — and shed media and other non-industrial
businesses.
"A GE back to its core roots is a very compelling investment story,"
wrote Scott Davis, an analyst at Barclays. "This is the GE we grew up
with."
At the same time, the company has beefed up divisions that industrial
equipment such as gas-fired turbines and oil and gas drilling
equipment.
GE earned $3.13 billion in the second quarter, up from $3.11 billion a
year earlier. On a per share basis, the company earned 30 cents, up
from 29 cents. Revenue fell 4%, to $35.12 billion from $36.5 billion.
Adjusted to reflect earnings from continuing operations, GE earned 36
cents per share. That's 2 cents less than adjusted earnings last year,
but one cent better than analysts polled by FactSet had expected.
GE said orders for new equipment and services grew 20% in the U.S.
during the quarter. In Europe, orders grew 2% after falling 17% in the
first quarter, helped by oil and gas orders in the North Sea and
aviation equipment and services.
"In the GE world at least (Europe) seems to have stabilized," Immelt said.
Emerging markets remained strong, he said.
The company's total orders for new business rose $7 billion, or 4%,
last quarter to a record $223 billion. Orders for oil and gas drilling
equipment and energy management equipment showed especially strong
growth; orders for transportation and power and water equipment fell.
Profit margins for industrial segments rose 0.5% in the quarter and
remain on track to post growth of 0.7% for the full year, GE said. GE
Capital earnings fell 9% for the year.
Christian Mayes, an analyst at Edward Jones, called the quarter
"ho-hum" but noticed some encouraging signs for GE. Revenue slipped at
the company's power and water division, which sells and services
gas-fired turbines, wind turbines, and water treatment equipment, but
the division's profits returned to more normal levels after a first
quarter he called "a mess."
He was also encouraged by the improved outlook for the U.S., echoing
recent comments by other industrial companies, and by GE's push to
further improve profit margins later this year.
"The back half of the year should be better for GE," he said.
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